Use Care When Repairing Quake Damage

QUESTION: My association is forging ahead and hiring contractors to make earthquake repairs without properly checking references and the contractors’ licenses. What information should be obtained before the work is commenced?

ANSWER: It is especially important to be cautious about your procedures during disaster recovery. There are some contractors who assume that you will not check their references or qualifications, so they will be trying to take advantage of you.

Do not pay deposits for purchasing supplies or other expenses without thoroughly checking licenses, bonds and insurance. Besides checking with others who have had work done by these contractors, you should receive certificates of insurance directly from the contractor’s insurance agent. Check with the association’s insurance agent to find out the amount of coverage that the association should be requiring from the contractors. The contractor should have general liability insurance, vehicle insurance and worker’s compensation insurance covering any employees.

Call the State Contractor’s License Board at (800) 321-2752. This number is answered 24 hours a day. If you have a touch-tone phone, you can enter the six-digit license number that you obtain from the contractor. By following the phone instructions, you can verify the license number and find out when the license expires, the type of licenses that the contractor holds, bonding information and then companies holding the bonds. In addition, the recorded message will explain how to obtain information about any consumer complaints that have been filed with the state board about the contractor and how those complaints have been resolved.

Review carefully the estimate that the contractor provides. In some cases, it may be the only agreement that is signed, so be sure that it includes all of the exact specifications that you need, such as description of materials that will be used, responsibility for permits, the payment schedule, completion dates, clean up requirements, lien release and grievance procedures.

If the cost of the project exceeds $1,000, it would be advisable to have the association’s attorney review the agreement, the certificates of insurance and other information prior to signing with the contractor.

The time and expense that it takes to check out your contractors and verify the information that they provide will reduce or eliminate additional time, expense and liability for the association if problems arise while the work is being done or after the project is completed.

Must Association Follow Its Bylaws?

Q: Several months ago my partner and I purchased a unit in an upscale condominium association as an investment. At that time, we did not know about the association’s lack of compliance with the governing documents. Now that we are aware of some problems, we would like your advice about the way the association is being operated.

Here are some of our concerns:

1--A special assessment was voted upon at the annual meeting without prior notice to the owners that a vote would be taken.

2--The board of directors has been setting an unrealistic budget each year, deliberately keeping the monthly assessments at a low amount, and then passing a special assessment each year to replenish reserve funds that are used for operating expenses.

3--The declaration states that the fiscal year must coincide with the calendar year but the board has established July 31 as the fiscal year-end.

4--The board has not mailed out the annual budget or the year-end audit.

Perhaps we would not have purchased the unit if we had known about the association’s failure to abide by the declaration and bylaws. Now that we are owners, we would like to protect our investment by urging the board to improve their procedures.

We would appreciate your comments on the board’s current practices. One board member says that they can run the association the way that the owners want. Does the board have the authority to disregard the association’s governing documents?

A: The board has an obligation to protect every owner’s investment by upholding and enforcing the declaration of covenants, conditions and restrictions (CC&Rs;), bylaws and other legal documents.

The board could be in a real pickle if you decide to sell your unit. Certain documents must be provided to an owner who is selling a unit. The owner has the right to submit a written request to the association asking for the most recent financial statement that was prepared and distributed in compliance with California Civil Code Section 1365. State law requires that this information be provided within 10 days. The purchaser could hold the association responsible for any damages and, in addition, the association could be charged a penalty of $500 if the information is not provided within the 10-day period. If a lawsuit is filed, the prevailing party will recover attorney’s fees.

For the protection of all of us who own property in a community association, most states have laws that require that the community association board conduct the association’s affairs in a business-like manner.

In some of the examples that you cited, the board is not only disregarding the association’s legal documents, but also the state law. The annual meeting notice should have included information about the special assessment vote. If the association’s income for the prior fiscal year was at least $75,000, a licensed accountant should have been engaged to perform a review of the association’s financial records. The review should be distributed within 120 days after the close of the fiscal year. You should have received a copy of the most recent financial report prior to purchasing your unit, as noted previously.

The annual budget should be adopted by the board and sent to all owners 45 to 60 days prior to the beginning of the fiscal year. The state law requires this even if your association documents do not. All associations must comply whether large or small, incorporated or unincorporated. If the board cannot accomplish this, then they should allocate association funds to hire a management company that will keep the association in compliance with the law.

Instead of being openly critical of the board, offer your help to get the association on the right track. The board may resent your discovery of their shortcomings but if they see that you are wanting to be helpful instead of combative, they will probably accept and appreciate your help.

I have served on my homeowner association’s board of directors so I am well aware that it isn’t always easy to run the association properly. However, the board has a duty to comply with the law and the association’s legal documents. Every owner should be concerned about operating the association in a haphazard manner, which exposes the board members and the association to liability and may put the association in jeopardy of a lawsuit.

Hickenbottom is a past president of the Greater Los Angeles chapter of the Community Associations Institute (CAI), a national nonprofit research and educational organization.