Try Mediation to Resolve Dispute

QUESTION: I was recently elected to the board of directors of my condominium association. I am concerned that our manager does not have a fidelity bond. I asked to see the bank records for the operating account and the savings account but the other board members will not release the records.

My lawyer says that I will have to spend several thousand dollars of my own money to file an injunction to force them to disclose the records that I am legally entitled to see.

What alternative course of action would you recommend? Does the new law requiring arbitration apply to this type of dispute?

ANSWER: Didn’t your attorney suggest writing a letter? Have letters been ineffective in the past? Sometimes even board members have to document their request by corresponding with the rest of the board.

Since you are a board member, you are entitled to see the bank account records. However, if you are the type of person who would use this information to find fault with the board’s fiscal policies or the manager’s purchasing and payment methods, this may be the reason that the other board members are holding you off.

When you review the records, try to be objective. There is a difference between a watchful board member who is fulfilling a fiduciary duty to protect the association’s finances and one who is nit-picking about every bill that is paid.

There are several steps that you can take prior to filing legal action. I am not an attorney, but in my opinion, your attorney should have discussed these less expensive alternatives with you. Filing an injunction should be your last resort.

First, you can write a letter to all of the other board members requesting access to the financial records that you want to review. As a board member, you should have access to any and all records of the association.

In your letter to the board, there are certain laws that you can cite that may educate the board. According to California Corporations Code, Section 8334: “Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director.”

In addition, the California Civil Code, Section 1365.5, states that the board of directors of a community association must do all of the following:

1--Review a current reconciliation of the association’s operating and reserve accounts on at least a quarterly basis and review the most recent statements prepared by the financial institutions where the association’s operating and reserve funds are kept.

2--On at least a quarterly basis, review the current year’s actual reserve revenues and expenses compared to the current year’s reserve budget and review an income and expense statement for the association’s operating and reserve accounts.

If the association’s governing documents impose more stringent accounting duties on the board of directors, then your board must perform their duties according to the governing documents.

After you or your attorney write a letter to the board citing all of these reasons why you should have access to the records, the board members will surely grant your request.

If they ignore your letter, then the next step is an attempt to mediate or arbitrate the dispute prior to seeking a court injunction. You do not have to be represented by an attorney.

There is one other bit of advice I would offer. The association should purchase fidelity bond coverage and the board should ensure that the reserve funds are under the control of the board members. Two directors or officers should sign any withdrawal from the reserve account and the amount of the withdrawal and the purpose should be noted in the board meeting minutes.

Can Board of Directors Fill Board Vacancy?

Q: I live in a homeowner association in Santa Barbara. Can the board of directors appoint a board member to fill a vacancy on the board? Don’t all directors have to be elected by the membership at a meeting called for that purpose?

A: Usually, the answer to your question can be found in your association’s bylaws. The bylaws contain information about how the board operates and when membership meetings are required. California Nonprofit Mutual Benefit Corporations Code defers to the bylaws regarding replacement of directors.

In most associations, the remaining board members have the authority to appoint a board member to fill a vacancy if the vacancy occurs because of a resignation. However, if the vacancy is the result of a recall vote of the members, then the entire membership votes on the replacement.

Always review your association’s governing documents when you have a question about how the association should operate.