Remember, management firm isn’t the boss; the owners are

Question: Our homeowner association has hired a management company that sends out its company’s literature to all the owners. Besides being free advertisements for the company and their trade groups, these mailers often relay what I believe is wrong and illegal information. One notice said that each new law that’s passed requires amendments to our governing documents for the association to be in compliance. Another stated the company “does not provide receipts for owner payments because your canceled check is your receipt.” Management has convinced the board that if they do not do as they are told, the association will be operating illegally. Owners automatically rely on this information since it comes from management. An owner told me, “The management company wouldn’t be circulating that information if it was wrong.” When concerns are brought to the board members’ attention, they reply that they trust the management company and that’s the end of that. What can owners do about this?

Answer: A board of directors does not answer to a management company. It answers to the association and the titleholders. The board tells the management company what it needs to do to assist the association in its operation, not vice versa.

Claims that each newly passed law requires an amendment to association governing documents are wrong. Most items with which boards are confronted merely require them to follow existing laws or address minor issues through adjustments to rules and regulations, not to amend their covenants, conditions and restrictions (CC&Rs;). With few exceptions, the general rule is that when a law is passed that overrules a provision in the CC&Rs;, the law preempts the CC&Rs.;

Owners should not accept representations merely because the letterhead looks authoritative or states it is a “management company.” Unless the vendor providing legal advice is a licensed attorney, that advice constitutes the unauthorized practice of law and is a felony, even if it comes from the management company.

When a titleholder requests a receipt, the response “your check is your receipt,” violates the law and subjects the association and the management to the prospect of having to pay monetary damages for that violation.

The requirements for a receipt are itemized in Civil Code section 1367.1 and “canceled check” is not among them. Pursuant to Civil Code Section 1365.1, the law requires your association to advise homeowners that they should ask for a receipt when making their payments and what that receipt must contain. Owners who mail or pay online should always accompany such payments with a dated letter and a copy to the board of directors specifically requesting a receipt. Doing so takes little time and ensures that hard-copy evidence exists that a timely payment has been made and received by the association. Owners who rely on canceled checks for proof of association payments do so at their own risk.

If your association continues to insist that your check is your receipt, be certain to examine the association’s records on a consistent basis to ensure payments have been properly recorded. Under Civil Code Section 1365.2(f), titleholders have a right to review association books and records, and if denied, may bring an action in Small Claims Court against the association to enforce their right to inspect and copy the association’s records. The court shall award the homeowner reasonable costs and expenses, and may assess a civil penalty of up to $500 for the denial of each separate written request for such items.

Association boards of directors who rely on management companies for legal advice without performing independent due diligence often find themselves in legal hot water. When asked, members of management should provide a valid business license, proof of insurance, bonds, real estate licenses, law licenses and whatever else may be requested to prove their status as a bona fide business for the advice they are giving. A board of directors fulfilling its fiduciary duties to its homeowners should demand nothing less.

Send questions to P.O. Box 11843, Marina del Rey, CA 90295 or noexit@mindspring.com.