Archive for the ‘3. Public affairs’ Category

Vicarious liability for housing discrimination clarified

Saturday, February 25th, 2017

If you live in a housing community (i.e. a common interest development, such as a condominium association or a housing cooperative) and another resident of that community commits a discriminatory or harrassing act against you, whom can you blame? The other resident only, or also the community association?

Possibly both, it seems. Final Rule FR-5248-F-02 was issued by the U.S. Department of Housing and Urban Development on 14 October 2016. It provides, among other things, that “A person is directly liable for … [f]ailing to take prompt action to correct and end a discriminatory housing practice by a third-party, where the person knew or should have known of the discriminatory conduct and had the power to correct it.”

Community associations  have some regulatory powers over their member/residents, and also some duties to exercise those powers. Those powers and duties are spelled out in applicable statutes and in the communities’ own governing documents. For example, an association’s governing documents may prohibit a resident from disturbing, by noise or otherwise, residents in other units and may grant the association’s board of directors the power to enforce that prohibition. If a racist resident were to harrass or disturb a neighbor because of that neighbor’s race, and if the association failed to “take prompt action to correct and end” that behavior, the association could be vicariously liable for that violation of federal fair-housing law.

Below I offer some thoughts about how to manage this risk. But first here is the HUD discussion of the arguments made about how this new rule applies to community associations:

Issue: A commenter expressed concern that proposed § 100.7(a)(1)(iii) creates liability on the part of a community association (homeowner association, condominium or cooperative) for the illegal acts of residents over whom they have no control. The commenter urged HUD to remove or revise the proposed rule’s extension of direct liability to community associations for the discriminatory actions of non-agents. The commenter stated that community associations generally lack legal authority to mandate that residents take actions described in the preamble of the proposed rule because the associations cannot evict homeowners or otherwise impose conditions not specifically authorized by the association’s covenants, conditions, and restrictions (CC&Rs) or state law. The commenter suggested that if the language in § 100.7(a)(1)(iii) remains, it should be modified to clearly state which terms and conditions in association bylaws and regulations constitute a duty on the part of an association or its agents to investigate and punish residents for illegal discriminatory housing practices.

HUD Response: As noted above, HUD has slightly revised § 100.7(a)(1)(iii) to clarify that a housing provider is liable under the Fair Housing Act for third-party conduct if the provider knew or should have known of the discriminatory conduct, has the power to correct it, and failed to do so. HUD also notes that the rule does not add any new forms of liability under the Act or create obligations that do not otherwise exist. The rule does not impose vicarious liability (see § 100.7(b)) on a community association for the actions of persons who are not its agents. Section 100.7(a)(1)(ii) describes a community association’s liability for its own negligent supervision of its agents, and § 100.7(a)(1)(iii) describes a community association’s liability for its own negligence for failing to take prompt action to correct and end a discriminatory housing practice by a third-party. With respect to § 100.7(a)(1)(iii), the rule requires that when a community association has the power to act to correct a discriminatory housing practice by a third party of which it knows or should have known, the community association must do so.

As the commenter recognizes, a community association generally has the power to respond to third-party harassment by imposing conditions authorized by the association’s CC&Rs or by other legal authority. (31) Community associations regularly require residents to comply with CC&Rs and community rules through such mechanisms as notices of violations, threats of fines, and fines. HUD understands that community associations may not always have the ability to deny a unit owner access to his or her dwelling; the rule merely requires the community association to take whatever actions it legally can take to end the harassing conduct.

What does this rule suggest for risk management by community associations? Here are some thoughts:

  • The association’s governing documents should perhaps state not only that the association prohibits itself from engaging in illegal discrimination or harrassment, but also that it prohibits such conduct on the part of its members.
  • To the extent that the association has the power to accept or reject new members and residents (as cooperatives typically do), the governing documents should perhaps require the decisionmaker to make reasonable inquiries about any history of discriminatory or harrassing conduct by a candidate, and to reasonably avoid approving the admission of any candidate who could be expected to engage in such conduct.
  • The association should perhaps ensure that it has a procedure for the safe reporting of discriminatory or harrassing behavior by members and residents against one another and for the “prompt” intervention of the association to verify and deal with it.
  • Trying to avoid vicarious liability by giving up enforcement powers seems impractical in most cases. Members and residents depend on associations to keep the premises livable, if necessary by enforcing rules against disruptive residents.
  • This potential liability seems tricky enough that it may warrant a consultation with a qualified attorney about rules that an association proposes to adopt in order to deal with it. (I’m not one, in case that isn’t obvious.)

Thanks to Matt Ober, Esq., for calling community associations’ attention to this new rule.

Mostly wise advice on community property values

Friday, February 24th, 2017

Robert Nordlund has dispensed 10 ideas for increasing the value of property in a common interest development (a.k.a. housing community).

Ideas 1–7 seem, in principle, unproblematic:

  1. Budget accurately & honestly.
  2. Maximize curb appeal.
  3. Avoid deferred maintenance.
  4. Avoid special assessments.
  5. Create a culture of transparency.
  6. Build community.
  7. Adhere to your association’s rules and standards.

And Nordlund effectively explains why those ideas make sense.

The other 3 ideas, however, seem more self-serving.

Idea 8 is “Employ accredited, credentialed managers”. That may seem prudent, but it rejects the very idea of managing one’s own housing community. In some cases, this latter model offers compelling benefits similar to those enjoyed by do-it-yourself owners of single-family homes. Nordlund also claims that “Accreditation from CAI assures associations that they can expect professionalism from their managers.” That is an exaggeration. I have personal experience with a manager having such an accreditation but not professionalism.

Idea 9 is “Train board members”. Yes, but once they are directors it’s too late. The mere decision to become a candidate in an election for director is almost destined to be an irrational decision without training in the powers, duties, liabilities, and risks of service as a director. Thus, all members of a common interest development need access to training if the CID is to function effectively. Nordlund also describes “CAI board training” as if it were synonymous with board training. CAI (the Community Associations Institute) is hardly the sole authority, and in fact regularly lobbies for legislation hostile to the exercise of democratic governance rights by members of CIDs.

Idea 10 is “Team up with knowledgeable business partners”, including “an accountant, attorney, banker, insurance agent, and a reserve study professional”. Fine, but, once again, Nordlund adds a plug for CAI: “professionals who earn CAI’s ‘Educated Business Professional’ distinction demonstrate they know how to help community associations foster excellence and avoid expensive mistakes and conflicts”. That is nonsense. Possessing the “CAI Educated Business Partner member distinction” (Nordlund names it incorrectly) requires listening to 3 hours of lectures, passing an examination, and thereafter remaining a member of CAI at $605 per year—nothing more. The lectures contain useful information, indeed, such as the facts that landscaping insurance does not always cover snow plowing and board meetings often last about 2 hours. Even memorizing all that information does not “demonstrate” that vendors “know how to help community associations foster excellence”.

In conclusion, my recommendation, if you are helping to govern a common interest development, is to read and heed Nordlund’s points 1 through 7—and stop right there.

Berkeley Town House 2012–2016 litigation: documents

Friday, February 24th, 2017

I have made available here public records of two related lawsuits involving Berkeley Town House Cooperative Corporation (“BTH”). This litigation began in March 2012 and ended in October 2016.

The first suit was “Jonathan Pool vs. Berkeley Town House Cooperative Cooperation, Almalee Henderson, Judith Wehlau, Charles Tuggle, Katherine Miles, Nancy Epanchin, Raymond Dirodis, Rita Zwerdling, Cheryl L. Samson” (case RG12620088). It was filed on 6 March 2012 in Alameda County Superior Court, California.

The second suit was “Jonathan Pool vs. Almalee Henderson, Judith Wehlau, Charles Tuggle, Katherine Miles, Nancy Epanchin, Raymond Dirodis, Rita Zwerdling” (case RG15779830). It was filed on 29 July 2015 in Alameda County Superior Court, California.

To see the records, you can visit:

To search within either collection, you can enter a search term and click on “Search”.

Both cases were classified as “complex” and assigned to Department 17 of the court.

The public court records in these collections are available also from the Superior Court itself, too, at its website, but they are not topically indexed, not searchable for words and phrases, and (in most cases) not free unless you inspect them at the court.

There are also some other entries in this blog about BTH litigation.

Painting quality—hype versus reality

Thursday, December 15th, 2016

Allied Construction Services, in Livermore, California, advertises “top tier workmanship” and 100% customer satisfaction. It just finished painting the portion of the exterior of the building I live in (Berkeley Town House) outside my apartment. This picture tells a different story. Judge for yourself.

20161215-painting-2c

Why are co-op share loans scarce?

Saturday, November 5th, 2016

Residents of housing cooperatives know that there are few banks or credit unions willing to make loans to them secured by their shares of stock in the cooperatives, even though such loans are treated as loans on residential real property, just as loans to owners of condominia are.

Why the lack of competition in the market for co-op share loans? One California company in the business offers an explanation, rooted in the rarity of housing co-ops and the risks incurred by lenders in the event of a default.

Agenda? What’s that?

Sunday, October 30th, 2016

Some laws require things they don’t define.

“Agenda” is one of those things.

A quarter of Californians live in “common interest developments”, such as condominium associations and cooperatives, and those CIDs must govern themselves in accord with the Civil Code, which requires their boards of directors to announce the agendas of meetings in advance.

But what is an agenda? The law doesn’t say. So, what do lawyers do when their clients ask them how to comply? Here’s what one lawyer does: Adrian Adams, Esq., says he looks up “agenda” in Complete Idiot’s Guide to Parliamentary Procedure. There he finds the statement:

If you really want to manage your meeting, you need an agenda. With an agenda, the specific items that are expected to come up at a meeting are placed into the order of business.

So, there you have it. You can pay your attorney to look it up in the Complete Idiot’s Guide, copy it, and send it to you. Or you can look it up yourself.

Actually, Adams deserves credit for a bit more than that, because he gives advice and an example. He says an agenda must be specific enough to let those who read it anticipate what will be discussed. His example is “Maintenance”, which, he says, would not be specific enough to forewarn readers that the board is going to discuss major projects such as reroofing a building.

Should you rely on that advice? Adams cites no other authority for this assertion, so presumably he is the authority, but he’s one attorney among thousands. And how does this example generalize? Can “maintenance” ever be an agenda item? If so, what can it cover? Could “reroofing” cover everything from a discussion of the roof’s life expectancy to awarding a contract for a reroofing job, or would the agenda need to disclose that a contract might be awarded at the meeting? What can the president talk about under “President’s report”? If “Assessments” appeared in an agenda, could the board then increase everybody’s monthly payment by 20%? Don’t ask me. Unlike Adams, I don’t claim to know.

Lawyer to housing co-ops: You’re in a legal mess

Sunday, October 16th, 2016

California attorney Adrian Adams has published a commentary on the legal status of housing cooperatives, calling into question how they can exist under California law.

According to Adams, California’s Davis-Stirling Common Interest Development Act defines a “declaration” (a.k.a. “CC&Rs”) as one of the prerequisites to that act applying to a housing development, but he says a stock cooperative, unlike a condominium association, cannot possibly satisfy that prerequisite, because it cannot have a declaration. Instead, says Adams, it has a lease or occupancy agreement defining the terms under which the co-op members occupy their units.

A reader might infer from Adams’s analysis that the members of any housing development, whether a co-op or not, can exempt themselves from Davis-Stirling act simply by not recording a declaration.

Adams, in addition, says that co-ops have both advantages and disadvantages in comparison with condominium associations. Cooperatives have the power to evict their members, while condominium associations can only wish they had such power. On the other hand, he says, cooperatives constitute an inferior form of property ownership for the purpose of obtaining financing.

How well does Adams’s analysis hold up under scrutiny? Are housing co-ops in California a legal contradiction? Here are two facts that may be relevant:

  • Housing cooperatives can have declarations, and some do. For example, Berkeley Town House Cooperative Corporation is a stock cooperative with a declaration recorded on 15 March 1989 in Alameda County.
  • The Davis-Stirling Common Interest Development Act defines a declaration of a stock cooperative as any document, “however denominated”, that contains (1) a legal description of the property, (2) a statement that the common interest development is a stock cooperative, (3) the name of the association, and (4) “the restrictions on the use or enjoyment of any portion of the common interest development that are intended to be enforceable equitable servitudes”. It qualifies all this with the phrase “recorded on or after January 1, 1986”, and one might wonder whether that is a requirement on all declarations or only a limitation on which declarations must contain the above 4 kinds of information.

What conclusions can we draw? I don’t know. The newsletter comment by Adams leaves questions unanswered, but may usefully provoke co-ops to review their governing documents and consider a more expansive set of possibilities than they have done before.

Big law firm recommends breaking the law

Sunday, July 24th, 2016

One of the biggest law firms representing boards of directors of California housing communities has just published a recommendation, urging boards to break the law.

Adams Stirling, formerly named Adams Kessler, has urged boards to meet secretly whenever they intend to discuss the performance of a vendor.

Is that legal? No. Absolutely not. The law—California Civil Code Section 4935(a)—says: “The board may adjourn to, or meet solely in, executive session to consider litigation, matters relating to the formation of contracts with third parties, member discipline, personnel matters, or to meet with a member, upon the member’s request, regarding the member’s payment of assessments ….”

So, why does Adams Stirling recommend lawbreaking? Why does it recommend that boards discuss in “executive session” (i.e. secret meetings) a topic that the the law compels boards to discuss only in open meetings? Adams Stirling explains its rationale thusly: “… negative comments about the vendor could spread through the association and get back to the person. Even worse, it could travel outside the community to others. What follows next is a threat of litigation by the vendor alleging trade libel/slander.”

Note the implied morality here: If your housing community suffers from a vendor’s inferior workmanship, do not tell anybody about it; keep it a secret, so the vendor can victimize as many other customers as possible. Also note the jurisprudence of Adams Stirling: If anything that you discuss could conceivably result in you being sued for defamation, that risk justifies calling the discussion a consideration of “litigation” and therefore entitles you under the Civil Code to conduct your discussion in secret.

Finally, note the litigation worry that Adams Stirling ignores here: the risk that one of the members of the housing community sues the directors to reclaim the transparency guaranteed by the above-quoted provision of the Civil Code.

Adams Stirling makes money when its clients are sued, regardless of whether they’re sued for defamation or they’re sued for violating the democratic rights of their members. So, why balance the risks in favor of lawbreaking and anti-social behavior (i.e. not protecting your fellow housing communities from poor service)? Beats me.

About a quarter of California’s population, roughly 10 million persons, live in housing communities (condos, co-ops, etc.), where they are governed by boards of directors and have legal protections, including the right to have their boards do business in the open. Some in these communities make the mistake of treating Adams Stirling like an infallible guide to the law, or even as the law. They do so at their peril. Adams Stirling pontificates about hundreds of topics, sometimes convincingly and sometimes (as in this case) hazardously. Their published advice is free, and on this topic it’s worth less than what you pay.