The Communicator - Volume 2, Issue 1 - (Page 15)

those dues until the eventual sale could provoke a lawsuit from other association members. The cash flow shortfall will put pressure on your operations budget. Association boards have a duty under Civil Code Section 1366 to levy assessments sufficient to meet expenses. Services such as landscaping and maintenance are delayed (or not done at all). Allowing the association to become “run down” or deteriorate reduces home values even further, perpetuating a negative cycle when these homes for sale go unsold. Prices must be dropped to move homes. More owners will then find their homes “underwater” financially. Boards need to resist the temptation to forego collection based on compassion. Boards need to make decisions to pursue collections (up to and including the decision to move forward with foreclosure) based upon sound business judgment. Such sound business judgment is a cost/benefit analysis that also measures the potential liabilities for failure to take certain actions as well as the monetary cost to take those actions. Although the initial drop in value was caused by market conditions, the scenario above demonstrates how board actions can exacerbate the devaluation of properties within a CID (and thus increase the number of owners who are underwater on their mortgages). In such circumstances, members of a CID may be able to file suit against the board of directors for breach of fiduciary duty! Being a director exposes one to potential personal liability for decisions made on behalf of the CID (unless steps are taken to make certain members of the board stay within the safe harbor afforded by Civil Code Section 1365.7). Basing decisions to pursue collection upon sound business judgment is one such step. Such decisions should also be based, as much as possible, on objective criteria that are consistently applied. Basing a decision to pursue collection or even foreclosure upon considerations of compassion might lead to exposure for breach of fiduciary duty for discriminatory enforcement, thus giving meaning to the statement that “no good deed goes unpunished!” This is not to say there is no reason to decide not to pursue collection or foreclosure; simply that any such decision should be based upon business judgment and not emotional factors. The reasons for such decisions should, at some level, be noted for potential future use so that the reasons can be demonstrated should the board’s reasoning ever be questioned by a court (more on this later). All association-owner obligations (be it the obligation to pay assessments and enforcement of the collections policy or the owner’s maintenance obligation) must be enforced on owners in a fair and consistent manner based upon objective criteria. If an owner is responsible for maintenance of their separate interest (or in an exclusive-use common area), such responsibility may need to be addressed even if the owner walks away from the property. Many times the association’s governing documents grant the association the authority to perform neglected maintenance and assess the cost to perform that maintenance to the unit. While this will cost the association resources up front (with the hope that these resources can later be recovered) Don Davis decisions to pursue Boards need to make Brentwood, California 94513 Phone: 800.826.6212 Website: Solomonins.com collections (up to and e-mail: dondavis@solomonins.com Insurance License 0377981 550 Positano Place including the decision to move forward with foreclosure) based upon sound business judgment. 14471 Chambers Road, Suite 110 Tustin, California 92780 Phone: 877.530.7283 • Fax: 714.544.5391 Website: DavisInsuranceAgency.com e-mail: bob@davisinsuranceagency.com Insurance License 0402864 Bob Davis 410531_SolomonSolomon.indd 1 The Communicator 11:12:17 PM 11/27/08 • 15 http://www.solomonins.com

Table of Contents Feed for the Digital Edition of The Communicator - Volume 2, Issue 1

The Communicator - Volume 2, Issue 1 Contents President’s Message Does Your Insurance Agent Know Something You Don’t? Lien Stripping and Chapter 13 Bankruptcies Mortgage Crisis Impacts Directors Legislative Bill Status Report Annual Holiday Awards Banquet & Casino Night 2009 Events & Educational Calendar New Members Index to Advertisers

The Communicator - Volume 2, Issue 1

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