The Communicator - Volume 1, Issue 2 - (Page 10)

Top 10 Mistakes That Get Board Members By Lisa Esposito and Michael Dellinger 1. INCONSISTENT ENFORCEMENT OF CC&Rs, RULES AND POLICIES The last thing you want to do is to not enforce your governing documents. The best thing you can do is enforce them uniformly and consistently. You achieve this by adopting consistent policies that are specific so that your members will clearly understand the guidelines under which the board and management will operate. Members need to be clear on the expectations as well as the enforcement remedies such as fines, revoking common-area access and the right to vote! Judges hate when a board is inconsistent in its enforcement and more times than not will rule against the “big, bad homeowners association.” Be very sure you can produce a policy along with backup evidence that you have followed your own policies and procedures. based on facts, not based on what their neighbors will think of them. Sued 5. FAILURE TO ADOPT, THEN FOLLOW ELECTION RULES 3. FAILURE TO FOLLOW THE CIVIL CODE FINANCIAL STATEMENT REVIEW PROCESS Unfortunately, there continue to be cases of fraud and embezzlement from homeowners associations. At a minimum, follow the required Civil Code sections. Civil Code 1365.5 requires that the boards, on at least a quarterly basis, review the bank statements of all bank accounts and the bank reconciliations. It further requires the board to review the operating and reserve expenses compared to the budget. Your Fidelity Bond underwriters would appreciate it if you go a few steps farther and be better at signature card management, i.e., after all the board members complete the signature cards, put large Xs in any empty spaces so that no other person can add his name to the card. Your financial services company should practice good internal controls as well. The association’s CPA can assist with this overview for you. reserve study preparer to draft the association’s reserve study. The reserve study will recommend yearly funding levels for reserve contributions that, if followed, should prevent special assessments. State law requires that homeowners associations update their reserve studies every three years, but most experts recommend that the cash flow report (a component of most reserve studies) be updated annually so the board has the most accurate information on which to base its annual budget. Most managers hope that the state changes the law to require that boards follow the reserve study, particularly the recommendations for reserves. In addition to component failure, inadequate reserve funding is the most common cause of special assessments and bank loans. 2. FAILURE TO PROPERLY FUND RESERVES CONTRIBUTIONS IN THE BUDGET A board of directors has the fiduciary responsibility to approve a budget that is accurate and will fully fund the maintenance responsibilities of the homeowners association, both operating expenses and reserves. This responsibility goes beyond the board’s personal finances, and this decision should be 10 • The Communicator 4. FAILURE TO FOLLOW THE RESERVE STUDY MAINTENANCE PLAN One of the largest components of annual budgets is reserve contributions. Boards of directors should hire an independent California Civil Code 1363.03 was passed and put into effect July 1, 2006. It requires all common interest developments to create and adopt new election rules that are consistent with the new law, which supersedes your existing bylaws regarding the election of directors, amendments to your CC&Rs and transferring common areas. The law now requires written, secret ballots with double envelopes, etc. These elections will now be more similar to municipal elections. This part of

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

The Communicator - Volume 1, Issue 2 Contents President's Message The Hammer is Broken Top 10 Mistakes That Get Board Members Sued Dealing with Bankruptcy Ask the Experts – Are Your Contractors Licensed and Insured? 2008 Events & Education Calendar Welcome to CAI BayCen Directory Updates Index to Advertisers

The Communicator - Volume 1, Issue 2

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