Berding | Weil Community Association ALERT Newsletter
Legal News and Comments for Community Association Boards and Managers Issue #57 • November 2010
2010 Community Association
Financial Health Survey
by Tyler Berding, Esq, Berding & Weil and David Levy, CPA, Levy, Erlanger & Company
Introduction
Community associations are not immune from the current economic crisis. When people lose their jobs and stop paying their mortgages, many also stop paying their association assessments. How have California community associations been affected? This survey of nearly two thousand (primarily Northern) California community associations reveals a mixed bag: a weakening of financial strength (in terms of receivables) but an optimistic improvement in the reserves percent funded (for approximately 1,300 surveyed associations). For purposes of this survey, financial strength has been limited, generally, to looking at cash balances, assessments receivable, the reserve obligation (liability) and resultant reserves percent funded.
The Survey
The population of surveyed associations consists of approximately 1,800 mostly Northern California community associations [1,774 in 2009, 1,823 in 2008 and 1,920 in 2007; not all associations are included in all computations if certain specific financial data (e.g. reserve liability) was not available]. The majority of associations are managed by a management company, and most are within the nine Bay Area Counties. Data is drawn from year-end financial statements for year-ends between April 1, 2009 and March 31, 2010 for 2009 data, and similar date ranges for 2008 and 2007 data.
Survey Results Assessments Receivable
From 2007 to 2009, a period of two years, the overall average number of days of assessment revenues in assessments receivable has increased by more than 40% from 21 days to 30 days (Exhibit A). This means that it now takes the Association an average of 30 days to collect its assessments, an increase of more than 40% from the previous 21 days.
In terms of dollars, this represents an increase of $17.4 million (not adjusted for inflation) from $17.9 million in 2007 to $35.3 million in 2009 for the roughly 1,800 surveyed associations. If these numbers were extrapolated to the estimated current statewide total of approximately 48,000 associations, total current assessments receivable could approximate 27 times the survey number or nearly $1 billion (potentially double the balance of two years earlier).
When one looks at the size of the association (Exhibit B), smaller associations have generally fared better than larger ones.
Berding|Weil Q&A of the Day
by Andrea O'Toole, Esq.
Question:
Who maintains trees in a homeowner's association?
Answer:
Under California law, a tree whose trunk stands entirely on one owner's property belongs to that owner (even if its roots or branches are located on another's property); and, the entire tree, from branches to roots, is the responsibility of the tree owner. So, who is responsible to maintain a tree will often depend on where the tree is located. But, ownership does not always equal maintenance responsibility. In a homeowner's association, it also depends on how maintenance duties are allocated as between the association and the owners. That allocation can usually be found in the governing documents, typically the CC&Rs. It is not always the case that trees on the common area are maintained by the association or trees on an owner's private lot are maintained by the owner.
Question:
Our association was asked by a cable company to give the company an easement over the common area. Can the board give this without asking the members for approval?
Answer:
Of course, the answer is it depends. It is not uncommon for companies offering cable services to approach an association and ask it to enter into a "services" contract and grant an easement in exchange for a specified amount of money. These requests typically involve both a contract and also a grant of easement and it is necessary to review the association's governing documents to determine the extent of the board's authority to take such action. Typically, there are limits on what types of contracts and easements the board can approve without a member vote; but, in some cases, those limitations are relaxed when it comes to contracts and easements for cable service.

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