WHAT DO TECHNOLOGY, MEETING MINUTES,|
AND THE REAL ESTATE COMMUNITY HAVE IN COMMON?
by Beth A. Grimm, Esq.
misstatement by any one of the three could send a homeowners' association spinning into a legal black hole. How are the three related? Read on.
As technology improves and the use of electronic communications becomes more and more commonplace, boards of directors of homeowner associations will have to make important decisions about how aggressively (or reluctantly) to step into the waters of the information stream. Those decisions will involve the extent of the use of electronic media for record keeping, administrative tasks and communication, and dissemination of association information. Besides the impact on members and access by the public, the real estate community is one of the end users that is most likely to rely upon this stream of information, encouraging transactions that have considerable fiscal impact. Realtors, escrow officers and others may take responsibility to further publish and disseminate the information to people who will rely on it, many for the most important investment of their lives. These decisions should not be taken lightly.
Now where do minutes fit into this big picture? Minutes can be one of the most critical pieces of information in the "stream." They can make or break a sale; they speak loudly about a community.
The real estate community and industry groups, and some managers, lenders and homeowner associations, are looking for ways to promote distribution of important information about associations. These people often have a hard time locating the contact for a homeowners association. There is no public registry. The group needs to be able to communicate with the right person to complete a proper sales transaction in a common interest development (CID). Putting contact information, association governing documents and other information "on line" would allow easy access by members, escrow officers, Realtors, buyers, etc. The industry is buzzing about how to enhance communications so that necessary information may be provided at the least possible cost and by the most efficient means.
However, putting this sort of information into the "Public domain" may have pitfalls. And even efforts to limit its availability within a designated group through controlled forums and use of passwords doesn't guarantee it will not end up "in the wild", according to Arthur Prichard, Computer Wizard and recent participant in a forum before the East Bay Resource Panel of ECHO.
The question arises as to how much of an association's information should be kept private from the "outside world," and how much of it should be or already is "public." We have to ask:
- Is the association breaching the privacy of the association members when it publishes in a "public forum" information about the association that is not otherwise a matter of public record?
- Is the association, by placing this information in the public domain where it could be accessed by others (prospective buyers, Realtors, title companies, escrow officers and loan officers, etc.), creating a direct legal disclosure relationship with those parties that does not already exist?
- Who is responsible if the published information "is incorrect" or outdated (whether it occurs through error of a typographical nature, misinformation being provided in the "chain" from the association, or simple carelessness, i.e., negligence)?
- Where do you draw the line on what is actually put "on line"?
- How often should the information be updated, and what are the ramifications if failure to update the information causes someone to suffer a loss?
- Should information posted in the "public domain" be in "edited" form rather than the actual documentary record in the association's files?
- Should associations do something to change their practices now, in anticipation of wider use of this technology, and what it will do to increase the flow of information?
- What issues do holding association meetings "on line" raise? (Will the "computer challenged" be left in the dust?)
WHAT COULD OR SHOULD BE POSTED "ON LINE" OR PLACED IN THE PUBLIC DOMAIN?
The above questions are all matters that will need to be answered in the coming years. For purposes of this article, the dialogue might start with a discussion about what documents would be appropriate for placement on the internet, to be accessed with or without the requirement of special assess codes. Some of the answers are easy. Others are more difficult and require more thought.
Should You Post It? - Pro's and Con's
Articles of Incorporation: Articles of Incorporation are already a "public document", because they are filed with the Secretary of State. The benefit to publishing these on-line is that people can access them easily, and would not need to "bother" the association and or the manager for copies. No specific disadvantage to publishing them comes to mind. They obviously would be subject to a much wider audience (and much more comprehensive scrutiny or study) than if they were not published on the internet.
Declaration of Covenants, Conditions and Restrictions (CC&Rs;): The CC&Rs; are also already a matter of public record (unless some irresponsible party has failed to record them, in which case they would not be legally in effect or controlling). The benefit of putting the CC&Rs; "on-line" is that they also would be accessible by the public and the association and its Manager might avoid some extra work from requests for distribution of documents. The possible downside of publishing the CC&Rs; is that the association could be inviting additional responsibility to make sure that any changes, restated documents, or amendments are also placed in the same domain. Not updating the material regularly and immediately, as changes occur, could be disastrous. And any errors in publishing the recorded document could be attributed to the association.
As with the Articles of Incorporation, once made available on the internet, the document would be available for all of the public to access which would not be so easy if one had to go through the county recorder's office or make the request to the association.
Bylaws: Bylaws are generally not in the public domain, because they are not usually recorded (although some older sets are actually recorded in the official county records). The benefits of publishing the Bylaws would be the same as the Articles for Incorporation or the CC&Rs; - the publishing on the internet may relieve the association or its manager of some of the work required by requests for this type of document. Publishing the Bylaws in the internet is basically giving what could be considered private information of all (usually reserved for the members of the association and prospective buyers) to the public. This may be construed as distributing private information (as discussed above).
Rules and Regulations: The discussion above for Bylaws applies equally here. In addition, some rules and regulations are actually in violation of the governing documents or the laws, because of a lack of a complete knowledge or understanding as to what the law allows and what it does not. Example: some rules discriminate against children and the Board does not even know it until the call comes from HUD about a complaint. Publishing the rules and regulations on the internet may subject the association to legal claims or closer scrutiny by outsiders. Perhaps publishing this sort of information could subject the association to claims of discrimination in sales, even though the association is not directly involved in the sale of a unit. (At present, its only involvement - if well advised by legal counsel - comes through requests from the seller for information.)
Meeting Minutes: The benefits of placing minutes of the association on the internet would be the same as for all the other association documents - easier distribution. However, minutes are not a matter of public domain, and they can be considered very private to the association and its members. Most savvy realtors and lenders these days ask for at least six months of minutes. Many recognize that minutes give the prospective buyer a "flavor" of what goes on - what issues are hot. Distribution of minutes via the internet could be disastrous, especially in cases where too much is said. There are associations that record what people say (sometimes misquoting the person) and mention people by name (sometimes calling people names). Minutes also may disclose a poor financial picture, or a serious deferred maintenance issue, a board battle, a lawsuit, or construction defects. While this information should be available to the members and even prospective members, placing it in the public domain so it is accessible to the real estate community could be disastrous. Picture a newspaper reporter perusing the internet for dicey information to write an expose about homeowner associations. Would you want your association's financial health (or lack thereof) splashed in the local ragsheet? Would you want the public to know the board resigned en masse, or was recalled? The practice of recording names of people speaking, recordation of name-calling and recordation of discussions on each issue speak for themselves. Don't do it. Even if distributed only to members and per an escrow demand, recordation of anything other than the business conducted portrays a homeowners association as unprofessional. Whether you are going public or not - keep it simple - record quorum count, approval of minutes from prior meeting, motions, and action items and adjournment.
Sending Proxies and Ballots on the Internet: Distributing proxies or ballots over the internet is risky business. Even on a closed list, if someone accidentally (or purposely) forwards the information outside the list, I understand it makes its way "into the wild". Proxies and ballots generally list proposed items for action and those measures could conceivably become available to anyone. One example as to how this might be disastrous would be a situation where the association was putting to a vote of the members the question as to whether the association should engage in litigation. (I don't recommend that the association put this question to a vote, but some do and as an example, I believe it is one of the most graphic). The proposed defendant in the litigation, if they gained access to this information, might engage in an exercise of propaganda distribution to sway the membership on the vote.
Acceptance or receipt of proxies and ballots by electronic mail is another issue. Unless the association has an internet whiz on staff, who is able to determine the exact source of each proxy and ballot, it is not advisable to rely upon documents sent by that means for purposes of counting votes. Certainly, if the association wanted to survey the membership through this means, or survey the "world outside", then it could do so. However, unless these items are protected in some way, alteration would be easy. Tally, on the other hand, could be a challenge. Alteration is a risk. The association would have to have a computer whiz on staff to set up and keep systems running, or would have to hire services to do the work, and still, manipulation of the system is always a risk. And people who do not have access will (perhaps rightfully so) scream about the unfair advantage that is created for those with access.
Conducting Meetings "On-Line": California has "open meeting" laws for common interest developments found in Civil Code Section 1363.05. That statute requires that associations, for regular and special meetings (membership and board meetings) give at least 4 days' notice to the homeowner members (1365.03 (g)). This can be done by general notice to the members, posting in a conspicuous place, provision in the bylaws, or other means. It does not require a mailing to the homeowners each time there is a meeting, but it does require advance notice be provided). Civil Code, Section 1363.05(i) provides that homeowners shall be given the opportunity to address the board at meetings of the association.
If a meeting is being conducted on the internet, the association would need to avoid denying the owners the rights they have under the Civil Code to attend and speak at meetings. The association would have to assure that members could "attend", and "speak" (over the same medium used by the Board Members who are conversing). In some associations, (perhaps very small associations) where the members are not "internet challenged", this might work, but in most associations it is not feasible to try and conduct a meeting over the internet because of the mandates of the open meeting laws. It is a fact that many homeowners would not have equal access. If a board member wants to invite members into their home, where they can sit around a computer and talk through voice contact or have access to the keyboard, then it might work, but it doesn't seem likely or realistic that board members would be so inclined. It's a burden. Even if they were willing, unless the location was convenient for the homeowners it would not be feasible.
There are provisions in the Corporations Code that allow boards of directors to meet via electronic communication equipment. Corporations Code Section 5211 (a) (6) allows members of a board to participate in a meeting through use of a conference telephone or electronic video screen communication or other communications equipment with several stipulations. Each board member must be able to communicate with all the other Board Members concurrently, must be able (without limitation) to propose or to interpose objections and discuss specific actions. If any vote is taken, the board would have to have a means to determine that votes are actually cast by directors and not by people who are not directors. However, the Corporations Code does not address the legal responsibility and obligation of notice to the membership and allowing them to participate in regular or special board meetings that exists in the Civil Code. The stipulations do not address the issue of how homeowners may participate. Therefore, at least in the present state of the law, Corporations Code 5122 (a) (6) would most likely be limited to situations where the purpose falls outside the definition of "meeting" under Civil Code Section 1363.05. Executive session and emergency meetings are excluded from the meeting notice requirements, and so these meetings could be held by electronic communication, so long as the appropriate verification abilities are in place.
Obviously, use of and communications by electronic means are the "wave of the future", and associations may want to move in the direction of easier access and communication of information. associations whose directors live offsite may want to make meetings more viable through use of electronic communications. However, those onsite must deal with the issue of how to assure that members can be involved to the extent the law allows them to be. As time goes on, the benefits of using electronic means of communication will continue to develop. Hopefully, the need to pay more attention to recorded data will become apparent. The ability of associations to utilize electronics will increase, as the more and more households modernize. The purpose of this article is to raise awareness and questions, not to give legal advice out generally. Each association is unique and each should consult with its own legal counsel to determine the extent of what that community should do or put "online."
By Beth A. Grimm, a community association attorney in California, East Bay Resource Panel Chairperson and author of various publications and books about condominium living and the law, and a frequent contributor to THE ECHO JOURNAL.
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By Beth A. Grimm, Attorney. A "service oriented" attorney and member of ECHO and CAI and various other industry organizations in California and nationally, host of the website www.californiacondoguru.com; two Blogs: California Condominium & HOA Law Blog, and Condolawguru.com Blog, and author of many helpful community association publications which can be found in the webstore on her site.