Reader Questions - Short Sale, Reversing Director’s Discipline

Dear Kelly,

As the financial officer of my homeowners association, I am concerned about how we can collect our back dues when the owner goes into foreclosure. Do we get our back dues if they complete a short sale? If a member files for bankruptcy how does this affect their delinquent dues? Should we place a lien on these units? We have four members who recently stopped paying.

Sincerely,

V.B., La Habra

Dear V.B.,

A short sale is a transaction in which the parties with liens against the property all allow the owner to sell for less than the total of those liens. If the association does not participate in the short sale, and the short sale proceeds, the lien is not disturbed and the association could proceed with enforcing the lien against the new owner. However, if the short sale fails, a foreclosure will wipe out the association lien. If the association participates in the short sale and accepts a discounted amount (presumably the same discount as the other claimants), the association normally would be required in the agreement to accept that as payment in full.

If a delinquent member files bankruptcy, the association cannot proceed with a foreclosure sale or lawsuit. However, the ongoing assessments must be paid by the Trustee as an expense of the bankruptcy. An association definitely should contact its lawyer before taking any action regarding such a delinquency.

Thanks,
Kelly

Dear Kelly,

I was on our board, and one director was taken to task in Executive session for several inappropriate things he did during the prior year. The remaining directors discussed the issues and reprimanded him verbally, with no punishment. This was detailed in the Executive Minutes, available only to the board. Since that time, two directors have left the board, but the reprimanded director remains.

The sanctioned director is now pushing to change the minutes, and wants all mention of the reprimand removed.

Is it legal for minutes to be changed by a new board for the above reason?

Thank you,

W.R., San Diego

Dear W.R.,

A director cannot vote on their own discipline, past or present, under Civil Code 5350(b)(1). Civil Code 5350, new in 2014, is a small but important step for associations in California. It provides a list of prohibited items of conflict of interest. Under 5350, directors cannot vote on discipline, delinquency, reimbursement or architectural alterations involving themselves.

There are many other situations in which a director could be in conflict, and any time a director has a conflict it should be disclosed to the board before the director leaves the room. It is unfair to stay while the rest of the board discusses the director’s issue, let alone try to participate in discussion before the vote.

So, if the board discusses reversing the past discipline, the subject director should not be present.

However, changing the past minutes would be questionable, if not improper. Reversing the past discipline is one thing, but changing the record of the past corporate actions is a different matter. The director should not push his board colleagues to rewrite history. While closed session minutes do not circulate among the membership, a board should act as properly in private as it does in public.

Thanks for your question,
Kelly

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.