Beaumont Tashjian Law Blog

Monday, January 2, 2017

“Much Ado” About Recent Disclosure and Notice Requirements

By Tracy R. Neal, Esq.
Published in The Law Journal by CACM, Winter 2016

“Much ado” implies a lot of fuss over something relatively insignificant. While they may not be the most exciting aspect of association operation and management, disclosure and notice requirements are certainly not insignificant. Routinely changing disclosure requirements has become the new normal for community associations, and associations need to ensure that they keep current with mandated annual disclosure requirements.

The annual disclosure checklist for associations got a bit longer this year for condominium projects. In addition to disclosure requirements pursuant to California Civil Code §§ 5300 and 5310, Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) disclosures are now required as part of a condominium association’s Annual Budget Report. In 2015, AB 596 was signed into law, which requires that a condominium association disclose whether it has FHA certification and VA certification using specific language. These FHA and VA disclosure requirements are codified as California Civil Code §§ 5300(b)(10) and (11), respectively.

Nationally, FHA certification changed this year with the passage of the Housing Opportunity Through Modernization Act of 2016 (HR 3700). These recent changes to FHA certification coincide with California association FHA and VA disclosure requirements. With that said, there is bound to be renewed interest in the FHA certification process by condominium boards.

FHA certification is the process, which may be undertaken by a board of directors in a condominium project, to obtain FHA approval enabling homebuyers to obtain FHA insured loans for the purchase of condominiums within the development. In previous years, the FHA has taken steps to put into place less restrictive condominium project approvals, however, even with lessened restrictions, many condominium projects are unable to meet the FHA criteria for certification, with several condominium projects seeking approval being denied.

HR 3700’s changes to FHA certification are intended to increase the pool of condominium projects that obtain and maintain FHA certification, thereby increasing the pool of eligible condominiums available to homebuyers. The National Association of Realtors (NAR), proponents of HR 3700, highlight four important changes in the law:

       (1) a provisional reduction in owner-occupancy percentages to thirty-five percent (35%);

       (2) enabling lender approval of condominium projects with commercial space greater than twenty-five percent  
             (25%);

       (3) implementing “substantially less burdensome” FHA recertification processes by improving a process that can
             otherwise be expensive and, until now, required recertification every two years; and

       (4) replacing existing FHA policy on private transfer fees with the “less-restrictive model” used by the Federal
             Housing Finance Agency (FHFA).

Notwithstanding the passage of HR 3700, it should be made clear that FHA certification is not required for condominium projects. In fact, most condominium projects do not have FHA certification and, thus, many condominiums remain ineligible for FHA backed loans.

In keeping with full disclosure, there are potentially two additional disclosure requirements for associations. First is SB 918, which adds disclosure requirements for association members. Second is AB 2362, which requires disclosure regarding pesticide application.

SB 918: COMMON INTEREST DEVELOPMENTS.

SB 918 requires association members to, among other things, annually confirm their address (or addresses) to which notices from the association are to be delivered, no later than 30 days prior to the deadline for an association to distribute its Annual Budget Report and Annual Policy Statement. These member disclosure requirements, will be added to the California Civil Code as new § 4041. If a member fails to make the required disclosures, the owner’s property address within the association’s development will be deemed the mailing address for purposes of notice.

Managers will need to implement a system to solicit the required information from the owners on an annual basis and to update their records.

AB 2362: PESTICIDE APPLICATION.

Existing laws require licensed structural pest control operators to provide owners and tenants with prior written notice before application of pesticides. AB 2362 extends the existing notice requirement to associations, in instances where an unlicensed structural pest control operator is intended to apply pesticides. With the passage of AB 2362, association owners and tenants will receive substantially the same notice that they would otherwise receive under existing law if pesticides were to be applied by a licensed pest control operator. The pesticide application notice requirement will be added to California Civil Code § 4777 effective as of January 1, 2017.


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