Newsletter, 2024-12
UPDATE ON THE CORPORATE TRANSPARENCY ACT
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction that prohibits the federal government from enforcing the Corporate Transparency Act (“CTA”). This injunction applies nationwide, meaning the obligation to file a report by January 1, 2025, is no longer enforceable against corporations in California or in any other state. However, this injunction could be appealed, it could be stayed (meaning it would be unenforceable and the reporting requirement would remain in place), or the reporting requirement could be reinstated once the injunction expires.
Because of this uncertainty, if your HOA is incorporated, the safest procedure is to have all beneficial owners file their initial report by the January 1, 2025 deadline. If you are concerned about privacy issues, you could delay filing until the end of December to check whether there is more clarification.
If you are not familiar with the CTA, the following is an updated reprint from my newsletter issued in July 2024:
The CTA was enacted to combat money laundering and related crimes such as terrorism, and to promote national security. It applies to corporations with under 20 employees and less than $5 million in annual income. This includes HOAs that have been incorporated, but not unincorporated HOAs. It is commonly believed that including HOAs in this reporting was an unintended consequence and several lawsuits have been filed claiming that the CTA is unconstitutional or that HOAs should be excluded from the reporting requirements, but until a court rules otherwise, HOAs must comply with this Act.
The CTA requires all incorporated HOAs to report to the federal Financial Crimes Enforcement Network information about the HOA and its beneficial owners. A beneficial owner is anyone who exercises “substantial control” over the HOA’s business, finances or structure – probably the treasurer and/or president – and anyone who has a 25% controlling interest in a company. If there are three directors, all three would be a beneficial owner. There can be any number of beneficial owners.
Aside from the preliminary injunction discussed above, the CTA requires the “beneficial owner” of every incorporated HOA to file an initial report by January 1, 2025. There are heavy penalties for late filings. This initial report will give information on the beneficial owner and the entity itself. Every time the beneficial owners change, the HOA’s report has to be updated. The report form is very brief and will take very little time to fill out.
The website for retrieving the online report that needs to be filled out and for more informa- tion, including a handbook with guidelines for compliance, is https://boiefiling.fincen.gov.
LEGAL UPDATE FOR 2025: NEW STATUTES
A few revisions to California statutes covering various HOA topics will come into effect on January 1, 2025. Also a federal statute, the Corporate Transparency Act, is now in effect, and every incorporated HOA needs to comply with this Act before January 1, 2025.
Note! These are just brief summaries. You should consult with an attorney for more details.
State Statutes
Assembly Bill 2114, balcony inspections. Up until this year, statute required common interest developments to inspect a random sampling of their balconies every nine years with the first inspection being completed by January 1, 2025. The inspection needed to be conducted by a structural engineer or architect. This bill, which took effect July 15, 2024, authorized civil engineers to conduct the inspection as well. This revision is intended to broaden the pool of experts who could conduct these inspections, because of the shortage of qualified experts and the impending deadline for compliance.
Assembly Bill 2159, membership voting by email. California law requires all membership votes on assessments, the election or removal of directors, approval of governing documents, and grants of easements to be conducted by mail-in secret ballots. This bill will allow common interest developments to adopt election rules that allow these votes to be conducted by email, using specific voting procedures, starting January 1, 2025. However, this does not apply to membership votes on assessments; those vote must be taken by mailed ballot. Note that this new statute does not specifically allow HOAs to use email voting unless it is authorized in their election rules. HOAs should have their election rules revised to allow email votes before taking membership votes by email.
Assembly Bill 2460, reduced quorum. This bill applies to director elections. If a quorum of election ballots are not returned by the deadline, the HOA’s Board of Directors can, at its option, adjourn the meeting to count the ballots and at the adjourned meeting quorum shall be reduced to 20% of the owners. This applies to all HOAs, regardless of anything contrary in the governing documents, unless quorum is already less than 20%. Information about this reduced quorum needs to be disclosed in various notices that are required as part of the voting process.
Senate Bill 900, common area repairs. Starting January 1, 2025, unless the governing documents say otherwise, the HOA must provide maintenance and repairs needed to provide utility services to the separate interests, even if the lines needing work are located in units or on lots or exclusive use common area. This work must be started within 14 days after service is interrupted. If a loan is taken out to fund the project, the HOA’s Board of Directors can levy an emergency assessment without a vote of the owners to pay for the work. These new requirements do not apply if a utility company or local government is responsible to maintain or repair the utility lines, or if there is a government-declared state of emergency.
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This newsletter gives only a brief summary of the new statutes. For further clarification on their impact on your homeowners association, please contact this office.