One of the requirements applicable to amending an association’s CC&Rs is that approval for the amendment must be obtained by the percentage of members required by the CC&Rs “and any other person whose approval is required” by the CC&Rs. (Civ. Code § 4270(a)(1); See also “Amendments to Declaration (CC&Rs).”) When an association seeks to amend certain provisions of the CC&Rs (often defined as “material modifications” or “material amendments”), the CC&Rs may require approval for the amendment from not only the members, but also from the mortgagees (lenders) holding first mortgages on the lots or units within the association’s development. The language of such requirements is typically modeled in the following form:
“Any material modifications to this Declaration shall not become effective without the prior written consent of at least seventy-five percent (75%) of the Mortgagees holding first Mortgages on the Residential Lots within the Project.”
Material modifications that require mortgagee approval often pertain to provisions in the CC&Rs governing how assessments are allocated, the scheme for enforcement of the governing documents, the use of insurance proceeds, and the allocation of maintenance responsibilities.
“Written Consent” of Mortgagees that Fail to Return Ballots
Obtaining mortgagee approval for CC&R amendments is often difficult for an association because mortgagees and lenders rarely respond to an association’s ballot issues. The California Court of Appeal addressed this problem in the case of Fourth La Costa Condominium Owners Association v. Seith (2008) 159 Cal.App.4th 563. In Seith, the association was pursing a CC&R amendment that required “written consent” of the mortgagees. The association mailed letters and ballots to the mortgagees as required by the association’s CC&Rs. The letters were sent via Certified Mail, Return Receipt Requested (“RRR”), and informed each of the mortgagees that their signature on the RRR would be deemed “consent” of the proposed amendment if the mortgagees did not return their respective ballots within thirty (30) days. (Seith, at 573.) The trial court found the association’s approach to be an acceptable method of obtaining written consent from the mortgagees, and the Court of Appeal ultimately agreed with the trial court’s decision:
“As the court noted, the CC&R’s required an affirmative vote of owners, but only written consent by lenders. The court explained ‘[t]his would tend to indicate that the CC&R’s, as originally drafted, contemplated a distinction between the forms of approval required from each group, with the approval from the latter group being more relaxed in form. The CC[&]R’s did not specify the method by which the consent may be obtained. [The Owners Association’s] method of assuring receipt of the proposed changes by the lenders and thereafter providing them with 30 days within which to reject the changes is as good as any.’ We agree with the court’s assessment.” (Seith, at 573.)
Related Case Law
- Fourth La Costa Condominium Owners Association v. Seith
(1997) 55 Cal.App.4th 472
[CC&R Amendments; Real Estate Signs] Court upheld lender consent requirement for CC&R amendment, rather than lender vote; Real estate signs may be regulated for aesthetic purposes and may be prohibited from being posted in HOA common areas.