Northwest Condo & HOA Law Blog : Washington & Oregon Construction Defect Lawyer & Attorney : Barker Martin Law Firm : HOA's, Condos : Seattle, Portland

Earlier this year, I wrote Blog postings on proposed federal legislation that could adversely impact the ability of homeowner associations to recover past-due assessments.  Specifically, H.R. 1106: "Helping Families Save Their Homes Act of 2009,"  would have given bankruptcy judges the ability to ‘cram down’ the principal balance and monthly payments, wiping out tens or even hundreds of thousands of dollars of money owed.  In addition to allowing courts to rewrite private mortgages, the proposed law also would have allowed the courts to bypass state assessment lien and priority lien statutes, thereby eliminating the already limited ability for a community association to collect past due assessments from these properties.

On April 30, 2009, the United States Senate voted 45 to 51 on a rewritten version of the House Bill, thus effectively killing the Bill.  I believe the proposed law was defeated in large part due to the high number of homeowners who contacted their Congressmen and women in voicing their concerns over the Bill.

As housing and foreclosure issues are likely to linger until a sustained economic recovery takes place, the attorneys at Barker Martin, P.S., will continue to monitor prospective legislation affecting homeowners and homeowner associations.

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Kevin Lisota wrote an informative posting Friday (5/1) on the Smart Real Estate Blog Site regarding due diligence a prospective condominium purchaser should conduct prior to purchasing a unit.  Click here to view the article. 

Lisota lists the following steps:

• Conduct a visual inspection;
• Review meeting minutes;
• Review the operating budget;
• Review the current reserve study;
• Review the association's rules and regulations;
• Review the association's insurance policy.

I have provided similar suggestions in seminars and presentations.  First, though, I'd like to add a couple of comments to the foregoing list.  It is not enough to 'review" the operating budget.  I recommend scrutinizing each line item of the current budget, and comparing it with the previous two years' budgets to identify trends and accuracy.  With respect to reserve study, if you do not have any construction or building maintenance experience, pass the report to a friend or family member who may have knowledge and can provide valuable assessment.  Also, make sure to review the reserve account, in addition to the actual reserve study.  Regarding rules and regulations, I would also highly recommend reviewing the association's declaration and bylaws.  You do not have to be a lawyer to identify gaps and potential problems.  When reviewing insurance, make sure to look at policy limits, deductibles, Directors and Officers coverage and endorsements specific to multi-family residences, such as sewer back-up, code compliance and demolition coverage, to name just a few.  There is no substitute for review by a professional insurance agent or consultant.

I would also add the following to the due diligence list:

• When conducting the visual inspection, stop and speak with a few homeowners and ask them the strengths and weaknesses of the community.  You may be surprised at what you uncover, both positively and adversely.
• Call the association manager and ask them the same question.  They do not get paid for such calls, but may provide you with a quick summary of the community.
• In these times of economic crisis, make sure to scrutinize not only the operating budget, but also the bad debt and collections/foreclosure rates. 

Lastly, I believe the foregoing steps are not limited to condominiums; rather, apply to Planned Unit Developments ("PUDs"), as well.

Buying a condo can be more complex than buying a single-family home.  For a successful purchase, make sure to perform your proper due diligence.

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There was an article in last week's Stranger reporting that new Fannie Mae regulations established in March have blocked condominium developers from closing unit sales if the developer has sold fewer than 70 percent of the units in a building.  Many of the large condo towers currently being built in Seattle and Portland are below the 70-percent threshold; consequently, hundreds of buyers who've already put down deposits may have to live elsewhere even after the buildings are completed.  These circumstances are a direct result of the economic crisis and real estate market slow down.

As Dominic Holden writes in the Stranger article:

If developers can't presell 70 percent of a building's condos before opening—a steep expectation even in a strong market—market forces may push developers to convert their buildings into apartments or drastically reduce prices.

As prices on unsold condos drop, some buyers may choose to walk away from earnest money deposits rather than hang on to units that have lost much of their original value.  In an ever spiraling situation, as more buyers walk away--increasing the gap between actual sales and the 70 percent required under the new Fannie Mae regulations--developers may have to decrease unit prices even further.

Click here for a listing of several Fannie Mae regulations affecting condominium lending requirements.

For further information on Fannie Mae lending requirements, or other issues related to condominium associations, feel free to contact Barker Martin, P.S. by selecting the "Contact" tab at the top of this blog page.

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We've been writing about several Bills on this Blog lately because there is a lot of prospective legislation (both locally and nationally) affecting homeowner associations and individual homeowners.  The level of legislative activity in this area appears to have increased probably in part as fallout from the economic crisis. 

As an update, H.R. 1106 "Helping Families Save Their Homes Act of 2009" remains stalled in the U.S. Senate, with no scheduled date for a vote (click here to keep track of the Bill).  In Washington, ESSB 1393, "Addressing residential real property construction improvements through consumer education, warranty protections, contractor registration requirements, and worker certification standards," is similarly stalled in the state Senate.  An earlier version of the Bill passed in the House, but is undergoing major rewrites in the Senate.  One of the latest versions, Striker 1393-S2.E AMS WM S2889.2, can be found here.  I believe the Striker version is wholly impractical and inefficient.  For example, the Striker establishes  a 7-person "Home Construction Board" to resolve construction disputes.  The Board would be comprised of four construction professionals of varying experience, a governmental building inspector and two members "of the general public."  The board members would be appointed by the governor and meet at least four times per year.  Doesn't sound to me like an effective or efficient way to resolve hundreds, if not thousands, of construction disputes filed in our state each year.  To keep track of ESSB 1393, click here.

The Oregon legislature is also debating several Bills that affect homeowners and homeowner associations, including SB 811 and SB 963.  SB 811 modifies provisions relating to enforcement of liens for association assessments in planned communities and condominiums, including establishment of a "super lien priority" for associations.  SB 963 includes several technical changes regarding governance for planned communities and condominiums in Oregon.  For specific information on the Bills and to track their progress, click here.  

Several Barker Martin, P.S. attorneys remain highly active in the Washington and Oregon legislative process, including serving on legislative committees for homeowner association industry groups.  On occasion, we also are asked to review and help draft prospective legislation.  Keep checking this Blog to obtain the latest legislative developments affecting homeowners.
   

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In early March, we posted a couple of blogs relating to proposed federal legislation that would significantly impact a homeowner association's ability to collect past-due assessments from a homeowner undergoing foreclosure.  Within days of my post calling for homeowners to contact their Congresspersons, I was contacted by an aid to a Tennessee Congressman wondering what all the fuss was with the H.R. 1106 ("Helping Families Save their Home Act of 2009" ).  After several emails and a lengthy telephone conversation, I explained the adverse impact of the bill.  Today, having passed in the U.S. House of Representatives, the bill is stalled in the Senate.

The following is an update from the Community Association Institute's ("CAI") website:

President Obama’s mortgage modification bill, H.R. 1106 passed the House of Representatives on March 5, 2009 by a vote of 234 to 191 with 7 members of congress not voting. The legislation is currently before the U.S. Senate for consideration where passage is far from certain. H.R. 1106 and its Senate companion bill S. 61 will need 60 votes to pass the Senate in order to avoid the filibuster promised by the bill’s opponents. The bill has not yet been scheduled for a vote as sponsors continue to seek enough votes for passage. Right now, a vote is not expected before Easter.

Click here for the bill's status.

Part of the President’s plan to stabilize the housing markets, H.R. 1106 would allow federal courts to reform mortgages in cases where a homeowner’s property is worth less than their principle mortgage balance. It would give bankruptcy judges the ability to ‘cram down’ the principal balance and monthly payments, wiping out tens or even hundreds of thousands of dollars of money owed in an effort to keep more people in their homes and to stabilize the housing market. CAI’s concern continues to be to protect associations’ ability to collect for past due assessments and to make sure that this legislation does not inadvertently bypass state assessment lien or priority lien statutes.

CAI was able to start a constructive dialogue with key House and Senate leaders on the potential impact of mortgage modification on associations ability to collect past due assessments. Thanks to the many persons who contacted their legislators, we believe that positive progress is being made in crafting a bill that provides support to those who need it and doesn’t create the risk of harming additional homeowners or their associations. Specifically, H.R. 1106 was amended in an attempt to clarify what costs need to be included in the post bankruptcy payment. This formula now specifically includes association assessments. House and Senate leaders are listening to our concerns regarding protecting associations and by extension homeowners.

Barker Martin, P.S. will continue to monitor the status of the bill, and other federal and state legislation affecting homeowners and homeowner associations.

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Engrossed Second Substitute House Bill 1393 (ESSB 1393) is currently under consideration by the House Ways & Means Committee.  The Bill is drafted to address real property construction improvements through "consumer education, warranty protections, contractor registration requirements, and worker certification standards."

• One-year warranty against defects in workmanship and materials;
• Two-year warranty against defects in the wiring, piping and ductwork in the electrical, plumbing, heating, cooling, ventilating, and mechanical systems;
• Four-year warranty against damage to basement slabs; and
• 10-year warranty for structural defects.

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On March 5, 2009, HR 1106: "Helping Families Save Their Homes Act of 2009" was approved (234 to 191) by the U.S. House of Represetnatives and is now off to the Senate for debate and vote.  There is a companion bill in the Senate that is concurrently being debated.

If you have concerns related to the possible adverse impact of the bill upon condominium and homeowner associations, contact your Senator.  For further details, see my March 5th Blog post below.

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This week, Congress is scheduled to vote on H.R. 1106: "Helping Families Save their Home Act of 2009."  I urge all owners who live in homeowner associations to call  or email their Congressperson and tell them to oppose this legislation as it is currently written.

Part of President Obama’s plan to stabilize the housing markets, H.R. 1106 would allow federal courts to reform mortgages in cases where a homeowner’s property is worth less than their principle mortgage balance. It would give bankruptcy judges the ability to ‘cram down’ the principal balance and monthly payments, wiping out tens or even hundreds of thousands of dollars of money owed. In addition to allowing courts to rewrite private mortgages, the legislation as written could also allow the courts to bypass state assessment lien and priority lien statutes, thereby eliminating the already limited ability for a community association to collect past due assessments from these properties.

Each year, residents of community associations assess themselves close to $80 billion dollars to pay for the maintenance, improvements and amenities in their communities. These assessments help preserve property values and provide infrastructure that would otherwise become the responsibility of state or local governments. When buying into a community association, home buyers agree to pay their share of the community operating costs.

If passed as written, H.R. 1106 could:

• Impact an association’s ability to recover delinquent homeowners’ assessments and, potentially, affect future assessment obligations to the community.
• Bypass state statutes that provide a priority lien or assessment lien for past due association assessments.
• Cause additional strain on the housing market by forcing non-foreclosed homeowners to pay higher fees to cover mandatory operating expenses, pushing more homeowners into financial distress.
• Cut funds available to maintain common areas of the community, resulting in a spiral of deteriorating infrastructure, lower property values and, ultimately, higher financial burdens on state and local governments.
• Undermine, if not unravel, the benefits of common ownership communities by exempting some homeowners from the obligation to pay their fair share to support common elements of the community, potentially leading to the bankruptcy of the communities themselves.

The critical nature of requiring all owners to pay their fair share of association assessments is recognized in the current bankruptcy code under 11 U.S.C. 523(a) (16) and various state-imposed assessment lien regimes. To protect the vast majority of responsible homeowners, legislation addressing mortgage modification must explicitly protect an association’s right to recover funds owed to the community by a delinquent homeowner.

If passed as written, this legislation would have a direct detrimental impact on the responsible residents of community associations. Please take action today by contacting your Congressman or Congresswoman.

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This month the Washington Community Associations Journal includes an article I wrote entitled "Changing of the Guard--A Survival Guide for New Board Members."  Feel free to view the article here.

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