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

Because I have received so many inquiries and questions regarding my recent posts on the new HUD/FHA Condominium Guidelines, I thought I would keep our readers apprised on the latest developments over at FHA.

A number of important changes were announced yesterday by the FHA to reduce risk and improve its finances:

• The upfront mortgage insurance premium (MIP) will be raised from 1.75 percent to 2.25 percent.
• The minimum down payment will climb from 3.5% to 10% for applicants whose Fico score is below 580.
• Allowable seller concessions will be reduced from 6% to 3%.
• The FHA also plans to request legislative authority to increase the maximum annual mortgage insurance premium so it can reduce upfront costs for prospective home buyers.

The complete FHA announcement can be found here.

The proposed changes, which apply to all FHA loans, are expected to go into effect in either spring or summer 2010.

Additionally, the agency will continue to increase enforcement on FHA-approved lenders, and will publicly report lender performance rankings to improve transparency and accountability.

Lastly, based on anecdotal information provided by industry persons, I have reported that up to 40-50% of single-family residence loans will be FHA insured in the near future.  I read this week in several blogs (but have not been able to confirm through the FHA) that in 2009, 30% of mortgages and 20% of refinances were FHA backed.  So my initial estimates may not be too far off. 

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In a 6-3 decision issued on Christmas Eve, the Washington Supreme Court sided with condominium developers in upholding arbitration clauses incorporated into condominium purchase and sale agreements. 

In the consolidated case of Satomi Owners Association v. Satomi, LLC, this firm argued on behalf of two of its condominium association clients (Satomi Owners Association and Pier at Leschi Owners Association) that arbitration clauses contained within “Limited Warranty” packages were unenforceable. The Associations argued that the Washington Condominium Act’s provision for judicial enforcement or the arbitration provisions of RCW 64.55, which were drafted through a compromise of industry professionals and specifically designed for construction defect cases in Washington, trumped arbitration provisions contained within these so-called warranties.

The developers’ attorneys argued that the Federal Arbitration Act (“FAA”), which provides for enforcement of arbitration agreements in contracts, trumped the Washington Condo Act and the related arbitration provisions as a matter of constitutional preemption law. But the FAA only applies where there the transaction being sued over affects interstate commerce. The developers argued that the FAA applied because materials that make up the condominiums (such as lumber and siding) travelled in interstate commerce. At the court of appeals, we successfully argued that the fact that the materials used in constructing the condominiums travelled in interstate commerce was insufficient and irrelevant because the associations did not contract for the building of the physical condominium building, they merely purchased a finished condominium – a type of real estate that is intangible and specific to Washington law. 

Unfortunately, the 6-member majority held that because the arbitration clauses were referenced in the purchase and sale agreements, the fact that physical pieces of the condo travelled in interstate commerce was enough for the FAA to apply. The Court also cited the fact that some unit purchasers came from out of state or borrowed out-of-state funds.

The Court declined to decide the “gateway disputes” of whether Associations were bound when it is unclear whether all original purchasers signed an agreement including the arbitration clause. 

As a result, developers in Washington may be able to enforce terms of the arbitration clauses instead of following the carefully crafted arbitration provisions of RCW 64.55. 

This does not mean, however, that every part of the arbitration clause or the “limited warranties” in which they are found will be enforceable. While declining to decide whether the arbitration clause in the Blakeley Village case was unconscionable because of procedural irregularities, the majority confirmed that that issues of whether the contracts containing the arbitration clauses are unconscionable remain for the trial court to decide.

Another good summary of the case appears on the Supreme Court's blog.

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Yesterday, I was co-presenting at a Washington Community Association Institute (CAI) seminar on community building and annual meetings.  When discussing owner engagement in association matters, an attendee asked how a board should respond to "the crazies," and went on to describe a protracted dispute between several renegade homeowners and her board of directors.

As soon as the board member finished asking her question, several other attendees' hands shot up, wanting to share similar experiences within their homeowner communities.  The co-presenter and I ended up discussing the issue for several minutes before getting back to the main points of the presentation.

When I was driving home, I realized how often I have heard similar complaints from board members and association managers, with specific mention of "the crazies" within a community.  As I thought further, I came up with the following suggestions:

If you are a board member or manager, keep in mind:

• Not every complaint needs to be addressed.
• Not every issue must be resolved by the board or manager.
• Not every email needs an immediate reply.
• Not every phone call or in-person exchange at the mail kiosk or elevator requires an "official" response.

Just because a homeowner raises a community issue, it does not mean action has to be taken by the board or manager.  There are some issues that simply do not rise to the level of formal association action, no matter how strongly a homeowner protests, cajoles or threatens.

If a legitimate question or issue is raised by a homeowner during a chance meeting onsite or via email or phone call, a board member or association manager can respond by stating the issue will be discussed at the next board meeting.  When you get down to it, very few issues are truly emergencies requiring immediate action.  In reality, how much is ordinary business that can or should be conducted during formal association activity (i.e., board meeting)?  Think how refreshing it would be to let go of a significant percentage of email traffic by simply printing off the email, placing the issue raised on the agenda for the next board meeting, and discussing it then.  

If you are an "association crazy" or potential "crazy," keep in mind:

• Board members live within the same community (or own units/homes there) and pay the same assessments as you.
• Board members are volunteer (unpaid) lay persons without formal education or training in association and corporate governance.
• Board members are subject to the same governing documents as every other homeowner.
• Contrary to claims by some, board members are not out to rule the world or get kick-backs from each contractor and the management company.
• Threats to sue the board and association are usually counter-productive and result in added legal expenses and assessments to the association, to which you are a member. 

The key to reducing disputes between the "crazies" (and also rationale) homeowners and boards and managers is to rely strictly upon governing documents, set reasonable expectations and pursue enforcement actions consistently and uniformly.  If at the end of the day the homeowner(s) are still acting irrational, try following the suggestions described in an earlier post entitled "Dealing With Problematic Homeowners." 

Good luck within your own communities and let me know if you have additional suggestions I can add to my toolbox.

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