As a quick update to our Feb 19. article, SHB 2657, the bill proposed by Representative Jamie Pedersen, has passed both houses as amended in the Senate Judiciary Committee. It was delivered to Governor Gregoire for signature today. Updates can be found here.
This session, Representative Jamie Pedersen of the 43rd Legislative District has prime sponsored SHB 2657, which would fix the rather large loophole identified by the Washington Supreme Court in its May 2009 decision in Chadwick Farms Owners Association v. FHC, LLC, 166 Wn.2d 178, 207 P.3d 1251 (2009).
In Chadwick Farms, the court held that any and all legal claims against LLCs abated -- essentially disappeared -- when an LLC's certification of formation was "cancelled." The court explained that under the LLC statute as written, cancellation signalled the end of the LLC's existence and therefore, it could neither sue or be sued. As a result, a company formed as an LLC could avoid liability -- even if a lawsuit had already been filed against it -- simply by filing a certificate of cancellation. Since many condominium and HOA developers are formed as LLCs, homeowners in Washington stood to lose quite a bit if the loophole was not fixed. But the court's holding is not limited to construction defect or homeowner lawsuits - any LLC could avoid liability simply by cancelling.
With the support of WSCAI and the LLC section of the Washington State Bar Association, Rep. Pedersen's bill does away with the concept of cancellation and makes the LLC statutes (found in RCW Chapter 25.15) more consistent with existing law for corporations. The most recent striking amendment to the bill ensures that claims will survive against dissolved LLCs unless a sometimes-optional "certificate of dissolution" is filed and three years has run since the filing of the certificate. WSCAI and the homeowners we represent thank Rep. Pedersen, the Bar Association Section and the Judiciary Committees in both the House and Senate for their efforts to pass this bill.
The bill was passed by the House and is scheduled for executive session in the Senate Committee on Judiciary on Feb. 19. The bill is expected to pass out of committee and be forwarded to the Rules Committee for review. Click here for an update on the bill's status.
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.
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.
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.
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."
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.
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:
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.
Condominium associations are encouraged to establish reserve fund accounts to pay for major repairs or replacement of common elements. The purpose of a reserve account is to fund components that are in need of repair or replacement within 30 years.
On March 8, 2008, the Washington legislature passed a new law regarding reserve studies for condominiums. The law falls short of what many industry professionals sought, including mandatory reserve funding and studies, but is a step in the right direction. The new law also is silent on maintenance plans, as required in neighboring Oregon and California.
The law, which becomes effective June 12, 2008:
The statute does not define "unreasonable hardship." The law also allows an association to withdraw funds from the reserve account for unforeseen expenses, as long as notice is given to unit owners, and a repayment schedule is set up.
There are other provisions in the statute not covered here. For a complete description of the law, see SB 6215.
Friday, March 7 was the last day to consider opposite house bills in the legislature, so any bills that have been voted on by both houses will not pass this year. Of the numerous condo and HOA-related legislation introduced this year, only two bills passed both houses and now await signature by the governor. The governor has five days, excluding Sundays, to take action on bills passed by the Legislature unless adjournment occurs within those five days, in which case the governor has 20 days to sign or veto (excluding Sundays.)
The second bill to pass this year is SB 6215 relating to reserve accounts for condominium associations. After passing the senate, SB 6215 was amended by the House Committee on Judiciary to include a few clarifying terms and to require disclosure of the lack of reserve study if none has been undertaken.
The bill creating a cause of action for negligent construction, SSB 6385, amended in the Senate committee to exclude condominiums, passed the senate in that form and was passed out of the House Judiciary Committee on February 28. On February 29, it was passed to Rules for a second reading, but never made it to the House floor.
ESB 6745, which was the bill recommended by the HOA task force, was substantially amended on the floor of the senate, including amendments to make its application retroactive, to add numerous clarifying definitions, to remove the “open meetings” provision for board meetings, and to reduce the quorum requirement for association meetings. Another amendment disallowed the use of liens against a person’s homes for failure to pay fines as opposed to assessments. The engrossed bill passed the Senate unanimously. It was then referred to the House Judiciary Committee on February 20, but inexplicably never made it out of committee.
SHB 2014, providing additional protections to tenants of condominium conversions, having passed the House on January 18, has been tentatively set for public hearing before the Senate Consumer Protection and Housing Committee on February 5, 2008 at 1:30. Having worked out some of the kinks last year, this bill seems fast-tracked for enactment this year. See our prior article re this bill here.
SB 6215, regarding reserve studies and accounts, was passed out of the Senate committee on January 18 and has been in Rules since January 25. See the original article regarding this bill here.
SB 6745, the HOA Act Committee bill was set for public hearing in the Senate Committee on Consumer Protection and Housing on February 1, 2008. See the original article on this bill here.
Two new bills propose to create task forces to study condominium issues this year. SB 6875, sponsored by Senator Rodney Tom, would create a task force to study condominium governance issues and would be staffed by condominium board members, homeowners and attorneys. In contrast, SB 6724 would be staffed with developer entities and no homeowner representatives. While this bill purports to create a task force to review condominium liability in the insurance context, it is expected that unless limited, the task force may attempt to make recommendations for amendment of the condo act to reduce builder liability.
SSB 6385, creating a cause of action for negligent construction for single family homes, was amended in committee and passed the house on February 1, 2008. It has now been referred to the House Judiciary Committee for review.
Find info on these bills and others by checking out the legislative website bill finder. Also, a good overview of the legislative process can be found on the Washington State Legislature website here.
House Bill 2014, which would provide additional protections and disclosures to renters of apartments slated for conversion to condominiums, underwent its first major change this year. Today, the first substitute bill passed out of the House. The bill was first proposed last session, passed out of the House Committee on Housing, but session ended before it went any further.
Currently, SHB 2014 provides that a condominium converter must give the current tenant 120 days’ notice of the conversion and must provide notice of any relocation assistance. In addition, any construction work commenced during that 120 days must not disturb the tenants’ “quiet enjoyment.” The bill defers to the local cities and counties whether to require the conversion declarant to fund relocation assistance.
Track the status of SHB 2014 here.
As the Washington legislature begins its work this session, Senate Bill 6215, relating to reserve accounts and studies for condominium associations has been sponsored by Senators Rodney Tom, Jim Honeyford and Bob McCaslin. The bill would encourage condominium associations to have reserve studies conducted by reserve study professionals and establish reserve accounts to fund major maintenance, repair and replacement of common elements. However, the bill provides no penalties for an association’s failure to do so unless an association has failed to do so for three years and 20% of the homeowners demand that a reserve study be completed.
The bill was set for hearing before the Senate Consumer Protection and Housing Committee on January 18, 2007. Check out the current iteration of the bill and its status here.
In 2006, the Washington legislature established a committee to study the problems facing owners in non-condo HOAs and to come up with recommendations on revisions to the Homeowners’ Associations Act. The Homeowners Act Committee was charged with reviewing the Act, the Uniform Common Interest Ownership Act and considering specific problems faced by Washington HOAs such as disclosures to buyers in an HOA, alternative dispute resolution for HOA/owner disputes and methods for amending CC&Rs, among other issues.
On January 9, 2008, the Committee issued its final report. Read the full report here. As of the date of this article, no bill has been introduced relating to the committee’s recommendations.
