Northwest Condo & HOA Law Blog

The Sky is Falling...The Sky is Falling!

danzimberoff@barkermartin.com (Daniel Zimberoff) — Sun, 26 Oct 2008 19:32:13 -0800

Recent turbulent economic news and tumbling Wall Street markets continue to bring much doom and gloom to individual homeowners and homeowner association board members, alike. Unprecedented foreclosure rates, downward spiraling home sales and ever tightening homeowner and association loan underwriting requirements compund the crisis. Earlier this year, I wrote a blog entry (Association Dislcosure and Board Action in a Down Market; February 7, 2008) that contained several steps a board should take in a down market. Now that the American economy has reached an undeniable recessionary period, I have added the following recommendations for boards to take to preserve property values within their communities.

In these trying economic times, boards should strictly enforce their CC&Rs and collections policies. Although it is human nature to want to assist neighbors and friends in times of trouble, now is not the time to allow homeowners to accrue large past due accounts. I am not necessarily recommending that boards proceed with foreclosure actions on each homeowner that becomes a month or two past due, but boards should take aggressive and proactive steps to minimize bad debt. Such action should include adopting strict collection and foreclosure criteria and protocols, and consistently adhering to these protocols.
If an association has a rental cap restriction, it is assumed there is a hardship exception provision. In today's period of economic adversity, boards should be prepared to grant multiple hardship exceptions due to job relocation or termination. These exceptions should be capped at six or 12 months, which should provide a sufficient buffer to the affected homeowners.
I have heard of several instances recently where a community (condominium or single-family home) has not been completed or sold out, is under Declarant control, and the Declarant files bankruptcy, leaving the association without sufficient funds to meet its normal operating budget. If you are a member of an association that is not completed or turned over and you believe your Declarant is experiencing serious financial distress, do not wait for it to file bankruptcy. Call for a Special Meeting for the purpose of discussing the association's finances. Insist on straight answers to the hard questions of the solvency of the Declarant and financial resources of the association. Be prepared to seek legal intervention, if needed, to preserve the assets of the association before the Declarant drains all available funds. Work with your association management company in this endeavor.
For units or homes that have been foreclosed upon by a bank and have not sold, ensure that the bank maintains a basic level of care of the residence. There are numerous reports of adjoining units and common elements being damaged by burst pipes or other faulty appliances due to heat being shut off in the home or other basic lack of maintenance. Also, foreclosed units or homes that sit vacant for multiple months become targets of vandalism and burglary. An association's manager or agent should periodically check on the security of these homes.
Lastly, be prepared for revenue shortfalls due to homeowners who cannot afford to pay their monthly assessments. Associations may have to dip into reserve accounts or obtain a loan to cover operational budgets. If dipping into reserves or obtaining a loan, a board must strictly comply with state law and its CC&Rs, and must have a game plan for paying back these loans.

No, the sky is not falling, but we are experiencing substantial economic turmoil that will be with us for the foreseeable future. A homeowner association board of directors should take aggressive, proactive steps to protect its members from the fallout from this recessionary economy.

If your association would like more information on any of the items above, feel free to contact Barker Martin, P.S. by selecting the "Contact" tab at the top of this blog page.

Dealing With Problematic Homeowners

danzimberoff@barkermartin.com (Daniel Zimberoff) — Sun, 21 Sep 2008 15:37:56 -0800

One of the biggest challenges a homeowner board faces is irrational conduct by a problematic homeowner. I've seen this scenario play out in several ways, with all of them sharing the same underlying themes: unnecessary conflict, wasted time and increased management and legal fees.

In two similar instances, condominium homeowners whose units were damaged by water intrusion emanating from common elements unreasonably interfered with the association's efforts to repair the units. After many months of failed negotiations without professional assistance and repeated failed repair attempts which cost the associations unnecessary costs, the associations finally sought legal counsel. In both instances, the associations were only able to resolve the dispute through court-ordered preliminary injunctions.
Another common occurrence is the homeowner who continuously or consistently violates an association's CC&Rs. Even after multiple violation notices or warnings, and rising fees, penalties and interest, the homeowner still ignores the association.
Lastly, I have seen many instances where an individual homeowner takes an untenable position with respect to some action taken by the board. The homeowner either cites inaccurate laws or unreasonable intepretations of the association's CC&Rs. The owner often threatens to sue the association, and many times, the board members individually.

In these and other instances, a board of directors' first reaction is to try to work with the owner. No board wants to immediately involve an attorney; rather, it is human nature to "just try to get along." Plus, as members of the association themselves, a board often wishes to work amicably with their neighbors. However, especially in instances of irrational behavior, legal intervention might be the quickest and least expensive means of resolution.

Whether or not a board seeks assistance from an attorney, I recommend the following steps be taken when dealing with an irrational homeowner:

(1) Identify early on that the owner is irrational. Remember, irrational persons do not act rationally and likely will not respond to a rational and reasonable offer of compromise.

(2) Document, document, document. Written documentation of all correspondence and communication is always important in the corporate or business context, but it is especially crucial when dealing with irrational persons who have a distorted perception of reality.

(3) Try to identify an ally, either a family member or friend of the homeowner, who can help facilitate a resolution of the dispute. However, beware; in my experience, I have found that a close family member may be too personally involved to provide objective assistance. In some cases, the friend or family member may blindly support the owner and further exacerbate the conflict.

(4) Once the owner rejects a reasonable offer by the association to resolve the dispute, it probably is time to obtain professional assistance. In my personal experience, an irrational person does not suddenly wake up one day and start to act rationally.

Irrational homeowners present some of the most unique challenges in my representation of homeowner associations. Although I have learned it the "hard way," sometimes the quickest, and LEAST expensive resolution of a dispute is through immediate court intervention.

View Covenants: How Far Can a HOA Go?

danzimberoff@barkermartin.com (Daniel Zimberoff) — Tue, 09 Sep 2008 20:24:58 -0800

Many homeowner associations have covenants within their CC&Rs that limit a homeowner's right to restrict a neighbor's view. For a view covenant to be legally enforceable, it must be included within a validly recorded instrument, such as the association's declaration or plat. The covenants may include structures (e.g., homes, detached garages, sheds, fences, etc.), vegetation (e.g., trees or bushes) or even vehicles. The view covenants also may be absolute or discretionary.

An example of an absolute view covenant would be a "25-foot height restriction on all structures constructed on the plat." A discretionary view covenant would be a "restriction on trees or other vegetation that impairs the view from an adjoining owner's property." Both absolute and discretionary view covenants must be reasonable and applied uniformily. It should be no surprise that there are many more disputes and litigation involving discretionary view covenants than absolute covenants.

To enforce a view right, a homeowner associaton may seek injunctive relief from a court. Time ordinarily is of the essence. For example, if an owner is in the middle of constructing a home that exceeds the view covenant's height restriction, the plaintiff association would want to move without delay. If the association delays for an unreasonable amount of time in seeking judicial intervention, the offending homeowner may be able to rely upon a laches, acquiescence or waiver defense. What this means is if the plaintiff had constructive knowledge of the offending party's actions and through his words or conduct represents that he will offer no opposition, then the plaintiff may be barred from stopping the homeowner's conduct, or at least be limited in obtaining the relief sought.

I have found that many boards delay enforcing view restrictions, and often these delays prejudice their abilities to obtain successful outcomes (or at least efficient and timely successful results). Either these associations think (hope) the offending party will come around, or they do not want to incur legal fees in hiring an attorney. Remember, most CC&Rs contain provisions for the Association to recover its attorneys' fees and costs incurred in enforcing its governing documents.

If your association would like more information on creating or enforcing view covenants, feel free to contact Barker Martin, P.S. by selecting the "Contact" tab at the top of this blog page.

New Fannie Mae Condo Lending Rules

danzimberoff@barkermartin.com (Daniel Zimberoff) — Sat, 23 Aug 2008 12:20:52 -0800

In February, I wrote about stiffening mortgage underwriting polices adopted by mortgage lenders on loans for condominium purchasers. This rule tighten was a direct result of the sub-prime lending crisis plaguing our nation's banks and lending institutions. These changes included Federal National Loan Association ("Fannie Mae") altering its lending policies on condominiums to include a Full Review Required.

Under the Full Review, lenders are now required to assess the financial strength of condominium owners associations, as well as the credit and assets of the individual prospective condominium purchasers.

The new rules require full project reviews for loans to individuals purchasing units for primary residences or second homes and for loans to investors buying condominium units. Another significant change is that single loans in existing communities will be allowed only for borrowers who make a miminum down payment of 10%; the former policy allowed "zero-down" loans.

Under the new policy, lenders must verify and warrant to Fannie Mae that:

The homeowners association maintains an "adequate" budget;
The budget allocates at least 10% of annual revenues to reserves;
The homeowners association holds funds equaling the deductible under the master insurance policy; and
No more than 15% of the common area fees are delinquent by more than one month.

As I wrote earlier this year, the downturn in the economy and change in lending laws require association boards of directors to pay particularly close attention to:

(a) disclosure requirements for condominium resale certificates (in Washington only);
(b) managing accounts receivables;
(c) overseeing rental restrictions; and
(d) following strict collections policies.

These requirements are no less important with the recent lending rule changes adopted by Fannie Mae. With the large number of foreclosures and owners who are falling behind on paying asessments, it will be especially problematic for associations to stay above the 15% delinquency rate mandated by Fannie Mae. Furthermore, the budget and reserves funding requirements may exceed those required under both the Washington and Oregon Condominium Acts (thus, a board may be following the law and still run afoul of Fannie Mae lending rules).

If you have specific questions regarding your how your homeowner association can best comply with these requirements, feel free to contact Barker Martin, P.S. by selecting the "Contact" tab at the top of this blog page.

Tower Condominiums and Mixed-Use Condominiums

danzimberoff@barkermartin.com (Daniel Zimberoff) — Tue, 29 Jul 2008 15:21:25 -0800

The last few years have brought with them a substantial upturn in development of large tower condominiums and multi-use condominiums in the Pacific Northwest, predominantly Seattle and Portland. Such condominiums often include multi-million dollar units, high-end retail stores and anchor hotel or grocery store chains. Each of these divergent segments is coalesced into a single master condominium association.

However, what is best for a hotel may conflict with the interests of individual homeowners. Public access and marketing efforts for a retail store may offend or intrude upon homeowners and hotel guests. Issues of parking, easements, common areas, pools and pets that involve most standard condominiums take on special significance and impact within tower and multi-use condominiums. Even rudimentary homeowner-to-homeowner disputes, such as excessive noise, are elevated to newfound consequences when multi-million dollar unit owners confront one another.

Recently, several multi-use condominium associations have contacted me regarding some of the exact issues highlighted above. In these instances, the condominium owners associations, with no prior formal legal representation, faced multi-million dollar sub-association entities with large corporate legal departments. If you are a homeowner or board member of a tower or mixed-use condominium association, in order to level the playing field, you'll want to ensure you have highly specialized legal counsel and other association professionals on your team.

When an Oregon "As-is" Condo is not "As-is"

danzimberoff@barkermartin.com (Daniel Zimberoff) — Thu, 03 Jul 2008 12:46:41 -0800

Recently, I have been contacted by several Oregon condominium association board members and individual homeowners whose conversion condominiums are experiencing serious construction defects and substantial repair costs. Some of these owners and board members have stated they don't believe they have any legal claims because the developer sold the condominium unit "as-is."

Oregon law, as in many states, provides statutory warranties or disclosure requirements for initial condominium purchasers--for both new condos and conversion condos:

* A Declarant of a newly constructed condominium shall expressly warrant against defects in the plumbing, electrical, mechanical, structural, and all other components of the newly constructed units and common elements. The applicable statute is ORS 100.185.

* A Declarant of a conversion condominium must provide a statement of the "present condition of all structural components and major mechanical and utility installations in the condominium, including the approximate date of construction and a reasonable estimate of the remaining useful life of, at a minimum, the roof, siding, plumbing, electrical, HVAC system, asphalt, sidewalks and decks." The disclosure also must include a statement of whether the assessment of conditions was prepared by a licensed engineer, architect or home inspector. The applicable statute is ORS 100.655(h).

Thus, there is no such thing as an "as-is" new condominium unit sold in Oregon. Although Declarants may sell a conversion condominium unit without a warranty, or "as-is," that does not necessarily mean an owner or association foregoes all legal rights in the event construction defects or prior damages exist. An owner or association may have claims for lack of proper disclosure in the Condominium Disclosure Statement, regardless of whether an "as-is" statement was included in the Condominium Disclosure Statement and/or Purchase and Sale Agreement.

Lastly, although there are no reported Oregon appellate decisions directly on point, courts in other states (including neighboring Washington) have rejected a Declarant's attempts to disclaim warranty and disclosure obligations through a general "as-is" statement.

If you have specific questions regarding your condominium's warranties or disclosures, feel free to contact the Portland or Bend offices of Barker Martin, P.S.

FAQs Regarding the New Washington Reserve Study Law

danzimberoff@barkermartin.com (Daniel Zimberoff) — Fri, 13 Jun 2008 18:47:54 -0800

The new Washington Condominium Reserve Accounts and Studies law went into effect on June 12, 2008 (See my earlier Blog posting below). In the past month, I have received several emails and telephone queries from association board members and managers regarding the law. Below are five of the most commonly asked questions, with my corresponding answers:

Q. Does the law include homeowner associations, or just condominiums?

A. Although it is highly recommended that all homeowner associations that maintain common areas commision a reserve study, the new law is limited to condominium associations (this includes cooperatives that are also condominiums).

Q. Does the new law affect "old" Act condominiums, or just condominiums created after July 1, 1990?

A. The Reserve Study law governs all residential condominiums in the state of Washington, whether created before or after July 1, 1990.

Q. What good is the law if it doesn't require condominium associations to actually fund a reserve?

A. Although the law does not require a specific funding of reserves, it does require establishment of a reserve account and that an initial reserve study and periodic updates be conducted. The study itself will set forth a recommended dollar amount per year or month be placed into a reserve account. Also, the statute explicitly states that, "An association is encouraged to establish a reserve account to fund major maintenance, repair, and replacement of common elements, including limited common elements that will require major maintenance, repair, or replacement within thirty years." If the association fails to follow the recommendations of the reserve study and actually fund the reserves, the statute does NOT allow "monetary damages or any other liability be awarded against or imposed upon the association, the officers or board of directors of the association, or those persons who may have provided advice or assistance to the association or its officers or directors, for failing to establish a reserve account or having a current reserve study prepared or updated." I believe a group of homeowners might be successful in a declaratory judgment action against an association that fails to adequately fund a reserve, but no monetary damages could be awarded (it is arguable that attorneys' fees could be awarded if the action were successful).

Q. Does a condominium association have to commission a reserve study right away?

A. We believe an association has up to 12 months from the effective date of the law (6/12/08) in order to complete an initial or updated reserve study. Thus, an association should have ample time to adequately research the marketplace for a reserve study consultant who fits the association's specific needs. We recommend associations rely upon the Washington and Oregon chapters of Community Association Institute's recommended vendor lists WCAI / OCAI to identify well qualified reserve study professionals.

Q. Who is a "reserve study professional" and does an association have to use such a person to conduct a reserve study or update under the new law?

A. Interestingly, the law does not require that a "reserve study professional" actually conduct the study or update. However, the report itself needs to include a statement on whether the study was conducted by a "reserve study professional." There is no state licensing or regulation of the reserve study industry. Anyone can hold themselves out to be a "reserve study consultant." Since there is no formal state designation, I believe a common sense and reasonable interpretation of "reserve study professional" controls; essentially, someone with a construction or building inspection background who has been performing condominium reserve studies for a reasonable amount of time. Incidentally, there is a national trade group for reserve study consultants that does require testing and a credentialing process (see the APRA website for more details and a listing of members).

Feel free to contact Barker Martin, P.S. if you have further questions on this burgeoning law.

New Washington Reserve Study Law

danzimberoff@barkermartin.com (Daniel Zimberoff) — Sat, 19 Apr 2008 18:02:10 -0800

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:

Requires a residential condominium association, unless doing so, would impose an unreasonable hardship, to (1) prepare an initial reserve study based upon a visual site inspection conducted by a reserve study professional; (2) update the study annually; and (3) arrange for a visual site inspection every three years by a reserve study professional.

Reserve studies must include detailed information on projected expenditures and current reserve account information and must be conducted by a reserve study professional.

Encourages, but does not require, a residential condominium association to establish a reserve account, supplemental to the association’s annual operating budget, to fund major maintenance, repair, and replacement of common elements.

Requires a condominium Public Offering Statement or Resale Certificate to include a copy of the current reserve study; or (2) a disclosure to the potential buyer stating that the association does not have a reserve study.

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.

Record-Breaking Profits for Insurance Companies [Updated 4/11/08]

danzimberoff@barkermartin.com (Daniel Zimberoff) — Fri, 11 Apr 2008 16:35:23 -0800

[The following update includes newly released figures for 2007 and supplements my original entry posted 3/29/08]

Madison Avenue has done an amazingly effective job transforming large cap insurance companies into friendly, pro-consumer institutions in the eyes of many.

To emphasize my point, think of the three most popular insurance companies?

I bet Geico was one of the first names that came to mind. What image pops up? How about a docile animated gecko that speaks in a British accent? Or what about PEMCO Insurance, you know, the “We’re a lot like you, Greenlake power walker or blue tarp camper guy.” What about arguably the industry leader for this transformation change, the AFLAC duck?

But strip away the cute computer generated geckos and ducks, and the numbers reveal the truth about the insurance industry.

Fact: For the past three years and continuing into 2008, the insurance industry in America has achieved record-breaking profits. This fact is nearly astounding considering Hurricane Katrina occurred in 2005.

The numbers:

2005: $43.0 Billion profit (Source: Insurance information institute [insurance industry trade group])
2006: $63.7 Billion profit (Source: Insurance Information Institute)
2007: $61.9 Billion profit (Source: Insurance Informaiton Institute)
2008 projected: "Analysts expect the industry’s profitability to continue in 2008. . .The ratio of losses and expenses to premiums for 2008 is projected to be 97.3, a deterioration from an estimated 93.8 in 2007. The 93.8 estimate for 2007, if accurate, would represent one of the top 12 best underwriting performances over the 88-year period beginning in 1920." (Source: Insurance Information Institute)

Several of the developers and contractors allegedly did not realize they were without insurance on their construction projects. The developers and contractors obtained CGL policies and paid CGL premiums, but when it came time for the insurance companies to indemnify the insureds for the losses, sued the policy holders in declaratory judgment actions to avoid payment.

As a result , homeowners are left holding the bag on multi-million dollar repairs with no source of recovery because builders have created single-asset LLCs and distributed all income after the project was sold, and less and less insurance is available. This shift has occurred in the context of insurance companies obtainng record profits.

One possible answer to the current disparity in loss and recovery in Washington is through the Condominium Qualified Warranty program created by the Washington legislature in 2004. RCW 64.35, et seq.

Under the program, there is a two-year materials and labor warranty, a five-year building envelope warranty and a ten-year structural defects warranty. The program allows an award of reasonable attorneys' fees to the substantially prevailing party, yet in no event may such fees exceed the reasonable hourly value of the attorney's work. This provision should appease the lawyer-bashing critics. Surprisingly, no insurers have funded the warranty program. One can only speculate the lack of participation by insurers has everything to do with cutting into their bottom lines.

No New Washington Disclosure Laws for HOAs and COAs

danzimberoff@barkermartin.com (Daniel Zimberoff) — Sat, 29 Mar 2008 12:48:11 -0800

Within the past two weeks, I have been asked by three separate persons whether the Washington state legislature passed new laws this year related to homeowner and condominium association disclosure requirements tied to home sales. The short answer is, "No." Although there were several engrossed bills in the state house and senate involving homeowner associations that included added disclosure requirements, none of these bills went to a full vote by the legislature.

The current law in Washington is as follows:

Association meeting minutes are not required to be included in a condominium resale certificate (The 18 separate statements or disclosures required to be included in a condominium Resale Certificate may be found at RCW 64.34.425.)
Homeowner associations, other than condominiums, have no disclosure requirements related to sales of homes; however, individual sellers still need to complete a Seller Disclosure Statement, otherwise known as NWMLS Form 17.

Although there is a movement to incorporate a resale certificate-type of disclosure requirement upon all homeowner associations in Washington, no such laws have been enacted to date.

Record-Breaking Profits for Insurance Companies

danzimberoff@barkermartin.com (Daniel Zimberoff) — Fri, 21 Mar 2008 21:18:26 -0800

I get that lawyer bashing has become a national pasttime and that plaintiff lawyers are as far down on our society’s popularity chart as politicians. But what I do not understand is how insurance companies--the quintessential example of corporate largess--have rocketed up the chart. Madison Avenue has done an amazingly effective job transforming large cap insurance companies into friendly, pro-consumer institutions in the eyes of many.

To emphasize my point, think of the three most popular insurance companies? I bet Geico was one of the first names that came to mind. What image pops up? How about a docile animated gecko that speaks in a British accent? Or what about PEMCO Insurance, you know, the “We’re a lot like you, Greenlake power walker or blue tarp camper guy.” What about arguably the industry leader for this transformation change, the AFLAC duck? But strip away the cute computer generated geckos and ducks, and the numbers reveal the truth about the insurance industry.

The numbers:

2005: $44.8 Billion profit (Source: LA Times)
2006: $63.7 Billion profit (Source: Insurance Information Institute)
2007: Dollar figure not released. "Many insurers delivered strong earnings during the year powered in large part by healthy underwriting profits that could approach $25 billion in 2007, which would be the second largest underwriting profit on record after the $31.7 billion earned in 2006. 2007’s survey results indicate that the continuing respite in catastrophe losses in 2007 combined with strong performances in virtually all major lines of property/casualty (P/C) insurance will propel the industry to one of its best underwriting performances in the past 80 years" (Source: Insurance Information Institute)
2008 projected: "Analysts expect the industry’s profitability to continue in 2008. . .The ratio of losses and expenses to premiums for 2008 is projected to be 97.3, a deterioration from an estimated 93.8 in 2007. The 93.8 estimate for 2007, if accurate, would represent one of the top 12 best underwriting performances over the 88-year period beginning in 1920." (Source: Insurance Information Institute)

In light of these record-breaking profits, the insurance companies are paying out less and less in claims against builders and developers. Wthin the past twelve months alone, several of our homeowner association construction defect clients with multi-million dollar claims are facing zero contribution from insurance, as the insurers have included stringent exclusions to policies, including no payment for losses involving “condominium” or “multi-family residential” construction. Several of the developers and contractors allegedly did not realize they were without insurance on their construction projects. The developers and contractors obtained CGL policies and paid CGL premiums, but when it came time for the insurance companies to indemnify the insureds for the losses, sued the policy holders in declaratory judgment actions to avoid payment. As a result , homeowners are left holding the bag on multi-million dollar repairs with no source of recovery because builders have created single-asset LLCs and distributed all income after the project was sold, and less and less insurance is available. This shift has occurred in the context of insurance companies obtainng record profits.

One possible answer to the current disparity in loss and recovery in Washington is through the Condominium Qualified Warranty program created by the Washington legislature in 2004. RCW 64.35, et seq. Under the program, there is a two-year materials and labor warranty, a five-year building envelope warranty and a ten-year structural defects warranty. The program allows an award of reasonable attorneys' fees to the substantially prevailing party, yet in no event may such fees exceed the reasonable hourly value of the attorney's work. This provision should appease the lawyer-bashing critics. Surprisingly, no insurers have funded the warranty program. One can only speculate the lack of participation by insurers has everything to do with cutting into their bottom lines.

End of Session Legislative Update for Washington

marlynhawkins@barkermartin.com (Marlyn Hawkins) — Mon, 10 Mar 2008 11:23:43 -0800

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.)

HB 2014, relating to protection of tenants of conversion condos, passed both houses and awaits signature. HB 2014 was revived from last session, but amended with a substitute bill in the Senate on January 18. The bill passed both the senate and the house in this form.

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.

Email and HOA Board Action

danzimberoff@barkermartin.com (Daniel Zimberoff) — Sun, 24 Feb 2008 21:51:40 -0800

There are very few volunteer homeowner association boards that do not communicate via electronic mail. Although most board members know not to take any board action via email, the line between casual communication and official board action easily can be blurred. As general counsel for homeowner associations, I routinely advise boards that to the highest degree possible, they should reduce email communication. However, practically speaking, I understand board members are like just about every other member of American business culture who rely upon email as a valued communication tool and timesaving mechanism. The reason email between board members should be reduced or eliminated altogether is because association board action must be conducted in an official meeting and not conducted “off the cuff” outside the presence of association members.

Notice: Homeowner association board meetings must be properly noticed and open to all association members (with limited exceptions for emergency and executive sessions) (RCW 24.03.120; ORS 65.214). Oregon law allows for notice of meetings to be sent electronically, while Washington requires notice via U.S. Mail for condominium associations and as noted in the bylaws (including electronic notice, if prescribed) for PUD homeowner associations.
Meetings via Consent (Oregon only): Unless the articles of incorporation or bylaws provide otherwise, action to be taken at an association board meeting may be taken without a meeting if the action is taken by all the members entitled to vote on the action. The action must be evidenced by one or more written consents describing the action taken, signed by all the members entitled to vote on the action, and delivered to the association for inclusion in the minutes or filing with the corporate records. Action taken under this Oregon Nonprofit Corporations Act section (ORS 65.211) is effective when the last member signs the consent, unless the consent specifies an earlier or later effective date.
Alternative Meeting Methodology: Except as otherwise restricted by an Association’s articles of incorporation or bylaws, board members may participate in a meeting by conference telephone or similar communications equipment so that all persons participating in the meeting can hear each other at the same time. Participation by this method constitutes presence in person at a meeting.

It isn’t email, but if HOA board members have to conduct board action and they cannot convene together, I recommend that a conference call be conducted with provisions for association members to listen in.

Association Disclosure and Board Action in a Down Market

danzimberoff@barkermartin.com (Daniel Zimberoff) — Thu, 07 Feb 2008 23:13:36 -0800

The sub-prime lending tsunami has rippled across the US economy, even reaching the Pacific Northwest condominium and homeowner association industry. Theoretically, an Association’s obligation to follow statutory and common law disclosure requirements should remain constant irrespective of whether the Dow Jones Industrial Average and housing market are soaring or slumping. However, practically speaking in a rising market when most everyone is making money, disclosures have been known to loosen; whereas, in a down market, disclosure statements are scoured over with heightened scrutiny. Whether the current stock market’s and housing market’s corrections have subsided or will continue indefinitely, mortgage underwriting requirements have tightened substantially for the foreseeable future. This change in the real estate marketplace requires association boards of directors to pay particularly close attention to: (a) disclosure requirements for condominium resale certificates (in Washington); (b) managing accounts receivable; (c) overseeing rental restrictions; and (d) following strict collections policies.

A. Condominium Resale Certificates

In Washington, under RCW 64.34.425, a condominium unit seller must provide a purchaser with a Resale Certificate that includes eighteen separate written disclosures. Now that the lending industry has shifted its condominium review from a “limited” to a “full” review, association boards must ensure each required item is completed to the greatest extent possible. Areas of particular concern in the current market environment involve pending litigation, pending or anticipated special assessments, a statement which shall be current to within 45 days of any common expenses or special assessments against any unit in the condominium that are past due over 30 days, a statement which shall be current to within 45 days of any obligation of the association which is past due over 30 days, a balance sheet and revenue/expense statement current to within 120 days, statement of any violations of the health or building codes, and history of any warranty claims made under a qualified warranty (if so provided). Although the number of condominium construction defect lawsuits has diminished over its peak earlier this decade, cases continue. In the limited time since the underwriting requirements stiffened and submission of this article, I have noted a significant rise in requests from lenders for clarification and supplemental information on resale certificates, especially disclosures related to construction defect lawsuits.

The statute is quite clear as to what must be disclosed in a condominium resale certificate. Although unit sales likely will be adversely affected to a degree not seen in recent memory due to construction defect lawsuits, significant special assessments or well underfunded reserves, condominium association boards should be aware of the heightened attention placed on these disclosures and should work closely with their professional manager and possibly legal counsel to provide accurate, thorough and comprehensive information.

B. Accounts Receivable

If a Planned Unit Development (“PUD”) or condominium homeowner association seeks a loan to fund a capital improvement, major repair project or other large capital expense, banks and other lending institutions will be paying closer attention to the financial statement of the association. A feature component of the statement is the number of units behind in assessments and aggregate amount of accounts receivable. Prior to the recent tightening of underwriting requirements, an association could get away with several owners whose accounts were past due without much adverse impact. Now, it appears an association may need to ensure it has a nominal balance in overdue accounts receivable, or at a minimum, ensure that foreclosure or collections proceedings have commenced on those accounts that are overdue.

Although an association should manage its finances and accounts receivable proactively and work to minimize overdue accounts regardless of lending requirements or trends in the marketplace, as stated previously, this area of an association’s finances could make the difference between qualifying for an association loan and being rejected.

C. Rental Restrictions

Many condominium and PUD homeowner associations have imposed rental caps in order to keep the number of non-owner-occupied homes below the percentage required by federal underwriting requirements. This ratio ordinarily hovers between seventy and eighty percent and varies depending upon size of loan, size of down payment and specific lending program (VA, FHA FNMA, etc.). With tighter lending requirements, to help preserve property values, obtain financing and improve overall credit scores, an association may wish to impose rental restrictions in addition to rental caps, including lease approval requirements (e.g., ensuring leases are submitted in compliance with the association’s procedural steps, if a lease renewal, confirm positive track record of the tenant and confirm that the lease adopts all of the association’s CC&R requirements) and tenant screening procedures (including having the owner/leasor conduct a consumer credit report, verification of the applicant’s employment and rental history, and conduct a public records check). A board also may wish to adopt heightened enforcement procedures that provide the association with rights to act directly against tenants who violate the CC&Rs.

D. Collection and Foreclosure Policies

Foreclosure rates in the Puget Sound region increased forty-two percent in 2007 from the previous year, with more than 1.8 million sub-prime mortgages scheduled to reset to higher interest rates across the country this year and next. With such a large number of foreclosures pending and forecast, many homeowner associations in the region likely will experience in the near term bank foreclosures within their communities. During the upward housing market, many associations were reluctant to commence foreclosure proceedings or money judgment actions against homeowners within their communities who became past due on assessments, at least until the balance grew to a large sum. With the current tightened market, it is recommended that an association adopt strict collection and foreclosure criteria and protocol, and follow those protocols consistently.

A homeowner association board of directors should take proactive steps and particular action to protect itself and its members from the legal risks associated with a down market. The steps described above may provide the general overview for such protections and help keep an association’s “head above water” in these turbulent times.

Washington Legislative Updates

marlynhawkins@barkermartin.com (Marlyn Hawkins) — Mon, 04 Feb 2008 15:38:00 -0800

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.

New Towing Laws Affect Oregon HOAs

danzimberoff@barkermartin.com (Daniel Zimberoff) — Tue, 29 Jan 2008 21:29:54 -0800

Homeowner associations often inquire as to their authority to tow vehicles within their communities. The following outline describes general Oregon law regarding homeowners associations’ legal authority and required procedures for towing vehicles. Please note that this posting contains general information and is not legal advice for a specific towing event, which would be unique to the circumstances surrounding that event.

The information below includes amendments to Oregon state law that became effective January 1, 2008.

First, the board needs to determine if the streets within its community are public or private roads. This information should be contained within the Association’s Declaration and Plat.

A. Vehicles on Public Property

Only a law enforcement officer or public official having jurisdiction over the property on which the vehicle is located has authority to remove and take custody of a vehicle located on a public right-of-way. A vehicle constituting a traffic hazard can be removed immediately. Otherwise, law enforcement must tag the vehicle and provide at least 24 hours’ notice before impounding it.
To have a vehicle removed from a public right-of-way, a homeowner association’s options are limited to notifying the appropriate public agency of the location of the vehicle it wants removed. The public official may then arrange for and authorize the vehicle’s removal after 24 hours. The association may not authorize removing a vehicle from public property.

B. Vehicles on Private Property

A key issue is whether the vehicle is unlawfully parked at a “parking facility” or on “proscribed property.” A parking facility is any property used for motor vehicle parking. Proscribed property is any part of private property where a reasonable person would conclude that parking is normally not permitted at all or where a land use regulation prohibits parking, or property that is used primarily for parking at a dwelling unit (defined as a single-family residence or duplex). Oregon law prohibits leaving a vehicle on a parking facility if there is a no parking (or restricted parking) sign posted in plain view. In contrast, it is illegal to park on proscribed property without the permission of the owner whether or not a “no parking” sign is posted.
Property owners may have illegally parked vehicles towed after notifying the local law enforcement. From a practical standpoint, however, tow companies generally will not tow vehicles from locations without “no parking” signs.
Alternatively, property owners may tow abandoned vehicles from private property after: (1) posting a notice on the vehicle stating that it will be towed if not removed within 72 hours; (2) contacting the local law enforcement; and (3) completing a form setting forth the vehicle description, location from which the vehicle will be towed, and a statement that the above outlined requirements have been met. As of January 1, 2008, state law provides civil immunity for individuals or entities that tow the abandoned vehicle.
Additionally, a property owner in lawful possession of a vehicle with an appraised value under $500 may request the local authority to dispose of the vehicle. No certificate of title is required, but the local authority must verify the property owner’s lawful possession. The local authority must also issue certain notifications to the Department of Transportation and the person requesting the disposal. The advantage of this process is that it extinguishes all prior ownership and possessory rights. The property owner, however, may be charged a disposal fee.

C. Summary

This posting does not provide an exhaustive list of Oregon law regarding towing vehicles and each association should review the local ordinances controlling for their jurisdiction. In general, state law requires that a homeowner association contact a public official, most likely local law enforcement, to have a vehicle removed from public property. An association may remove vehicles located on private property under its control immediately if the property is posted or if it qualifies as residential property. On unposted nonresidential property the vehicle may be towed after it has been abandoned for seventy-two (72) hours.

Update on HOA Committee Recommendations

marlynhawkins@barkermartin.com (Marlyn Hawkins) — Tue, 22 Jan 2008 17:00:34 -0800

The HOA Committee's recommendations to amend Washington's Homeowner Association Act have been compiled into Senate Bill 6745, which was introduced today. The bill was referred to the Senate Committee on Consumer Protection and Housing and is currently scheduled for public hearing on Thursday, Jan. 24.

Bill Proposes Increased Rights to Tenants of Apartments Slated for Conversion

marlynhawkins@barkermartin.com (Marlyn Hawkins) — Fri, 18 Jan 2008 16:00:29 -0800

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.

Legislature Encourages Rather than Requires Reserve Studies and Funding

marlynhawkins@barkermartin.com (Marlyn Hawkins) — Thu, 17 Jan 2008 16:10:07 -0800

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.

HOA Commitee Act Issues Final Report

marlynhawkins@barkermartin.com (Marlyn Hawkins) — Fri, 11 Jan 2008 16:03:52 -0800

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.