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

One of the most popular blog posts we have published to date was our January 10th: "Dealing With 'the Crazies' Within a Homeowners Community."   Though we received ample comments supporting the article, we also received several emails from readers wondering why we didn't write a similar article about "crazy" or irrational homeowner association boards of directors.  Therefore, as requested...

In our experience, the number of irrational or unreasonable owners greatly outweighs the number of irrational boards.  That said, there are instances where boards or individual board members act outside their authority, act irrationally, or simply ignore legitimate complaints or calls for action by homeowners.

One reader asked what to do when his board and the association's manager failed to enforce the governing documents fairly and consistently?  What if a board or manager refuse an owner's request to review HOA documents?  Or denies an owner's request for a hearing?  In each of the foregoing circumstances, the owner should be able to point to particular provisions of the governing documents which require explicit action and compliance by the board.

If a homeowner believes their board is failing to respond appropriately or acting irrationally, they should:

1. Articulate the issue(s) as succinctly as possible;
2. Gather all relevant written documentation;
3. Review the association's governing documents (Articles of Incorporation; Declaration, Bylaws, Rules & Regulations) and identify which provisions control over the issue(s); and 
4. Identify all relevant persons who are witnesses, parties or have other persons with knowledge of the facts and circumstances giving rise to the issue. 

The owner should then draft a concise written letter or request to the board that embodies the four factors described above.  If the association is professionally managed, then a copy of the letter should be sent to the manager.

The association's governing documents should have a process already in place to resolve the dispute.  If so, the owner should identify the process and insist on board compliance.  If not, and if the board does not respond adequately to the owner's letter, then the owner can request a meeting with the board.  

If the board continues to dismiss or ignore the owner, and if the professional manager is ineffective in helping to resolve the dispute, then the owner should seek legal counsel.  Keep in mind that many association governing documents require mediation or similar dispute resolution process be conducted prior to a lawsuit being filed.

If an owner does not wish to seek legal assistance, and if they feel the board is failing to follow its governing documents and otherwise acting irresponsibly or irrationally, then the owner may wish to try to unseat the board through a special election and vote of the association.  An association's governing documents ordinarily outline the process for removing a board member or entire board.

Just as I wrote in my earlier post, the key to reducing and resolving disputes between the "crazies" (whether homeowners or boards) is to rely strictly upon an association's governing documents.  A modicum of common sense and reasonableness also go a long way to solving the problem.  If all else fails and the board cannot be removed via special election, then mediation or court interaction may be required.  If so, in claims arising from enforcement or other CC&R disputes, many governing documents allow the prevailing party to recover their reasonable attorney's fees and costs.

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I believe the vast majority of HOA and condominium board members utilize email in some capacity in their role as board members.  Remember, however, that any formal board action should not be conducted via email, as board action must occur during a regular board meeting (for more information on this topic, see my 2/24/08 blog posting "Email and HOA Board Action").

I have found less than 10 percent of board members utilize discrete email accounts, such as riverplazapres@yahoo.com or gardensquareHOAtreasurer@gmail.com.  I strongly suggest that HOA and condominium board members set up these discrete email accounts (use whatever email server you desire; there are many free services available: yahoo, gmail, msn, etc.).  Using these separate email accounts is beneficial for the following reasons:

   1.  In the event of litigation involving the HOA, the board member will not have to undergo the embarrassment and adverse consequences of having to explain to his or her boss why the company was served with a subpoena regarding a non-work related lawsuit and has to allow unfettered access to its email servers.

   2.  Setting up discrete email accounts helps a board member manage his or her time more effectively.  Rather than feeling obligated to immediately respond to each and every HOA email that comes in during the work day via the work email address, the board member can set up a defined time of the day, evening or week to respond to HOA-related email.  Such action could also decrease the amount of time a board member spends on HOA business during the work day using the employer's email.

   3.  By using a discrete HOA email account, a board member can more easily track time spent on HOA duties.

   4.  Board member turnover is streamlined, simplified and much more comprehensive.  The outgoing board secretary (or president, vice president, treasurer, etc.) merely gives the user name and password to the incoming board member.  All historic emails are already consolidated in a single email account.  The new board member simply changes the password.

   5.  Setting up a discrete email account with a generalized email address allows for transparent transfer from one board member to another.  Boards do not have to update email addresses with homeowners, association managers, vendors, bankers, etc., each time a board member leaves and is replaced.

   6.  The email accounts are accessible anywhere in the world 24/7--assuming one has Internet access.

   7.  Setting up these accounts only takes a few minutes.  Also, these accounts are free. 

I cannot think of a single downside for an HOA or condominium board to set up discrete email accounts.  As shown above, there are multiple advantages of using these accounts. 

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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. 

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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.

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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.  

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