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

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. 

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An article in Sunday's Arizona Republic highlights an issue we also have seen in the Pacific Northwest, especially in the Oregon real estate marketplace.  As reporter Craig Anderson writes:   

Developer abandonment is likely to become a serious issue in the coming year for as many as 200 of the more than 10,000 Arizona communities under HOA control, both opponents and supporters of Arizona's HOA policies say. Partially completed subdivisions and newer communities more prone to home foreclosures are the ones most likely to suffer, experts say. . .  Homeowners in neighborhoods with underfunded HOAs have seen their association fees increase at the same time amenities and services are being reduced or eliminated.

Anderson also reported that homeowners in other communities have been unable to wrestle control of their association from developers, who usually are among the HOA's principal debtors.  The complete article can be found here.

As I wrote in an October 26th post:

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 has not yet turned over and you believe your Declarant is experiencing serious financial distress, do not wait for it to file bankruptcy.  Specific steps may include:

·        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.

·        Both Oregon and Washington statutes require condominium and homeowner associations to conduct annual audits (with some exceptions). If homeowners have questions on finances during Declarant control, insist on the annual audit.  If professionally managed, work with your association management company in this endeavor.

·        Be prepared to seek legal intervention, if needed, to preserve the assets of the association before the Declarant drains all available funds.   

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

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