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

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

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

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

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

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

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

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

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

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

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

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

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On November 6th, the Federal Housing Administration (FHA) finally issued major changes to its revised guidelines on mortgage insurance requirements for condominium associations.  The original guideline revisions were first proposed back in June (under Mortgagee Letter 2009-19).  The new guidelines go into effect on December 7, 2009; however, some of the requirements are phased in through January 31, 2010.

If you have been a reader of this Blog over the past couple of months, you are aware of the controversy and uncertainty involving HUD/FHA's proposed requirements for obtaining FHA mortgage insurance for condominiums.  The newest guideline revisions are in response to the strong reaction from condo owners and industry representatives who saw many of the FHA requirements as counter-productive and burdensome to condominium associations and owners.

The latest guidelines are described in two separate HUD/FHA documents:  (i) Mortgagee Letter 2009-46B (the revised guidelines for FHA approval of residential condominium projects); and (ii) Mortgagee Letter 2009-46A (temporary guidance for condominium approvals).

In short, Mortgagee Letter 2009-46B replaces Letter 2009-19.  The temporary guidance (Letter 46B) acts as a buffer to ease transition from the old to the new regs.

Under the Temporary Guidance:

• The "Spot Loan" approval process will continue through January 31, 2010; and
• The 30-percent cap on FHA loans per condo project will be expanded to 50 percent temporarily (Letter 46A does not state the termination date of this extension), with concentrations increased to 100 percent if certain additional conditions are met (as enumerated in the Letter).

I believe the most noteworthy changes to the New Guidelines are as follows:

• Condominium project approval is not required for condominiums that are comprised of single-family totally detached dwellings (no shared garages or any other attached buildings).
• Reserve funding:  From the previous requirement of at least 60% of the fully funded reserves to a new requirement consisting of at least 10% of the association's annual budget (see next bullet below).
• Budget review:  The review must determine that the budget is adequate and: (i) includes allocations/line items to ensure sufficient funds are available to maintain and preserve all amenities and features unique to the condominium project; (ii) provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; and (iii) provides adequate funding for insurance coverage and deductibles.
• The 1-year waiting period for conversion condominiums is eliminated.

Transition Strategy:

• FHA will move all currently approved condominium projects to the new approval list and FHA Connection database.
• Projects that received approval prior to October 1, 2008, will require recertification on or before December 7, 2009.
• Projects that received approval between October 1, 2008 and December 7, 2009, will be "grandfathered" and will have to follow the new guidelines' recertification process (recertification required every two years).

Summary:

Because the Administration is extending the "Spot Approval" process through January 31, 2009, we highly recommend any association that was contemplating obtaining FHA certification to act without delay before the comprehensive certification process is enacted.  Any Oregon or Washington condominium association that desires assistance in this endeavor can contact one of our attorneys by selecting the "Contact" tab at the top-right of this page.

Barker Martin will offer a Webinar on this topic in the near future (we will post on our website homepage the date/time of the upcoming seminar).

 

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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.

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Kevin Lisota wrote an informative posting Friday (5/1) on the Smart Real Estate Blog Site regarding due diligence a prospective condominium purchaser should conduct prior to purchasing a unit.  Click here to view the article. 

Lisota lists the following steps:

• Conduct a visual inspection;
• Review meeting minutes;
• Review the operating budget;
• Review the current reserve study;
• Review the association's rules and regulations;
• Review the association's insurance policy.

I have provided similar suggestions in seminars and presentations.  First, though, I'd like to add a couple of comments to the foregoing list.  It is not enough to 'review" the operating budget.  I recommend scrutinizing each line item of the current budget, and comparing it with the previous two years' budgets to identify trends and accuracy.  With respect to reserve study, if you do not have any construction or building maintenance experience, pass the report to a friend or family member who may have knowledge and can provide valuable assessment.  Also, make sure to review the reserve account, in addition to the actual reserve study.  Regarding rules and regulations, I would also highly recommend reviewing the association's declaration and bylaws.  You do not have to be a lawyer to identify gaps and potential problems.  When reviewing insurance, make sure to look at policy limits, deductibles, Directors and Officers coverage and endorsements specific to multi-family residences, such as sewer back-up, code compliance and demolition coverage, to name just a few.  There is no substitute for review by a professional insurance agent or consultant.

I would also add the following to the due diligence list:

• When conducting the visual inspection, stop and speak with a few homeowners and ask them the strengths and weaknesses of the community.  You may be surprised at what you uncover, both positively and adversely.
• Call the association manager and ask them the same question.  They do not get paid for such calls, but may provide you with a quick summary of the community.
• In these times of economic crisis, make sure to scrutinize not only the operating budget, but also the bad debt and collections/foreclosure rates. 

Lastly, I believe the foregoing steps are not limited to condominiums; rather, apply to Planned Unit Developments ("PUDs"), as well.

Buying a condo can be more complex than buying a single-family home.  For a successful purchase, make sure to perform your proper due diligence.

   

 

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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.

 

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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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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.

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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. 

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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.

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At Barker Martin, P.S., education is paramount—education of our clients and continuing education of our attorneys. For over a decade, Barker Martin attorneys have presented at dozens of industry seminars, such as Community Association Institute, Oregon & Washington Community Association Manager events and Washington and Oregon Continuing Legal Education seminars. In addition, in 2006 and 2007 alone, we teamed with other service professionals to provide over fifty free educational seminars to HOA and COA board members and association managers.

This education effort has resulted in Barker Martin providing industry and legal education to several thousand board members and association managers. In order to reach a wider audience throughout Oregon, Washington and Hawaii (states where we practice), we needed to expand our effort through the Internet.   We designed this blog site as a space where HOA and COA board members, association managers, attorneys and other individuals interested in homeowner association and condominium association law and topics could find fresh tips and commentary on this fluid, ever-changing industry and area of law.

Thank you for your interest.

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