Northwest Condo & HOA Law Blog

Watch Out for Neighborhood Watch Programs

Daniel Zimberoff — Mon, 02 Apr 2012 09:39:51 -0800

Last month in our post on community associations and squatters, one of the recommendations I listed was for an associate to initiate a neighborhood watch program. Coincidentally, a few days later, I read that the homeowners association where Trayvon Martin was tragically killed by a neighborhood watch captain is facing a likely lawsuit from the family of the 13 year-old gunned down on a street in the association.

The controversial and tragic death of the Florida teen is a stark reminder of the care a community association should take in implementing a neighborhood watch program. To eliminate tragedy, reduce legal liability and ensure a successful program, a community association may wish to take the following steps:

Contact the local police department and ask their community support officer to meet with the association. In addition to providing general tips on establishing neighborhood watch programs, the police representative may give community-specific information and insights. While speaking, the officer may also provide anti-crime tips to assist individual homeowners.
Establish written guidelines for the program. Work with the association's attorney in coming up with these procedures. Among other items, the guidelines should emphasize minimizing conflict and confrontation.
Ensure program participants are not armed with weapons. A cell phone and camera ordinarily are the only equipment needed for protection.
Criminal background checks should be conducted on all program participants. Local police departments or state agencies offer inexpensive background options.
Contact the association's insurance company to verify insurance coverage for the program. Many community association insurers have risk management departments that offer helpful information on establishing neighborhood watch programs.
The association's board of directors or professional manager should review the program at set intervals to ensure it is being conducted in compliance with the written guidelines.

A community association must understand the purpose of neighborhood watch programs. Volunteer homeowners are not intended to stop crime--that job is for the police. Watch programs are most successful in deterring crime by providing a watchful eye and vigilant documenting of suspicious behavior. If a crime is being observed, the watch members should dial 9-1-1 and avoid confrontation.

Residential communitites often have the best intentions in adopting neighborhood watch programs. An association should ensure effective safeguards are in place to eliminate unnecessary liability and potential tragedy.

Defective Plumbing Systems: Are You at Risk for a Major Plumbing Failure?

Angie Bagby — Mon, 05 Mar 2012 14:10:36 -0800

Plumbing defects involving failed brass fittings are becoming more and more frequent. Many failures stem from failed compression fittings used in flexible PEX pipe systems which have become very popular as an alternative to the more expensive copper plumbing.

PEX plumbing systems are extremely popular due to relatively low cost, flexibility and ease in installation. The PEX pipes are a flexible plastic material that carries potable water, drinking water, in residential construction. The connection between the flexible pipe and the fittings used to interconnect the pipes is key to any PEX system. Most PEX plumbing systems rely on a compression seal between the pipes and the fittings used to interconnect these pipes. The compression seal is typically created by expanding the pipe and inserting the brass alloy fitting.

FLEXIBLE PEX PIPE		BRASS FITTING		COMPRESSION FITTING
	+		=

Many brass fittings in use today corrode and weaken through a process known as dezincification. Brass, an alloy metal composed primarily of copper and zinc begins to dezincify when the zinc content exceeds 15% of the metal. At that point, the zinc is susceptible to washing or leaching out of the metal when exposed to potable water. As zinc leaves the brass, the metal:

1. Becomes weaker; and

2. The surface of the brass is often altered.

As zinc leaves the metal, the water tight seal between the flexible pipe and the brass fitting is compromised. The ends of the brass fittings have small ridges or ferrules at the end of the fittings. As the metal weakens and erodes, water bypasses the ferrules resulting in leaks. These leaks can be small and hidden inside a wall, often undiscovered for long periods of time. The failure can also be catastrophic, when a compression fitting fails completely, separating the flexible pipe from the fitting, resulting in extensive water damage.

EXAMPLES OF DEZINCIFIED FITTINGS

If you know or suspect your home or condominium’s plumbing includes flexible pipes, it is important to have the system inspected. Contact Barker Martin P.S. at (888) 381-9806 or info@barkermartin.com for a free consultation.

Foreclosed Homes, Squatters and HOAs

Daniel Zimberoff — Thu, 16 Feb 2012 08:20:17 -0800

A recent article in the Seattle Times, "Empty Foreclosed Houses Burden Cities, Neighborhoods", highlights a severe problem affecting community associations throughout the Pacific Northwest, and nation. In addition to losing out on receiving monthly and other assessments from homeowners going through the foreclosure process, homeowner associations are now facing squatters taking over many of these properties and turning them in flophouses.

Overwhelmed by a massive inventory of foreclosed homes, banks lack the resources to ensure the properties are maintained and secured properly. As a result, squatters have besieged many of these homes. The squatters often engage in drug activity, theft, vandalism and other highly disruptive criminal behavior which adversely affects neighbors and entire communities.

Community associations should take the following steps in an attempt to avoid or minimize such threats:

If a bank fails to foreclose on the property, the association should commence foreclosure proceedings. At a minimum, the action may jump-start the bank to take action. The goal is to get a new responsible homeowner in the home as soon as possible.
If foreclosure has occurred and the property is vacant, the association should implement a “community watch” type program. The volunteers could keep a watchful eye on the property and call police at the first sign of trouble. The sooner squatters can be interrupted, the more likely the community will be in keeping them out.
Meet with the local police and obtain a helpful contact person. It may not be effective to constantly call 9-1-1 for “routine” problems such as loud parties, trespassing, etc. However, if the association can forge a relationship with a community support officer, or other police representative, a collaborative, long-term solution can be created.

Though it may seem at times as though an association lacks the power or tools to rid squatters within its community, proactive, comprehensive steps often result in eviction and success.

Annual Meetings: The Time To Shine [Part II]

Daniel Zimberoff — Wed, 11 Jan 2012 10:14:20 -0800

The following is part two of a two-part article recently published in the January 2012 edition of WSCAI Washington Communities'Journal:

Recruit Prospective Board Members Early

Many community associations have difficulty filling officer and director positions. There are multiple reasons for this apathy; however, as with many volunteer positions, serving as a community association officer or director can be a highly rewarding experience.

Generally, voting for board positions occurs at the annual meeting. Boards who simply ask for nominations at the meeting do a disservice to themselves and their communities. Recruitment of board members is one of the common traits of successful common interest communities. A board member should begin thinking about his or her replacement almost from the time they first step onto the board. Identification of charismatic or effective leaders and managers within a community may take up to a year, or more. Persuading, convincing or even cajoling a neighbor to run as a board member may take even longer!

Nominations of directors should be requested well in advance of the annual meeting. A brief bio or “platform statement” of each candidate may be included with the meeting notice and agenda. Voting for director positions must comply with the provisions of the association’s governing documents, most likely found in the bylaws. Most associations allow each candidate a few minutes to speak to the membership prior to the vote. Once the directors are voted in and assume their positions, often their first order of business is to agree upon officer positions. This action ordinarily occurs immediately following the annual meeting.

Overcoming Potential Pitfalls

Though reaching quorum is often stated by associations as a hurdle in achieving a successful annual meeting, following the steps described above in planning and running an effective combined business meeting and social event should result in higher attendance and an ability to reach quorum without difficulty.

Under the Washington Condominium Act (“WCA”), unless the bylaws specify a larger percentage, a quorum is present throughout any meeting of the association if the owners of units to which 25% of the votes of the association are allocated are present in person or by proxy at the beginning of the meeting.[1] Under the Washington Homeowner Association Act (“HOA Act”), unless “the governing documents” specify a different percentage, a quorum is present if the owners to which 34% of the votes of the association are allocated are present in person or by proxy at the beginning of the meeting.[2]

Proxies also allow associations to reach quorum even if many homeowners do not personally attend the meeting. Under the WCA, votes allocated to a unit may be cast pursuant to a proxy duly executed by a unit owner.[3] A unit owner may not revoke a proxy except by actual notice of revocation to the person presiding over a meeting of the association. A proxy is void if it is not dated or purports to be revocable without notice. Unless stated otherwise in the proxy, a proxy terminates eleven months after its date of issuance.[4] Though the HOA Act is silent regarding proxies, general corporations law essentially tracks the WCA on this issue.

Some associations have experienced legal challenges to business conducted at an annual meeting simply because they failed to follow procedural hurdles. Common interest communities in Washington must follow strict notice requirements to ensure a legally binding annual meeting. Under the HOA Act, not less than 14 nor more than 60 days in advance of any meeting, the secretary or other officers specified in the bylaws shall cause notice to be hand-delivered or sent prepaid by first-class United States mail to the mailing address of each owner or to any other mailing address designated in writing by the owner.[5] The notice of any meeting shall state the time and place of the meeting and the business to be placed on the agenda by the board of directors for a vote by the owners.[6] The rules are the same for condominiums in Washington under the WCA, except the minimum notice period is shortened from 14 to not less than 10 days.[7]

Success!

A community association who conducts comprehensive event planning, combines the business meeting with a social activity, includes community members and takes into account renters and families with children, can transform dread into success--turning the annual meeting event into an opportunity for the board and association to shine.

[1] RCW 64.34.336.

[2] RCW 64.38.040.

[3] RCW 64.34.340(2).

[4] Id.

[5] RCW 64.38.035(1).

[6] Id.

[7] RCW 64.34.332.

Annual Meetings: The Time to Shine [Part I]

Daniel Zimberoff — Thu, 05 Jan 2012 16:04:38 -0800

The following is part one of a two-part article recently published in the January 2012 edition of WSCAI Washington Communities' Journal:

There are two words that often instill pangs of fear in the bellies of many condominium and homeowner association board members: annual meeting. Just mention of the event conjures doubts of reaching quorum, fears of homeowners running amok, and failings at filling open board positions. Yet, instead of dreading the annual meeting, through proper planning and a few “tricks of the trade,” every community association can coordinate and run a highly successful and effective annual meeting.

Plan the Event.

The first step in the process is proper planning. The annual meeting should not be perceived as merely a business meeting, but also as a social event and opportunity for every homeowner in the association to attend, socialize and get to know one another. Sandi MacCalla, CMCA and Director of Master Planned Communities for CDC Management Services in Seattle, stresses the importance of advanced and comprehensive planning. She recommends the meeting be well organized and even scripted. It is not uncommon to start the planning several months in advance. The meeting should be efficient, concise and informative. First and foremost, it is a business meeting. But just because the core of the meeting is all business, it should not limit an association from having fun. The association can incorporate a social event, such as a barbecue, potluck, chili cook-off or other friendly community competition to immediately precede or follow the meeting. Some associations have had success sponsoring community arts and crafts, wine tasting, sports (e.g., indoor volleyball) or other activities such as Bingo. The age, demographics and general make-up of the community will dictate the type of social event most likely to succeed in increasing homeowner participation and attendance.

Since most annual meetings occur in the first quarter of the calendar year, proper planning must take into account the inclement weather Washington State community associations are likely to encounter in January, February or March. Finding a proper indoor venue is vital.

Ms. MacCalla suggests that another component of successful event planning includes accommodation of families with children. Rather than expect parents to arrange childcare independently, an association can arrange community childcare. This effort can be accomplished at no additional cost through solicitation of older sibling sitters or other adult childcare providers who may live within the community. Local daycare centers also can provide sitters, exchanging free childcare services in exchange for promotion or advertising within the association. Childcare can be co-located at the site of the meeting, either in an adjacent meeting room or nearby facility.

Integrate the Broader Community

Though an association annual meeting should be limited to governance and business of the association, the broader event can include the wider community beyond the walls of the development. Inviting a local political figure or business leader to speak either before or after the annual meeting may create a “buzz” for the event and increase homeowner attendance.

Associations may choose to invite local businesses to attend and offer promotional specials to the homeowners. Including businesses emphasizes inclusiveness and support not only to the association development or condominium, but also to the broader community to which the association is located. As with inviting a political or business leader, local businesses can create a “buzz” or incentive for homeowners to attend the annual meeting.

Lastly, a board should consider inviting renters to the event. Renters are important members of a common interest community. Except in rare circumstances, renters ordinarily do not vote as part of the business meeting; however, they uniformly can participate in the social aspect of the event and often add to the fun.

Stay tuned for Part II of this article to be posted in a few days. Happy New Year!

If you are a new board member of a community association in Oregon or Washington and have a legal question about annual meetings or any other board function, feel free to contact Barker Martin, P.S. by selecting the "Contact" tab at the top of this blog page.

Pacific Northwest Community Association Survey

Daniel Zimberoff — Mon, 28 Feb 2011 14:57:53 -0800

Are you a Washington or Oregon condominium or homeowner association member who sometimes feels like you are on an island? Do you want to know how other associations are managing and governing their associations? Then participate in Barker Martin's Community Association Survey and we will provide you with a free report.

Time is of the essence, as the deadline for taking the 5 minute survey is March 15th!

Have you ever wondered what other communities are utilizing for their management practices and protocols? Whether your community is self-managed or run by a professional manager and/or management company, this survey will gather the opinions of Pacific Northwest homeowners and residents of condominium associations, homeowner associations and other common interest communities.

The online survey is anonymous and completely confidential. Rest assured that Barker Martin will not collect, record, or disseminate personal information about the survey participants or data from their computers. Responses to Barker Martin’s Management Survey will be held in the strictest confidence and only aggregate statistics and comments will be compiled and made available in a final summary report produced by Barker Martin.

To access the survey, click here.

2011 New Year's Resolutions for Community Associations

Daniel Zimberoff — Mon, 03 Jan 2011 13:32:47 -0800

New Year’s resolutions don’t have to be limited to just individuals. In the spirit of ushering out the old and welcoming in the new year, I suggest community associations consider adopting New Year’s resolutions for 2011. The timing of these resolutions also coincides with the time that many shared ownership communities conduct their annual meetings and board elections, the first quarter of the calendar year. What better opportunity to adopt and implement a platform of New Year’s resolutions than when an association Board turns over or reconvenes for the year?

A Board may consider one or more of the following resolutions (in no particular order):

1. Adopt and follow strict collections policies. Due to the continued downturn in the economy, most every community association in the United States has experienced some level of foreclosures or owners who are past due on their assessment accounts. In less critical times, Boards may have relaxed their collections policies and allowed their “neighbors” time to catch up. But such leniency is no longer feasible in today’s economic climate. Instead, Boards must adopt and uniformly follow strict collections policies, or risk heightened delinquencies and claims of selective enforcement.

2. Review governing documents. Board members should be intimately familiar with their governing documents (i.e., Articles of Incorporation, Declaration, Bylaws and House Rules and Resolutions). Boards should resolve to review their documents at the start of each year, at a minimum, to ensure familiarity and compliance. Though sometimes containing "legalese," even non-attorney Board members should understand the provisions of each governing document. If not, a Board should have an attorney or other professional explain any confusing or technical portions of the documents.

3. Amend governing documents, if necessary. Along with reviewing and fully understanding their governing documents, a Board should resolve to amend any conflicting, vague or obsolete governing document. To avoid unnecessary conflict and cost, a Board should be forward-leaning and move to amend outdated documents before a conflict or a problem arises--it will be much cheaper in the long run.

4. Adopt communications policy. One of the most common problems experienced by community associations relates to inefficient or ineffective communication. A Board should resolve to adopt a communications policy governing intra-Board communication, as well as communication with association members, managers and third-party consultants or companies. If an association does not have a communications policy, even the most basic problem or issue can be blown out of proportion, resulting in increased conflict, cost and adverse consequences.

5. Reduce email. Electronic mail has certainly revolutionized American business. Unfortunately, the proliferation of email has also resulted in inundation of written communication which sometimes can be overwhelming and all consuming (e.g., iPhones, Droids and "Crackberries"). Email can also be far less effective than simply picking up the phone or speaking with someone directly. As part of a comprehensive communications policy, a Board may wish to define specific email protocols, including establishing limitations on subject criteria and response times. A Board should also establish association email accounts, such as GardenPointSec@yahoo.com or VillaCourtPres@gmail.com, etc., to eliminate the use of personal, company and government servers for association business.

6. Establish reasonable working protocols and expectations. Along with reducing reliance upon email, a Board may wish to set expectations as to when association business is to be conducted (preferably at Board meetings). Too often, Board members conduct business 24/7 via email or when confronted by an owner or other Board member in a parking lot or when getting their mail at the community mail kiosk. Everyone is busy juggling family, work, activities and Board service, but not every association related issue is urgent or must be dealt with by the Board. A Board that sets reasonable working protocols and expectations for itself as well as when dealing with homeowners and managers, is much more effective and productive.

7. Facilitate better communication and relations with management. All too often association Boards complain that their professional manager or management company is deficient in one or more areas. However, when asked if they have addressed the issue or issues directly with the manager, they often offer an excuse of one type or another. It may seem that the grass is greener at the adjacent community, or community manager, but it is surprising how much turnover there is among managers and management companies that could be avoided if communication was increased and expectations mutually agreed upon. Tying performance metrics to contract terms also is a must. Rather than dump its current manager in hopes of finding a better match, it may be more effective to work on the current business relationship to improve communication, relations and expectations.

8. Run efficient meetings. Almost every Board president or chair could strive to increase efficiency and productivity of Board and association meetings. An efficient meeting starts with proper notice and a well planned agenda. Thought should be given as to physical set up of the room, including location of the Board seats and table in relation to where the association members sit. Time limits should be set for each category of business and presentation, including any owner input, assuming the Board allows an owner forum as part of its meeting (versus hearing from owners before or after the official Board meeting is conducted). Lastly, meeting minutes should be concise and bulleted facts, with minimal narration. Minutes are not a substitution for attendance.

The start of 2011 is as good a time as any for a community association Board to consider adopting one or more of the preceding "New Year's resolutions."

Using Bad Debt Line Items in Association Budgets (Part II)

Daniel Zimberoff — Sun, 03 Oct 2010 18:50:05 -0800

In Part I of this blog post, I reviewed generally how a condominium or homeowner association may utilize a "bad debt" line item in its annual budget. I defined "bad debt" and also described specific situations on how an association could practically utilize the budgeting tool. In this follow-on post, I'll highlight the differences between cash and accrual accounting in the "bad debt" context.

The cash method and the accrual method (sometimes called cash basis and accrual basis) are the two principal methods of keeping track of an association's income and expenses. The cash method is the more commonly used method of accounting for associations. Under the cash method, income is not counted until cash (or a check) is actually received, and expenses are not counted until they are actually paid. Under the accrual method, transactions are counted when the order is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or paid. In other words, income is counted when the sale occurs, and expenses are counted when you receive the goods or services.

With respect to my Linked-In inquiry on utilizing a "bad debt" budget line item, Arizona CPA Howard Simon commented:

The initial question asked if the budget should include a line item for bad debts. As a CPA providing financial statement and tax services to HOAs, I encourage HOA boards to include a line item for uncollected or uncollectable assessments.

On the cash basis, the budget line for assessment income should be the fully billed assessments for the year (by month), offset by the line item for bad debts, which on a cash basis should be the expectation (estimate) of assessments that will NOT be received in the period (month or year). Also to be noted, because prepaid assessments are accounted for as assessments received, I encourage HOAs to account for prepaids as a separate line item in the cash basis financial statements, thereby emphasizing this important figure and providing a more accurate picture of assessments actually received versus budget.

On an accrual basis, using the allowance method (described previously) should provide an accurate picture of earned revenues each period. Because the budget is a management tool, it is important to be realistic (and perhaps conservative) about the funds available during the year.

Whether cash or accrual, the industry insiders who responded to the Linked-In inquiry universally agreed that in today's turbulent economic climate, a condominium or homeowner association should include a bad debt line item in their annual budget.

Using Bad Debt Line Items in Association Budgets

Daniel Zimberoff — Thu, 23 Sep 2010 17:32:58 -0800

[The downside to being a full-time attorney and part-time blogger is the periods when case loads increase and trials commence. Now that we're back to the usual level of insanity at Barker Martin, P.S., we'll do our best to keep this blog updated more frequently. Thank you for your understanding and continued readership.]

In advance of the upcoming community association budget season, I posted on one of the Linked-In groups to which I subscribe a query on whether associations utilize a bad debt line item in their annual budgets. Numerous industry experts, from managers to CPAs, provided insightful and valuable responses, some of which I'd like to share here.

The respondents universally agreed that in today's turbulent economic climate, a condominium or homeowner association should include a bad debt line item in their annual budget. Mitch Drimmer pointed out that before an association can put in a number for bad debt, "bad debt" must be defined. "There is debt that is absolutely collectible and there is debt that is possibly collectible and then there is stone cold bad debt. How do you define and how do you calculate it?"

CPA Heather Clark responded to Mitch's question by stating the following:

There are two aspects of bad debt from an accounting perspective. There is the allowance for doubtful accounts and there is bad debt expense which is the charge that adjusts the allowance for doubtful accounts:

1. What is an allowance for doubtful accounts?
a. An allowance for doubtful accounts is an estimate of the amount in your receivables that will not be collected.
b. The receivable account is an asset account and the allowance for doubtful accounts is a contra asset account i.e. an account that reduces the balance of the receivable account. So if the receivable balance is $100,000 and the allowance is $25,000 the net receivables on the books is $75,000.

2. What is bad debt expense?
a. Bad debt expense is the expense charge for increasing the allowance account which reduces net income (revenues less expenses).
b. So using the example above, if at December 31, 2009 the allowance for doubtful accounts is $100,000 and it is determined that at July 31, 2010 the allowance needs to be $130,000, then assuming no other adjustment to the allowance in the year 2010, the bad debt expense to be booked in July would be $30,000 (increase to $130,000 from $100,000).

Heather continued:

Having an allowance for doubtful accounts does not mean all the accounts reserved for are uncollectible. Some may be fully collectible while others are partially collectible and others may not be collectible at all. Determining the amount needed in an allowance for doubtful account is an estimate which requires judgment. It is important determining the adequacy of the allowance for doubtful accounts that collection practices and legal action being taken be considered. If no legal action is taken accounts that are collectible may become uncollectible while legal action may result in accounts being wholly or partially collectible.

Ryan Coburn responded to Heather's comments with the following:

We use the method outlined by Heather. On a quarterly basis I review the outstanding accounts with a focus on the 120+ days outstanding which gives me a good idea of what is in collections and at risk of being not collectible. We have consistently been able to collect all but 20% of the 120+ days outstanding so that amount plus the amounts outstanding for properties in foreclosure is what we show on the balance sheet as an offset to our receivables (Allowance for Doubtful Accounts). We have only had to increase this contra asset account in small amounts so there has not been a material impact on our P&L. We do not budget for the expense because we are in a good position on our balance sheet and any bad debt expense is more than offset by other income.

Association manager Lori Burger summarized the initial discussion:

Basically, we're making an informed decision to enter into the budget an amount for the exposure the HOA may face because of a foreclosure. Management companies have good statistical data on how the community, as well as local communities, is being affected by foreclosures. By having added a conservative amount into the budget and a unit actually does foreclose, hopefully the HOA would not have to ask the members for a special assessment to cover the cost of the uncollected assessments. On the other hand, if there was no foreclosure during the year, then the Board could use these funds built into the budget to offset the next year's assessments. For example, if you built in $20K into the budget for potential losses due to foreclosures and you had no need, you should have the $20K to use to offset (or lower) the annual dues the following year by $20K. This of course varies from state to state.

Now that we've defined and discussed bad debt, in Part 2 of this blog post, I'll cover the difference between cash and accrual accounting related to bad debt budgeting. Stay tuned in a few days for the follow-on post.

Down Economy Exacerbates Strife Within Community Associations

Daniel Zimberoff — Fri, 16 Jul 2010 06:15:50 -0800

It is said that conflict increases in good times and in bad, when there is more to quibble over or when resources are scarce. As the economy continues to sputter with unemployment and foreclosure rates remaining at record levels, this phenomenon appears to be playing out within common interest developments throughout the nation. Though not yet an epidemic, my unscientifically-supported analysis from personal experience and anecdotal empirical evidence reveals a recent spike in conflict between condo and HOA homeowners and boards of directors.

There are studies and theories that support the hypothesis that when people feel oppressed, downtrodden or powerless against the true cause of their despair, rather than face the adversity head-on, they attack each other. Without attempting to validate or challenge the soundness of my oversimplified description of this phenomenon, it appears to be playing out within condo and homeowner associations as neighbors lash out at one another.

This conflict plays out in many ways, including owners who flagrantly disregard covenants, conditions and restrictions (CC&Rs), association board members who fight amongst themselves and both owners and boards who take untenable or irrational stances against one another. Many of these seemingly minor clashes turn into major and protracted battles that often result in heightened emotions, personal animosity and large legal fees.

Associations are facing unprecedented foreclosures and owners with past-due accounts--many owners simply walking away from their homes. For new communities, there are stories of developers who went bankrupt mid-project and abandoned the project, leaving the few owners who bought straddled with the full cost of managing and operating an underfunded development.

Suffice to say that this unrivaled level of economic despair has resulted in exceptional rates of conflict in shared interest communities across the country. Though I can't do anything to reduce the economic difficulty that associations are facing, the following tips may help avoid unnecessary conflict within a community of homeowners:

Exercise common sense.
Ensure that the association’s governing documents are clear, unambiguous and consistent with applicable laws.
Uniformly interpret and apply all CC&Rs; avoid selective enforcement. If a variance or permit is provided by the board, document the grounds in committee or meeting minutes.
Be willing to revise outdated or obsolete rules and policies that no longer work for the community.
Enhance communication between the Board and homeowners.
Run concise and efficient Board and membership meetings.
Provide ample notice of meetings to homeowners and provide for some level of homeowner input.
For issues that are expected to be contentious, plan ahead and formulate a game plan to tackle the issue – from identification all the way through resolution.
Avoid Board Member conflict of interest.
Act rationally and reasonably.

Lastly, it is usually beneficial to think before acting. Is it the owner or board member who deserves the wrath, or is the root of the problem something larger? Whatever the cause, face it head on reasonably and proportionately. And don't forget to use and rely upon professionals well suited to provide assistance, including professional managers, mediators, facilitators and, if needed, legal counsel.

If your association needs assistance in resolving a conflict, feel free to contact Barker Martin, P.S. by selecting the "Contact" tab at the top of this blog page. We promise, we won't just march into court.

How to Deal With a "Crazy" Board of Directors

Daniel Zimberoff — Tue, 08 Jun 2010 10:09:35 -0800

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:

Articulate the issue(s) as succinctly as possible;
Gather all relevant written documentation;
Review the association's governing documents (Articles of Incorporation; Declaration, Bylaws, Rules & Regulations) and identify which provisions control over the issue(s); and
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.

Pitfalls of Special Assessment Webinar

Daniel Zimberoff — Tue, 20 Apr 2010 07:59:48 -0800

On Wedesday, April 21, 2010, myself and Rebekah Baze, Vice President with Columbia Bank, will be presenting a free webinar on "The Pitfalls of Special Assessments."

Rebekah and I will discuss issues related to homeowner association special assessments from the legal and banking perspectives. We will highlight the processes and pitfalls. The webinar is designed for association members, board members, managers and any other community association industry member who has an interest in the topic.

I invite you to join us by registering here.

Lenders and Squatters Accessing Homes Prior to Foreclosure

Daniel Zimberoff — Mon, 05 Apr 2010 06:07:12 -0800

There have been several recent reports in the media and Blogosphere of lenders and squatters gaining access to Northwest homes vacated through the foreclosure process: AG's Office Investigating Squatters; The Lafayette Report - Legal Alert; Bend Foreclosures on the Rise.

The justification provided by lenders may be that they received a report that the property was vacant and unsecured and that they were simply securing the property by changing the locks, winterizing and safeguarding the home from property damage, vandalism and theft. Squatters are merely seizing upon the misfortune of others.

As stated by attorney Brian McLean from Leahy, P.S. in a LinkedIn discussion on the topic, "Common language in deeds of trust permit the lender (within reason) to enter and suspect property secured by a deed of trust. The lender may also change locks where the owner has failed to perform as covenanted (for example, keep payments up-to-date). Such an approach seems reasonable when the property 'appears' abandoned.

Regardless of who or why persons other than deed holders are entering, altering or residing in homes, the issue should be on the radar screen of homeowner associations. Since the owner has vacated the premises and likely has no further contact with the home, the homeowner association board or manager may be the only person or entity with knowledge of the activity. If a manager or board notices activity at a vacant home under foreclosure, they should make immediate inquiry. The association's actions are not entirely altruistic, as they could result in better preservation of the property and a quicker conveyance--both resulting in higher income to the association via payment of monthly assessments.

SHB 2657 re LLC Dissolution Passes Both Houses

Marlyn Hawkins — Thu, 11 Mar 2010 14:38:15 -0800

As a quick update to our Feb 19. article, SHB 2657, the bill proposed by Representative Jamie Pedersen, has passed both houses as amended in the Senate Judiciary Committee. It was delivered to Governor Gregoire for signature today. Updates can be found here.

Communal Living Q&A on KUOW

Marlyn Hawkins — Thu, 11 Mar 2010 14:31:24 -0800

Blog contributer, Dan Zimberoff with Barker Martin, P.S., appeared on the KUOW radio show, "The Conversation" with Ross Reynolds today. Click here to check out the conversation and listener Q&A.

DELRAP vs HRAP for FHA Condominium Certification

Daniel Zimberoff — Mon, 08 Mar 2010 05:29:36 -0800

The last unanswered question I had regarding the new FHA guidelines involved the difference between the Direct Endorsed Lender Review Approval Process (DELRAP) and the HUD Review Approval Process (HRAP). In reviewing and analyzing the provisions promulgated in HUD Mortgagee Letter 2009-46B, the guidelines explained in detail the DELRAP process, but did not describe the precise submission process for HRAP. The attachments to the letter, including the “Lender Certification,” only referenced DELRAP, so, my colleagues and I were unsure exactly who could submit a HRAP package. Under the old “spot approval” process, essentially anyone acting on behalf of an association or owner could.

When we first raised the question with the regional supervisor in Southern California, he stated they were still interpreting the proposed guidelines and were waiting on further information from DC. But now that the guidelines are in effect, and having spoken directly with the regional manager, we have our answer.

Similar to the former guidelines, there is no specific limitation as to who can file a HRAP package. The HRAP submission no longer requires an attorney opinion letter, but must comply with the strict guidelines contained within Mortgagee Letter 2009-46B.

We still recommend an attorney or other person with expertise in the FHA condominium certification process handle HRAP packages. If you have any questions on the process or would like an attorney from Barker Martin, PS to spearhead a package for your Oregon or Washington condominium association, select the “Contact” tab at the top of this blog page.

Legislature Working on a Fix to the LLC Abatement Problem

Marlyn Hawkins — Fri, 19 Feb 2010 12:24:31 -0800

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.

FHA Announces Important Underwriting Policy Changes

Daniel Zimberoff — Thu, 21 Jan 2010 12:10:44 -0800

Because I have received so many inquiries and questions regarding my recent posts on the new HUD/FHA Condominium Guidelines, I thought I would keep our readers apprised on the latest developments over at FHA.

A number of important changes were announced yesterday by the FHA to reduce risk and improve its finances:

The upfront mortgage insurance premium (MIP) will be raised from 1.75 percent to 2.25 percent.
The minimum down payment will climb from 3.5% to 10% for applicants whose Fico score is below 580.
Allowable seller concessions will be reduced from 6% to 3%.
The FHA also plans to request legislative authority to increase the maximum annual mortgage insurance premium so it can reduce upfront costs for prospective home buyers.

The complete FHA announcement can be found here.

The proposed changes, which apply to all FHA loans, are expected to go into effect in either spring or summer 2010.

Additionally, the agency will continue to increase enforcement on FHA-approved lenders, and will publicly report lender performance rankings to improve transparency and accountability.

Lastly, based on anecdotal information provided by industry persons, I have reported that up to 40-50% of single-family residence loans will be FHA insured in the near future. I read this week in several blogs (but have not been able to confirm through the FHA) that in 2009, 30% of mortgages and 20% of refinances were FHA backed. So my initial estimates may not be too far off.

Supreme Court of Washington to Condominium Owners: A Lump of Coal for Christmas

Marlyn Hawkins — Thu, 14 Jan 2010 10:40:26 -0800

In a 6-3 decision issued on Christmas Eve, the Washington Supreme Court sided with condominium developers in upholding arbitration clauses incorporated into condominium purchase and sale agreements.

In the consolidated case of Satomi Owners Association v. Satomi, LLC, this firm argued on behalf of two of its condominium association clients (Satomi Owners Association and Pier at Leschi Owners Association) that arbitration clauses contained within “Limited Warranty” packages were unenforceable. The Associations argued that the Washington Condominium Act’s provision for judicial enforcement or the arbitration provisions of RCW 64.55, which were drafted through a compromise of industry professionals and specifically designed for construction defect cases in Washington, trumped arbitration provisions contained within these so-called warranties.

The developers’ attorneys argued that the Federal Arbitration Act (“FAA”), which provides for enforcement of arbitration agreements in contracts, trumped the Washington Condo Act and the related arbitration provisions as a matter of constitutional preemption law. But the FAA only applies where there the transaction being sued over affects interstate commerce. The developers argued that the FAA applied because materials that make up the condominiums (such as lumber and siding) travelled in interstate commerce. At the court of appeals, we successfully argued that the fact that the materials used in constructing the condominiums travelled in interstate commerce was insufficient and irrelevant because the associations did not contract for the building of the physical condominium building, they merely purchased a finished condominium – a type of real estate that is intangible and specific to Washington law.

Unfortunately, the 6-member majority held that because the arbitration clauses were referenced in the purchase and sale agreements, the fact that physical pieces of the condo travelled in interstate commerce was enough for the FAA to apply. The Court also cited the fact that some unit purchasers came from out of state or borrowed out-of-state funds.

The Court declined to decide the “gateway disputes” of whether Associations were bound when it is unclear whether all original purchasers signed an agreement including the arbitration clause.

As a result, developers in Washington may be able to enforce terms of the arbitration clauses instead of following the carefully crafted arbitration provisions of RCW 64.55.

This does not mean, however, that every part of the arbitration clause or the “limited warranties” in which they are found will be enforceable. While declining to decide whether the arbitration clause in the Blakeley Village case was unconscionable because of procedural irregularities, the majority confirmed that that issues of whether the contracts containing the arbitration clauses are unconscionable remain for the trial court to decide.

Another good summary of the case appears on the Supreme Court's blog.

Dealing With "the Crazies" Within a Homeowner Association

Daniel Zimberoff — Sun, 10 Jan 2010 17:47:55 -0800

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.