Northwest Condo & HOA Law Blog

Hoarding...a Potentially Serious Issue for Community Associations

Angie Bagby — Thu, 13 Jun 2013 14:06:20 -0800

Hoarding can be a serious issue for community associations. “Hoarding” is described as the excessive acquisition of possessions (and failure to discard them), even if the items are worthless, hazardous or unsanitary. Hoarding can impair access or egress from units and creates health and safety hazards. Hoarding is becoming more prevalent in community associations and more boards of directors are facing questions about their responsibility to prevent hoarding or to address it once the obsession is discovered.

Associations need to be cautious about this issue for many reasons, not the least of which is that inspection of interior units always infringes on owners’ privacy interests. Associations should not undertake inspections of units merely because someone reported a mess. An owner who keeps a lot of old books is not necessarily a hoarder, and associations should avoid imposing their standards of cleanliness on others. An association should only get involved if there are clear signs of hoarding visible from the exterior of the unit or there are other life-safety or property concerns, such as fire hazards, odors, or rodent/insect infestation. If these signs are present, the association must decide how to investigate the issue, and the board must understand what authority it has under the governing documents.

As the association considers next steps, it should also keep in mind that hoarding can be a symptom of an underlying mental or behavioral disorder. Such a disability may trigger protections under the Americans with Disabilities Act, Fair Housing Act, or other federal or state laws, and the Association may be obligated to make reasonable accommodations before enforcing its rules. An association should tread carefully and consult with legal counsel before taking action.

A likely first approach will be to talk with the owner. In the best case, the owner will discuss the matter reasonably and will clean up the unit. Unfortunately, in an actual hoarding case, that is not likely. Another step the association can take is to reach out to any known family members to discuss the concerns in a confidential manner. If the hoarding is a symptom of a mental illness, the family members may be in a position to assist.

If those steps do not work, the association should look to its governing documents to understand the scope of its authority. Many governing documents contain requirements that owners maintain their units in a safe condition, and provide rights for the association to enter the unit for inspection or to address emergency situations. Even if the governing documents contain those rights, the association should contact a third party to conduct any inspection and should also provide the owner with reasonable notice of the inspection. Either the health department or the local fire department may be able to conduct the inspection. Having documented code violations will be important if the association needs to undertake any enforcement or legal action. The report of code violations can form the basis for enforcement of nuisance provisions in the governing documents. The association’s enforcement authority may include the ability to hire someone to clean up the unit and charge the cost back to the unit owner. In extreme circumstances, an association may have to seek injunctive relief from a court.

Regardless of the approach your association takes, it will be important to keep in mind the intricacies of this issue and to consult with the association’s legal counsel for direction.

Association Rules-More Is Not Always Better

Dean Martin — Thu, 06 Jun 2013 14:07:01 -0800

Unlike declarations or even bylaws, an association’s rules are often easy to adopt and amend. Unfortunately, the ease with which new rules can be added, often leads to a multitude of problems for associations. The problems range from rules that are not enforced or inconsistently applied, to overly specific rules that target unpopular unit owners, to rules that violate state and federal laws.

Your association’s rules should be a cohesive set of rules that suit your association as a whole. Careful thought should be given regarding what rules to adopt, and you must take the time to make sure the rules you want to adopt do not conflict with your declaration, bylaws or any state or federal laws. Also, remember that once you adopt a rule, you are obligated to enforce it, and you must enforce it uniformly.

Here are some basic recommendations for association rules.

Rules must not conflict with your declaration or bylaws or other applicable law.
Rules must be uniformly enforced even if that means enforcing them against board members.
Rules should be clear and concise.
Rules are unenforceable if not properly adopted and published to all owners.
More rules are not always better.
Rules should be for the good of the association as a whole and not to address the pet peeve of a single owner or board member.

Rules are easy to adopt and hard to properly and consistently enforce. Remember, the more rules you adopt, the more administrative time your board or management company will spend monitoring compliance and enforcing violations. Keep that in mind, and choose your rules wisely.

If it's Broke, Someone's Gotta Fix It

Marlyn Hawkins — Thu, 30 May 2013 10:41:09 -0800

As association counsel, one of the most common inquiries from boards and managers of community associations is who is responsible for paying for repairs to various items. The item can be anything -- from a water heater that leaks, causing damage to multiple units in a high rise – to a minor crack in a concrete stairway leading up to one unit. The tendency is to want to find clear language in the governing documents relating to maintenance and repair. But the answer is generally far more complex, requiring analysis of various portions of the declaration. While community declarations differ from association to association, the basic method of finding out who is responsible is essentially the same.

In very general terms, determining who is responsible is a three step process:

1) Where is the item found or how is it defined;

2) Who is obligated to maintain; and

3) Who pays?

If an insurance claim is involved, there is an over-arching rule because the association’s policy is almost always primary, requiring that the association’s insurance cover damage prior to requiring a unit owner to either pay or consider coverage under its own insurance. But in general, this is the process.

Where is the Item?

The first step involves determining whether the broken item is part of or within the unit; a common element; and/or a limited common element. This will be determined in the declaration. Some declarations further break down these categories with further distinctions such as “residential limited common element.” But determining whether the item is within a unit or part of the common elements is only the first step. Often, maintenance and payment obligations may differ based on other language in the declaration.

Who is Obligated to Maintain?

After you’ve determined whether the item is part of the unit or a common or limited common element, declarations should say who has the obligation of maintaining or repairing such items as a group. For example, most declarations provide that the unit owner has the obligation of maintaining items within the boundaries of the unit. Therefore, a hot water heater within a unit would be the owner’s obligation. It gets trickier for limited common elements, because many declarations split the maintenance duties, sometimes requiring the owner to do “regular maintenance” such as cleaning while the Association does substantial maintenance such as repainting and replacing items. Unfortunately, this language is not always easily found in declarations and there are generally multiple exceptions or provisos to the general rule requiring more careful legal analysis. But the obligation to maintain is not always the same as the ultimate responsibility for payment. Thus, the third step.

Who Pays?

While it is logical that the requirement to maintain implies a requirement to pay, that is not always the case. For example, many declarations and the Condo Act provide that even though the association must perform the maintenance, the cost of maintenance or repairs to limited common elements are to be assessed to the owners directly, so that only those owners benefitting from the limited common element pay for its maintenance. Many declarations also allow the association to assess owners for repairs caused by the owner’s wrongdoing or negligence.

Because it requires interpretation of various portions of the declaration, an association can run into inconsistencies in definitions in any one of these steps, but keeping the three steps in mind should help associations and owners make more sense of their maintenance and payment obligations.

Paralysis by Analysis: Breaking Board Inaction

Daniel Zimberoff — Thu, 23 May 2013 14:47:57 -0800

When faced with a difficult or controversial issue, many community association boards of directors become paralyzed, overwhelmed, reactionary; and in some instances, all of the above. Such inaction often leads to delay, adverse financial consequences and heightened distrust and animosity within the community.

To avoid such inefficient and problematic results, a board should take the following steps when confronted with a problem, dispute or complex issue:

Step 1: Be proactive. Establish a game plan from start to finish incorporating the steps below with a corresponding timetable. Ensure each stakeholder (board members, affected homeowner, third party vendor, etc.) buys into the process and timeline.

Step 2: Gather information. Establish a set period of time in which to gather facts and other information relating to the issue. If relying upon third parties for information, exercise some level of verification or validation to ensure accuracy and relevance.

Step 3: Filter the information. Discern subjective from objective information and identify possible biases. Subjective or biased information is not “wrong” or invalid, but it should be weighed appropriately.

Step 4: Rely on internal and external resources. Though board members have wide ranges of life experiences and backgrounds, some issues require help from professionals, such as contractors, attorneys, managers or other consultants. If available, the Association may have persons or documents that provide historical data on the issue.

Step 5: Look to and follow governing documents. The answers to most issues a community association board faces can be found within its governing documents. Questions of authority, responsibility and funding are often provided specifically within the set of documents. If not specific answers, general concepts and guidelines should be set forth.

Step 6: Be transparent. Unless the dispute involves litigation or other privileged matter, the board should deliberate and act openly and transparently. If recusal of a board member is appropriate, then that should occur seamlessly. Two-way flow of communication (to and from the board) should occur uniformly and consistently.

Step 7: Feedback. Before making a final decision, the board should have some mechanism in place to receive feedback or input from homeowners. This is not to say that the homeowners get to vote (though in some circumstances state law or the association’s governing documents may require a homeowner vote), and not every decision requires an appeal process, but if practical, a board should allow some level of input from the association members.

Step 8: Document. Whether by formal resolution, meeting minutes or some other written record, a board should document in writing its decision or action. If the decision constitutes a variance or permit from governing documents or other established practice, the board should qualify with as much specificity as possible the grounds for the variance.

If after following the foregoing steps a board is still stuck, then assistance from a mediator or business facilitator may be required. As an absolute last step, the association could petition the court to appoint a receiver. I almost forgot the most important step that applies uniformly to every decision and action a board takes: Step 1(a): Exercise common sense!

FHA Certification: Why Do We Need It?

Angie Bagby — Thu, 09 May 2013 12:43:27 -0800

These days more and more people are relying on FHA-insured loans to purchase homes. “FHA insured loans” are simply loans provided by FHA-approved lenders and backed by Federal Housing Administration mortgage insurance. They used to comprise less than 10% of residential mortgages and were popular because they allowed buyers with unestablished credit or lower credit scores to qualify for loans with smaller down payments. However, in the post-financial meltdown, stricter lending regulatory environment, FHA-insured mortgages constitute over 50% of today’s residential loans.

One negative feature is that FHA-insured loans require premiums for two types of mortgage insurance: an upfront mortgage insurance premium and an annual mortgage insurance premium (charged monthly).

In order for a prospective buyer to use an FHA insured loan, the property must meet FHA’s requirements. For condominiums, the entire condo project must have FHA certification. If your project is not FHA-certified, you may be limiting the pool of prospective purchasers. Losing sales in this economy could leave you with angry sellers, including sellers who think that not having FHA certification is a breach of the board of directors’ fiduciary duty, which could lead to a lawsuit. Regardless of whether such a lawsuit would have merit, your Associations would likely prefer to avoid that risk.

The first step is determining whether your project is eligible for FHA certification. Here are a few of the key eligibility requirements:

Project must be primarily residential (excludes hotels, timeshares, live-work projects with more than 25% of the units devoted to “work”)
Any one investor/entity cannot own more than 10% of the total number of units
More than 50% of the units must be owner-occupied
Fewer than 15% of the units can be delinquent in the payment of assessments
Budget must provide for funding of replacement reserves in an account representing at least 10% of the budget

While the Association generally has little control over the first two requirements, an association can work to come into compliance by adopting rental restrictions, updating budgets and reducing delinquencies through collection actions.

If your Association meets these and the other eligibility requirements listed in the FHA’s Condominium Project Approval and Processing Guide the next step is compiling all of your Association’s governing documents and other documents relating to the Association’s finances, insurance, and reserve studies. You will also be required to disclose any special assessments or litigation and to provide a project certification stating that:

The information and statements provided are true and correct;
The Association meets all FHA condominium approval requirements; and
You have no knowledge of circumstances that might have an adverse effect on the projects (i.e. construction defects, operations issues, litigation, etc.)

All of this information, including the certification, needs to be submitted to FHA for approval. If the certification is rejected, FHA will identify the reasons therefore and an Association may re-apply. FHA certification is valid for two years; Associations have an ongoing obligation to notify FHA/HUD of any significant changes in circumstances that occur while the Association is certified.

Board Members Beware Your Emails Probably Constitute An Association Record

Dean Martin — Thu, 02 May 2013 12:37:56 -0800

Email is an incredibly useful tool for board members given everyone’s busy schedule and the number of issues that arise between board meetings. But, like many tools, email can be a dangerous thing if used improperly. Just remember, it is not unusual for owners to request certain association records, including any emails to or from board members about association business. They will argue that any such email is an association record; and they are therefor entitled to review and copy any such communication. Unit owners can always demand tosee non-privileged association records. For Oregon association see ORS 100.480 and 94.670.For Washington associations see RCW 64.32.170, RCW 64.34.372 (1), RCW 64.38.045.

These days most people view emails as confidential communications and while they are certainly less public than Facebook posts or Tweets, they are not always confidential. Unfortunately, that false sense of confidentiality prompts many people to write things that they would never want to see on the front page of a newspaper or community newsletter. To avoid the disclosure of embarrassing or even damaging board emails, there are two basic steps each board member can take to protect themselves:

Create a separate email for association business. This is a good idea so that you can be certain you have not mixed personal and association emails. It also helps prevent a unit owner from requesting all of your personal email in order to make sure they see every email you sent that involved association business. Lastly, an association email account (e.g., VillaPointeTreasurer@gmail.com) allows for historical and institutional information to be passed down easily.
Do not mix personal and business information in the same email. Assume that every board email will ultimately be made public and draft them accordingly. Emails by and between board members or the manager are not the place for venting. They are business communications and should always be professional.

Draft your board emails as a board member and keep in mind that all of the owners in your association may have the right to read what you are writing. A little vigilance goes a long way.

What Did the Lawyer Say?

Marlyn Hawkins — Thu, 25 Apr 2013 12:29:00 -0800

In last week’s article, Dan discussed the use of the executive session during board meetings to conduct privileged conversations. As an extension of this topic, we are often asked to consult on how the attorney-client privilege impacts dissemination of the attorney’s opinions to the other members of the Association and requests for association records.

The primary rule is that the actual document containing communications between the lawyer or the law firm and the members of the board should not be copied, published or otherwise shared with the members of the Association. While such a document might technically be an Association record, the document must be withheld to protect the attorney-client privilege.

In Washington & Oregon, the attorney client privilege doctrine is found in RCW 5.60.060(2)(a) and ORS 40.225(1)(d) respectively. The statutes are dissimilar in language, but both provide that neither the attorney nor the client can be compelled to disclose communications made by the client to the attorney, or vice versa, when made in the scope of giving or receiving legal advice. The rule covers oral statements as well as written documents and correspondence passing between the client and the attorney.

When the Association is the lawyer’s client, the documents that are protected are those between the lawyer and the primary control group – the members of the board of directors. Association managers can be included as part of the client group if they are “necessary agents” of the Association. There is no published case in Washington or Oregon that makes this determination, so the determination of whether the community manager is a necessary agent must be made on a case by case basis within the context of the communication itself.

As Dan mentioned last week, the privilege requires that the board have discussions with counsel concerning legal advice in executive session. The actions taken after the session should be reported in the minutes, but the minutes should not say such things as “the association’s attorney advised us to do X” or “the attorney thinks we do not have a good chance of prevailing.” Including such statements in minutes could result in a dispute as to whether or not the Association has waived it attorney client privilege.

As always, the best course of action to take if an Association questions what should be reported in the minutes or receives a request for a document containing potential legal advice is to should consult its attorney before sharing or disclosing any such communications.

Executive Session: Lifting the Veil of Secrecy

Daniel Zimberoff — Thu, 18 Apr 2013 12:02:38 -0800

The use of executive session is often a confusing and misunderstood function of a community association board’s powers. We commonly see both over and under use of this privilege by well intentioned, but misinformed, boards. The law differs between Washington and Oregon.

In Oregon, both the Condominium Act and Planned Community Act mirror one another and expressly address executive session in the following manner:

All meetings of the board of directors of the association shall be open to owners, except that at the discretion of the board, the board may close the meeting to owners other than board members and meet in executive session to:

(A) Consult with legal counsel.

(B) Consider the following:

(i) Personnel matters, including salary negotiations and employee discipline;

(ii) Negotiation of contracts with third parties; or

(iii) Collection of unpaid assessments.

ORS 100.420(1)( a) (Condo Act); ORS 94.640(8)(a) (Planned Community Act). Note that subsections (A) and (B) are distinct, meaning that executive session can occur when a board consults with legal counsel or considers the three enumerated issues (with or without legal counsel present).

In Washington, there is no requirement under the Washington Condominium Act or Horizontal Property Regimes Act for condominium boards to meet in open; though, we highly recommend they do so. Thus, there is no reference to executive session in either statute.

For Washington HOAs, under the Washington Homeowners Association Act:

Upon the affirmative vote in open meeting to assemble in closed session, the board of directors may convene in closed executive session to consider personnel matters; consult with legal counsel or consider communications with legal counsel; and discuss likely or pending litigation, matters involving possible violations of the governing documents of the association, and matters involving the possible liability of an owner to the association. RCW 64.38.035(2). The statute goes on to describe procedures for conducting business under executive session that are discussed further below.

Now that we’ve covered what the law says, there are some practical suggestions for community association boards to follow when utilizing executive session (regardless of type of community or state where they reside).

1. Boards should use executive session in a consistent and uniform manner, that is, avoid varying its use depending upon which owner they are dealing with.

2. Executive session should not be used as an avoidance tactic. Boards should not convene or threaten to convene in executive session every time a controversial or contentious issue arises. The issues upon which a board can legally enter executive session are stated expressly within the statute applicable to their association, and the statutes can be used as guidelines for all communities.

3. The Washington Homeowners Association Act provides strict procedures when utilizing executive session that are recommended for all boards—condo or HOA, Washington or Oregon:

a. The board chair should entertain a motion to enter executive session that shall state specifically the purpose for the closed session.

b. Reference to the motion and the stated purpose for the closed session shall be included in the minutes.

c. The board of directors shall restrict the consideration of matters during the closed portions of meetings only to those purposes specifically exempted and stated in the motion.

d. No motion, or other action adopted, passed, or agreed to in closed session may become effective unless the board of directors, following the closed session, reconvenes in open meeting and votes in the open meeting on such motion, or other action which is reasonably identified.

4. If minutes are taken during executive session, they should be marked as “Privileged” and maintained in the same manner as other confidential documents, i.e., not available for disclosure to homeowners or third parties absent court order or extraordinary circumstances.

When used appropriately and discriminately, executive session can be an effective, and essential, tool for community association boards. Proper procedures are paramount in maintaining the integrity of a board’s decision making process. Do not hesitate to contact the team at Barker Martin if you have any questions relating to executive session, or any related topic.

Brining Our 'A' Game...

Jeremy Stilwell — Thu, 11 Apr 2013 13:51:31 -0800

This past Saturday, I had the opportunity to co-teach a Community Association Volunteer Leader course for CAI. For those of you that haven’t taken the CAVL course, it’s a basic level course designed to provide fundamental knowledge and problem solving strategies for anyone that works with community associations. I spent the better part of Saturday with a group of eager-to-learn-owners working through the program to better understand the basic governance of community associations. Sharing information about community association operations and practicing the necessary problem solving techniques were educational for the teachers as well as the participants. Walking away from the seminar, I was reminded of how much our clients rely on their association managers, reserve specialists, accountants, attorneys, insurance brokers, bankers and a host of other professionals. We owe it to them to bring our “A” game every day.

Additionally, I was reminded how important it is that we embrace our role as teachers. In order for associations to become the vibrant communities that we all want, it is imperative that we, as an industry, take the time to educate our boards. It’s easy to forget when a new director joins the board that he or she may have never served in that capacity. Without proactive action on our part, board members may become unintentionally rooted in misunderstandings and misinformation.

Industry veterans often “know” (or at least think we know) what is best for the associations we serve. As busy professionals, it’s easy to fall into the trap of identifying an issue and skipping straight to the conclusion. It hurts all involved to make this mistake. The CAVL course recommends a problem solving strategy that requires boards to:

1. Identify the scope of the problem.
2. Determine who has the authority and obligation to act.
3. Consider approaches and resources; formulate and implement the plan.
4. Communicate the plan.
5. Monitor and evaluate the plan.

The lessons learned in a CAVL class apply equally to seasoned industry professionals as well as green board members. It’s important that all of us take the time to analyze issues before an association decides to take action. Of course not everything is a problem or a difficult issue. You obviously won’t go through a five step plan each month to determine whether or not the association should pay their landscaper. But, when creating policy or dealing with a difficult issue, it’s important that we work with our associations and their boards of directors in addressing those issues. Walking them through the CAVL problem solving process will engage the board and make sure that they are invested in the final decision. Without their involvement in the process, board members will inevitably become an unexciting collection of owners that make sure the bills are paid, the manager’s report is reviewed, and maybe the financial statements are read, but little more. Their work will be less beneficial for the association if board members lack the knowledge and ownership over their tasks. Let’s take the extra step to make sure our associations are the vibrant, involved communities that the owners deserve.

Is Smoking a Nuisance?

Angie Bagby — Thu, 04 Apr 2013 14:43:56 -0800

Smoking in residential communities often becomes a contentious issue. As more health issues are linked to exposure to second-hand smoke, more homeowners are looking for ways to ensure they are not exposed to smoke. This can lead to disputes between neighbors and sometimes even results in demands that the Association take action to prevent smoke infiltration. It is important for Associations to understand their rights and responsibilities in these circumstances.

The Risk of Doing Nothing.

Most Associations have provisions in their governing documents that give the Board authority to prevent any “nuisance” or interference with owners’ use and enjoyment of their property. Courts in Washington and Oregon have not definitively ruled on whether second-hand smoke qualifies as a nuisance or an offensive activity under this provision, but that would seem to be a likely result.

A California jury recently considered this issue and ruled against a Condominium Owners Association. In the California case, homeowners complained to their Association that their neighbors’ incessant smoking exacerbated their son’s asthma. The neighbors smoked on their own patio and on common area sidewalks, but the smoke traveled into the complaining owner’s unit. The jury awarded $15,500 in damages and determined that the majority of the damages were the Association’s responsibility. The Association did not have specific rules about second-hand smoke, but did have a rule prohibiting noxious or offensive activities.

Associations should seek to prevent the risk of legal liability by doing something to address second-hand smoke concerns, but what can they do?

What Associations Can Do.

The best course is to address this issue before it ever comes up by amending the Association’s CC&R’s or adopting rules to make it clear to all owners how the problem will be addressed. Using the Association’s authority to prohibit nuisances or offensive activities, the Board may seek to adopt rules prohibiting smoking in common areas which include fine schedules providing prompt recourse against violators.

The issue becomes much more complicated if the Association wishes to prohibit smoking within units. A prohibition against smoking inside units will almost always require a super-majority vote in favor of the prohibition and an amendment of the Association’s governing documents. This will be difficult, if not impossible, to achieve if the Association’s members include smokers. However, although owners may be allowed to smoke in their own homes, Associations can require that the owners take action to ensure that their second-hand smoke is contained within their own homes. For example, Associations can require installation of filters or screens to prevent second-hand smoke from infiltrating neighboring units.
Regardless of the approach your Association decides to take, it is certain that we will continue to encounter second-hand smoke complaints and demands that Associations take action on behalf of their residents. Associations should prepare themselves by considering this issue carefully before being faced with a lawsuit.

A Fine by Any Other Name - Part 2 of 2

Marlyn Hawkins — Thu, 28 Mar 2013 13:58:52 -0800

In last week’s email, we discussed grounds and legal authority for community associations assessing fines. This week, we continue the discussion relating to association fees.

The source of an association’s authority to impose “fees” as opposed to fines may be varied and is the subject of some controversy. The only “fees” (other than attorney and resale certificate fees) explicitly referenced by any of the acts appear in the Washington HOA Act and the Oregon Condo Act. Those acts allow fees for use of the common areas or elements (RCW 64.38.020(10); ORS 100.405(4)(j)) and late fees on assessments (RCW 64.38.020(11); ORS 100.405(4)(k)). The Washington Condo Act and Oregon Planned Community Act reference these and further allow fees for “services provided to unit owners.” RCW 64.34.304(1)(j); ORS 94.630(1)(l). Thus, late fees, common area rental fees, and move-in and move out fees, fees for production of keys, etc. may be justified under the specific language of the Acts as fees for use of common areas or for services provided to owners. Because the Acts differ and declarations differ substantially, you should obtain legal advice with respect to any particular fee to determine whether it is justified under your particular association’s governing documents. If the fee is justified, most people will agree that it should still be contained in a “rule” adopted by the board and published to the owners to ensure proper notice.

Remember, these statutes are subject to the provisions of the declarations, so depending on the language in the declaration, additional fees may be authorized even if they do not relate to delinquencies, use of common areas and services to owners (e.g., move-in and move-out fees). Again, this can only be determined on a case-by-case basis. Similarly, declarations can require that common expenses that benefit fewer than all owners be paid by the owner benefited, which can provide another source of authority for a “fee.” Still other fees, such as a management company’s “delinquency monitoring fee” may be authorized as “costs of collection” of delinquent assessments or fines, authorized by some declarations.

It is important that Associations don’t adopt onerous fees that function as a penalty. Penalties play an important role in the effective governance of associations, but they are not fees. Fees should be charged to cover expenses associated with an activity rather than to discourage the activity. Before adopting a fee schedule, an association must be able to show that the charged fees are reasonably tied to related expenses and that the overall fee is reasonable.

The bottom line is whatever a fee is being imposed or collected from owners, the association should identify the source of authorization for the fee, the basis for the fees to be charged and include such fees (even those fees required by community management companies) in its published “fine and fee schedule.”

"A Fine by Any Other Name" Part 1 of 2

Marlyn Hawkins — Thu, 21 Mar 2013 12:35:35 -0800

Most associations and management companies are aware that fines for violation of the governing documents must be imposed pursuant to notice and an opportunity to be heard in accordance with both the Washington and Oregon community association acts. But what about fees? We are often asked what the difference is between a fine and fee in terms of collections. The short answer is that if done correctly, there is little difference between the two in terms of collections, though the source of the fine or fee and the procedures to impose them usually distinguishes the two. This 2-part email will discuss the source of authority for fines this week and fees next week.

The term “fine” is generally used to describe an amount imposed or assessed against an owner for violation of the governing documents. Notice that I did not say violation of the “rules” because “rules” is a general term that leaves some ambiguity. Fines can be imposed for violation of any provisions in governing documents, whether they are called “rules” or not. Some declarations and bylaws contain provisions that you might expect to find in the “rules,” such as provisions regarding parking or pets, while others are silent on these types of issues, leaving them to the “rules” adopted by the board. Other associations have parallel (though sometimes slightly inconsistent) “rules” in both the declaration and the board-adopted rules. Properly adopted and published fines can be imposed for violations of any provision of the governing documents, whether the rule appears in the declaration, bylaws, rules, house rules, “rules & regulations,” “house rules,” “board resolutions” or “policies” such as collection policies or fine & fee schedules.In any case, both Washington and Oregon condominium and HOA/PCA acts require that a number of prerequisites be met before imposing a fine:

• The fine must be included in a “previously established schedule” adopted by the board (or in the governing documents);
• The fine schedule must have been furnished to the owners;
• The association must provide the owner with notice of the violation;
• The association must provide the owner with an “opportunity” to be heard by the board or board representative in accordance with procedures in the governing documents or adopted by the board; and
• The fine must be reasonable.

See RCW 64.34.304(1)(k); RCW 64.38.020(11); ORS 100.405(4)(k); ORS 94.630(1)(n) & (4).

Notably, the provisions in all of the acts are subject to the provisions of the declaration. So it’s arguable whether a declaration that conflicts with these procedures trumps the statutes. However, the ultimate basis for the “notice and opportunity to be heard” concept sounds in the constitutional right to due process, which would trump any governing document provision. Thus, we generally advise that the procedures contained in the Washington and Oregon Acts be followed to avoid such a claim.

In short, reasonable fines for violation of the governing documents not only need to be included in a schedule adopted by the board and published to the owners, but specific procedures must be followed before imposing those fines on an individual owner. Fees, on the other hand, may be treated slightly differently. Tune in next week for a discussion of fees.

Four Simple Steps to Community Building this Spring

Daniel Zimberoff — Thu, 14 Mar 2013 07:55:49 -0800

Since we just turned our clocks ahead a few days ago, it means that spring is right around the corner. As we awaken from the cold, dark winter, spring will usher in new beginnings, warmer weather and longer days. The coming season is a great opportunity for association members to spend time outside in the common areas, enjoy some good weather and meet and get to know their neighbors better.

As spring arrives, here are four activities homeowner associations can do to foster harmony and good will within their communities:

1. Spring Brunch. Set up a few tables in your clubhouse or common area and ask your homeowners to bring potluck items. You can decorate the tables or the room in a simple springtime-fashion, with colored napkins, flowers and bright table coverings. Sharing food and eating together in a relaxed environment is an easy way to strengthen relations with neighbors and other homeowners. The association’s board of directors may wish to take a few minutes during the brunch to informally address the group, since many homeowners do not attend annual or board meetings.

2. Egg Hunt and other games for the kids. Although eggs are usually considered part of Easter, they need not necessarily be associated with the religious holiday. Children have a lot of fun hunting for eggs or playing other games such as capture the flag or even tag (anything to get them off their displays and outside!). These activities can be organized around spring as a theme, rather than Easter. In exchange for the eggs or participating in the other games, kids could receive creative prizes such as crayons, pencils, watercolors or handicraft tools. Involving children is a great way to increase participation of homeowners with families (offering babysitting and children’s activities is another effective way to increase participation at an association’s annual meeting, too)

3. Plant Potting Workshop for all ages. Another pleasant way for homeowners to spend time with each other is organizing a workshop on potting or re-potting plants. Springtime is ideal for such an event and kids are surely going to enjoy working with the plants and the soil, and learning about how to take care of them. All you need to do is provide the tools, pots, soil and plants (or people can bring their own plants) and the workshop can begin.

4. Spring clean up. What community cannot benefit from a general spring cleaning? Though many homeowner associations have landscape or other committees that maintain common areas throughout the year, why not invite all the owners for a Saturday morning raking, weeding and planting event? Pick a sunny day to maximize participation and offer lemonade and snacks to increase the camaraderie. One note of caution: we recommend that any use of ladders or climbing be restricted to contracted professionals who are properly licensed and insured.

Community building strengthens the ties between homeowners, tenants and board members and certainly promotes a healthy environment within a homeowner and condominium association. Working together and having fun builds relationships, familiarity and trust, which leads to a higher quality of life for all members within the community. For those of us who work with homeowner and condominium associations, there is no better time than now to urge our clients to get outside and foster community.

When it's Time to Cut the Strings

Jeremy Stilwell — Thu, 07 Mar 2013 12:50:23 -0800

Associations must make sure the proper steps and procedures are followed through turnover. A common mistake occurs when the developer continues to exercise control of an association after transition has already occurred. For any association in which the owners aren’t electing 100% of the directors, it’s important to know when transition is to occur because once the requirements for transition are met, the transition happens by operation of law whether or not the owners, developer and/or association manager realize it.

Calculating the date of turnover is an important step in the process. The general rules for transition in Oregon and Washington associations are:

WA Condominiums: Transition starts when 25% of the units are sold, and once 75% are sold, all board members must be owner elected. RCW 64.34.308.

WA Homeowners Act: There is no provision in RCW 64.38, so the association’s governing documents control.

OR Condominium Act: Declarants may elect to control an association for a certain period of time. For single phase condos, declarant control must terminate either at the time of conveyance of 75% of the units or three years from conveyance of the first unit, whichever occurs earlier. If the condominium is a staged or flexible condominium, declarant control must terminate either at the time of sale of 75% of the units which may be created or seven years from conveyance of the first unit, whichever occurs earlier. ORS 100.200.

OR HOA Act: Declarants may elect to control an association for a certain period of time. Transition may occur upon a stated event or timetable in the declaration. Transition may never occur if the development is less than 20 lots and declarant elects in the original governing documents to retain control in perpetuity. See ORS 94.600.

It’s important to distinguish between special declarant rights and declarant control. Unlike the latter, special declarant rights do not necessarily expire at the time of transition. Some rights – for example, the right to control easements or add development phases – may extend for many years (the termination date for special declarant rights are ordinarily contained within the section of a declaration that describes and preserves the specific rights).

Associations should review their governing documents and perform a complete analysis to determine if the period of control has expired and if the declarant has maintained special declarant rights that continue past transition. The process does not have to be adversarial. Once the issues are explained, responsible developers generally cooperate in that analysis given the liability they could incur for failure to transition to the owners.

If you are an owner, board member or manager of a developer controlled association, we would welcome the opportunity to review your association’s status for transition.

The Attorney-Client Privilege

Angie Bagby — Thu, 28 Feb 2013 15:46:14 -0800

One of the benefits clients receive from consulting with an attorney is the knowledge that the communication will be held in strict confidence; this is commonly known as the Attorney-Client Privilege. This protection gives clients freedom to explore their legal options without a concern that anyone on the other side of a dispute will learn about the discussion or use it to exploit any weaknesses in their legal position.

The majority of our clients are community associations that are formed as nonprofit corporations. This raises the question: who is our client and who is covered by the Attorney-Client Privilege?

In Oregon, the corporate representatives that are included within attorney-client privilege are principals, officers, directors or persons with authority to obtain professional legal services or act on legal advice rendered. In Washington, the test is whether the corporate representative is authorized to speak for the corporation or holds a management role. It is clear that directors serving on an association board of directors are included within the scope of the Attorney-Client privilege, but owners who are not directors are not included within the privilege. That means that non-director owners can be compelled to testify about facts—even facts that hurt the association’s case—that they learned from the association’s attorney. Obviously, it is in the association’s best interest to prevent that from happening.

The limitations on the scope of the Attorney Client Privilege can be frustrating for unit owners who attend meetings but feel like they are still not getting the full story. It can also be frustrating for board members who seek transparency and would like to get more owner input before making tough legal decisions that impact their community. Unfortunately, preserving the attorney client privilege is necessary, and the amount of information that can be shared is limited in order to protect the association’s ability to have candid discussions with its attorney. On the plus side, frustrated owners can always get the full story by joining their community board of directors. Most communities are always grateful for more volunteers!

Welcoming New Owners

Dean Martin — Thu, 21 Feb 2013 14:10:02 -0800

In a February 10, 2013 post, the Seattle Times reported on the improving real estate market for condominium sales referring to a “double digit increase in median sale prices, below normal inventory supply and hyped up sale activity.” See http://blog.seattlepi.com/seattlecondo.

That is welcome news to both owners and associations alike, but it is also a reminder that boards and associations need to take steps to smoothly assimilate those new owners.

Even if your new owner has lived in a condominium before, they need to know how your association works. Don’t assume that new owners will receive the essential basic information as part of the purchase process. A prudent purchaser will make sure they receive the declaration, bylaws, rules and monthly assessment information, but it doesn’t always happen. Far too often, purchasers never see the resale certificate because their broker forwards it to the buyer’s lender but never the actual buyer. The Association is not to blame for this breakdown in communication, but it results in uninformed owners, which benefits no one. Even when buyers receive the information, it often comes in a large package that is hard to digest and is usually ignored during the excitement of buying a new home. To offset that problem it is a good idea to give new owners a welcome package after they have moved into their unit.

A welcome package is a great way to draw a new owner’s attention to the aspects of the association that will impact the owner’s daily life. Information about quiet hours, emergency contact information, whom to call with non-emergency questions, when board meetings are scheduled and any upcoming events is useful to new owners. But other information should be included that is beneficial to the association. Politely remind them that they are obligated to comply with the governing documents, and if they lost the copies that were provided to them during the purchase process, additional copies are available. The welcome package should also include your rules and any collections and enforcement policies you have in place.

As the real estate market hopefully continues to improve, now is the time to create or revise your association’s welcome package for new owners. For the many managers and associations that already have a welcome package, now is the time to think back over the problems you have faced over the last few years and consider what revisions might help avoid those problems in the future.

Looming Crisis? The Board's Legal Responsibility

Daniel Zimberoff — Thu, 14 Feb 2013 14:31:52 -0800

In last week’s email we warned of the perils facing older condominium associations who fail to perform proper maintenance or major rehabilitation. Some of these associations are now having difficulty renewing or obtaining liability and property insurance. Additionally, many homeowners within these associations cannot refinance or sell their units because bank underwriting is flagging these projects. In the email, we highlighted four reasons why the time is right for condo associations to plan and perform major rehabilitation now.

In response to our email, several managers sent questions inquiring how much responsibility or liability does a condominium board of directors have if they fail to act when facing major underfunded construction projects? This is a question our team hears quite often.

Generally, a board of directors of a condominium association in Oregon and Washington is held under the business judgment rule standard of care, which means, the board members should be immune from liability if they act in good faith and with reasonable skill and prudence. Additional protection is provided to community association board members who rely upon the advice or guidance of professionals, such as attorneys, accountants, managers, architects or other industry consultants and professionals.

In the context of handling major rehabilitation or construction projects, a board should be responsive and proactive. There may be a tendency for some boards to want to ignore reports from owners or contractors by rationalizing that, “It doesn’t look that bad;” or, “We can get by for another couple of years;” or, “Once the economy turns and foreclosures stop, the next board will be able to handle it.” These are not reasonable or responsible responses. A board should not ignore or delay responding to information on the condition of association property.

The bottom line is the officers and board members of a condominium association are charged with the legal responsibility to preserve the assets of the association. In many instances, the common elements of these condominiums are worth multi-millions of dollars. A board of directors who has knowledge or information of building defects or problems must act prudently and reasonably, and should not ignore or stall maintenance, repairs or renovation. Last week’s email provides six steps a condominium association board should take when facing underfunded capital improvements or major repairs to ensure they are meeting their legal standard of care.

To assist boards understand their legal obligations and to help inform homeowners and managers on how best to confront this predicament, we have teamed with a lender and insurer to provide a 60-minute webinar. For more information about the webinar and to sign up, click here.

Looming Crisis? When Caulk, Paint and Patches No Longer Work

Daniel Zimberoff — Thu, 07 Feb 2013 12:09:47 -0800

Condominiums first appeared in the late 1960s when owner-occupied cooperatives and common interest communities took hold across the country. Throughout the 1970s, condominiums emerged as an important form of home ownership. HUD estimates that over 4.8 million condominiums were constructed in the 1970s and 80s.

At some point, even well built buildings require major rehabilitation. The number of years an association can function before performing a major rehab is based on a multitude of factors, including the quality of construction, type of cladding and windows, exposure to the elements and of course: maintenance. Many communities choose to defer maintenance or common element repairs and replacement by kicking the can down the street for the next board or group of homeowners to confront. Though a precise timetable for replacing roofs, windows, HVAC, exterior cladding or other major systems may vary widely, the one certainty is that delay will result in increased costs. This fact is particularly true in the Pacific Northwest, where long rainy winters punish buildings year after year.

Now is the perfect time for an association to address its long-standing repair and replacement issues for the following reasons:

• Bank loans are viable. Interest rates remain at historic levels--the cost of borrowing money has never been this low--but will not remain at this rate indefinitely. Plus, due to the competitiveness in the lending industry, banks are loosening underwriting requirements.

• Construction costs remain low. Due to the overall economic malaise in our country, the cost of materials and labor remains highly competitive, but like bank interest rates, construction costs will not remain low forever. As the economy continues to improve, labor and material rates will certainly rise.

• Insurance coverage is at peril. Condominium insurers are rejecting new coverage and failing to renew policies on older condominiums that have failed to upgrade plumbing, electrical and other major systems. Older associations who have failed to perform this work are finding themselves without insurance and at significant risk.

• Delay results in higher costs. Delaying required repair and maintenance will result in a disproportionate rise in repair costs. Water damage to buildings is not linear. Rot, deterioration and other damage accelerate over time and mirror a hockey stick and not a straight line. At some point, the damage reaches the extent where mold and structural integrity cannot be ignored.

If you manage or govern an associations older than 20 years that has not actively addressed the condition of the complex, don’t become part of the looming crisis. Act now to take advantage of the favorable conditions to get this work done.

Here are some recommendations for dealing with underfunded capital improvements or major repairs:

1. Assemble a team of professionals, including an attorney, lender, architect or engineer and manager, to work closely with the board of directors in formulating and executing a comprehensive plan, from initial identification of the scope of the repairs through funding and completion of the work.

2. Rely on the advice of these professionals, who have guided hundreds of Oregon and Washington associations through proven and successful game plans and track records.

3. Do not succumb to “paralysis by analysis.” Details are important, but fear of the process should not override reasonable and necessary action.

4. Do not get bullied by adversarial homeowners. No one “wants” to pay a special assessment, but when presented with objective facts and data, reasonable owners should realize the need to take action. This is where your professional team can be especially effective in communicating and supporting the plan.

5. Be transparent and communicate often. Don’t wait for the special assessment meeting to communicate with the association about the need for repair/replacement of common elements.

6. Involve homeowners in the process. Committees or tasks forces can be especially helpful, but make sure the roles are clearly defined. Committee work should generally be in an advisory capacity with clear demarcation of roles and responsibilities.

A large number of older condominiums can no longer get by with caulk, paint and patchwork fixes. They face pressing and important decisions on how to proceed. The first step in making those decisions is becoming better informed. To assist that first step we have teamed with a lender and insurer to provide a 60-minute webinar to help inform homeowners and managers on how best to confront this predicament. For more information on the webinar and to sign up click here.

Call to Action: Legislative Alert

Jeremy Stilwell — Thu, 31 Jan 2013 13:01:53 -0800

Owners, managers and vendors to community associations have a stake in state laws that impact associations. The Washington State Legislature is in session and several bills affecting community associations have been introduced. New legislation can have a tremendous financial impact on the community association industry and your association in particular. Even if you live in or work exclusively with Oregon associations, you may want to keep reading as regional trends are common.

Here is a list of Washington State Bills that could impact community associations:

HB 1370 – Electronic notice of meetings
Summary: The bill would allow Washington HOA’s to provide electronic notice of association meetings. This a great idea, but we question whether electronic notice should be something owners “opt-in” to accept rather than “opt-out” as the bill is currently drafted. Oregon currently employs the “opt out” method and this doesn’t seem to pose a burden to associations in the state.

SB 5134 – Reserve Studies
Summary: The bill would exempt condominium associations with fewer than 50 units from the reserve study requirements. This seems like a bad idea. The reserve study statutes encourage associations to estimate the anticipated major maintenance, repair and replacement costs that are not included in the association’s annual budget. Reserve studies are basic good governance whether an association has 10, 30, 50 or 500 units.

PSSB 5075 – Homeowners’ association assessment increases
Summary: This bill would limit an Association’s authority to increase assessments. We do not support this bill because Associations need the ability to assess the actual costs of maintaining the property and setting aside reserves for future major maintenance, repair and replacement.

SB 5031 – Real Property Damage Actions
Summary: The statute of limitations for an action regarding waste or trespass upon real property or for injuring personal property is three years. Based on a 1977 Washington Supreme Court case, if property is damaged as a result of construction occurring on an adjacent property, the statute of limitations does not begin to run until the construction project is substantially complete. This bill would make the statute of limitations run from the date the damage is discovered or reasonably should have been discovered.

HB 1029 – Private Road Maintenance
Summary: This bill is intended to make easement holders responsible for a share of maintenance and repair costs related to their use of easements. This could be important to Associations with easements for roads, sidewalks or other rights to cross over another’s land. The bill is being worked on to try and addresses several concerns.

SB 5083 – Political yard signs
Summary: Under current law, the governing documents of a homeowners' association may not prohibit the outdoor display of political yard signs by an owner or resident before primary or general elections. This law would extend the prohibition to any public elections.

SB 5113 – Enforcement of speed limits on roads within condo associations
Summary: This bill would allow law enforcement to enforce speeding violations on private roads in condominium associations so long as certain requirements are met.

As legislative bills are drafted, re-drafted and amended, the ultimate step may be for community members to become involved in the legislative process through contacting their representative and provide feedback on how certain legislation would impact their community.

If you don’t know who your state representatives are, use this link and find out today:

Washington

Oregon

Association and Homeowner Insurance: Who Pays in Oregon?

Angie Bagby — Thu, 24 Jan 2013 08:42:50 -0800

Last week we discussed disputes that can arise between insurance policies for homeowners and policies for the Association. This week we will turn the focus to the Oregon laws on this topic.

The Basic Requirements

For non-condominium owners’ associations, ORS 94.675 contains requirements for insuring common property. The Association is required to obtain insurance for all insurable improvements in common property against loss or damage by fire or other hazards that covers the full replacement costs. A public liability policy covering all common property and damage or injury caused by the Association’s negligence is also required. In addition, if the Association has sole authority to decide whether to repair or reconstruct any damage to a unit, then the board must obtain blanket all-risk insurance for the full replacement cost of all structures in the community (ORS 94.680).

For condominium associations, if the Bylaws give the Association sole authority to decide whether to repair or reconstruct any damage to a unit, the Association must obtain property insurance covering common elements and individual units. The Association is also required to obtain liability insurance covering the Association, its manager, and its members for acts incident to ownership or use of the property (ORS 100.435).

Answering the Tough Questions

Unfortunately, understanding those basic requirements does not address the disputes that commonly arise, such as:

Should the Association’s policy pay or should the Owner’s?
Who is responsible for paying the deductible?
Does the Association’s policy have to pay even if the Owner was negligent?

Unless your Association already has provisions in the Declaration or Bylaws answering these questions, you should take advantage of the specific resolution-making authority in the Oregon statutes to answer these questions before problems arise.

The Board of Directors has authority to adopt resolutions answering these questions (See ORS 94.676 for non-condominium associations and ORS 100.435(6) for condominium associations). Among other things, boards can adopt resolutions assigning responsibility for payment of the deductible; for determining which policy will be primary in case both the Association and the Owner have coverage for the same damage; requiring owners to obtain insurance coverage to cover the amount of the deductible on the Association’s policy; and providing a procedure for processing insurance claims.

All Associations should review their governing documents and make sure they have resolutions or other provisions addressing all of these topics. If the Board adopts new resolutions, they must be sent to all owners with a notice advising the owner that it is an important notice and that they should contact their insurance agent to determine the effect of the resolution on their individual insurance coverage.