February 26, 2010

Maintenance and Repair of Condominium Buildings - Who Pays?

Condominiums are divided into units, limited common elements, and common elements. The Washington Condominium Act, which governs condominiums created since July 1, 1990, establishes default rules regarding boundaries and upkeep. These rules have been incorporated into many past and present condominium declarations.

The Washington Condominium Act states that (subject to the declaration) the walls, floors, and ceilings are the boundaries of a unit. Items such as wallboard, plaster, tiles, paint, and other materials constituting part of the finished surfaces are part of the unit. Items such as flues, ducts, conduits, and other fixtures that lie partially within a unit are considered limited common elements to the extent that they serve only that unit. Items such as porches, balconies, exterior windows, and exterior doors that are designed to serve a single unit are limited common elements as well. The rest of the condominium is composed of common elements, which often include siding, roofs, and recreational areas.

The Act later describes who is normally responsible for each portion of a condominium. It states that (subject to the declaration and two other exceptions) the association must pay for maintenance, repair, and replacement of the common elements and the limited common elements and the owners must pay for the maintenance, repair, and replacement of their units. The Act allows associations to shift expenses related to limited common elements to the owners if the declarations permit this. The Act also allows associations under its jurisdiction to shift common expenses caused by an owner’s misconduct to that owner.

The default rules discussed above can be altered by condominium declarations, so those documents must be carefully reviewed in each instance to determine liability for repair costs. If the board is uncertain about the proper outcome, it should ask the association’s attorney to issue a legal opinion on the matter.

February 19, 2010

When Homeowners Associations Attack

"HOA Sues Former Board for $70 Million" is a headline that gets your attention. An Illinois homeowners association recently filed such a lawsuit against its former developer-controlled board (among others), claiming that past board members misused common funds and mismanaged the association's financial affairs. One portion of the lawsuit alleges that board members engaged in self-dealing by using their own or related companies to perform work for the association rather than competitively bidding the work. Another portion of the complaint contends that the association has insufficient reserve funds because dues were kept too low. It remains to be seen how this lawsuit will end.

Board members must always remember that they are obligated to exercise reasonable care in making decisions and must never use their positions to obtain personal benefits. Conducting a thorough investigation, complying with the governing documents and applicable state law, and seeking professional advice when appropriate are three ways that board members can ensure that their decisions are beyond reproach. The guiding principle is always the good of the community.

February 12, 2010

Resale Certificates - Provide a Proper Preview

According to the Washington Condominium Act, a prospective purchaser of a condominium unit must receive a resale certificate from the owner of that unit before the sale closes. The condominium association is required to provide the owner with a signed resale certificate within 10 days of each request, and it is allowed to charge a fee of up to $150 for this service. An officer or agent of the association must sign that document based upon actual knowledge.

Resale certificates provide a prospective buyer with a snapshot of the association in general and the unit in particular. If delinquent assessments are owed by the current owner, this must be disclosed. If significant repair work that will cost more than 5% of the annual budget is anticipated, this must be disclosed. If any alteration or improvement of the unit or limited common area violates the declaration, this must be disclosed. A statement of the association’s reserves must be disclosed, along with financial statements, balance sheets, and operating budgets. A reserve study must be provided or a mandatory disclosure about the lack of a reserve study must be given. A copy of the declaration, bylaws, and rules must be provided as well.

One broad entitlement to information in resale certificates is “any other information reasonably requested by mortgagees of prospective purchasers of units.” The Act states that information typically requested by entities like the federal national mortgage association and the department of housing and urban development is discoverable in a resale certificate if it is reasonably available to the association. Fannie Mae and HUD have recently begun requesting more information about condominiums, including owner occupancy rates and delinquency rates, so this information may need to be provided.

Associations should take their legal obligations to prospective purchasers seriously and err on the side of disclosure when completing resale certificates. A useful rule of thumb is: "If I was considering buying this unit, would I want to know about this?" Boards do not want to get involved in lawsuits seeking damages caused by inadequate resale certificates.

February 5, 2010

Census Calls for Cautious Cooperation

Congress is spending $2.5 million this year to advertise the U.S. Census during the Super Bowl. This could result in substantial net savings if the ads (which may reach 45% of all U.S. adults) cause more people to mail back their census forms. Each percentage point increase in the mail response rate prevents an additional $85 million from being spent to find and count those people.

Households are required by law to respond to the Census Bureau’s requests for information, and community associations could face penalties if they unreasonably impede Census work. However, associations and owners should be aware that unscrupulous persons in their area may attempt to falsely pose as Census workers. The Better Business Bureau offers the following useful tips to prevent Census-related fraud:

• If a U.S. Census worker knocks on your door, they will have a badge, a hand-held device, a Census Bureau canvas bag, and a confidentiality notice. Ask to see their identification and their badge before answering their questions.

• Census workers are currently only knocking on doors to verify address information. Do not give your Social Security number, credit card number, or bank account number to anyone, even if they claim they need it for the U.S. Census. While the Census Bureau might ask for basic financial information, such as a salary range, it will not ask for Social Security, bank account, or credit card numbers, nor will employees solicit donations.

• Eventually, Census workers may contact you by telephone, mail, or in person at home. However, they will not contact you by e-mail, so be on the look out for e-mail scams impersonating the Census. Never click on a link or open any attachments in an e-mail that are supposedly from the U.S. Census Bureau.