Seattle Condominium and Homeowners Association Attorney

Individual Owners Can Benefit From Bar Association Resources

2012-02-16T13:56:00.000-08:00

Since my legal practice focuses on condominium and homeowners associations, I do not typically represent individual owners with grievances against those associations. When such owners contact me, I let them know that the King County Bar Association’s free legal consultations (http://www.kcba.org/pbs/legalhelp.aspx) and Lawyer Referral Service (206-267-7010; LRS@KCBA.org) are excellent resources. I also indicate to those owners that political processes like calling meetings, holding elections, and approving amendments can also be used to effect change in their communities.

My Office Is Moving to the Laurelhurst Professional Center!

2012-01-30T11:24:00.000-08:00

I am pleased to announce that the Law Office of Kevin L. Britt, P.S. is moving to the Laurelhurst Professional Center on February 1, 2012. The office’s mailing address will change on that date to 3626 NE 45^th Street, Suite 300, Seattle, WA 98105. The office’s phone number will change on that date to (206) 420-0021. The office’s website, my email address, and this blog will not be affected by this relocation. The new office spaces are larger and have windows(!), so this is a happy occasion indeed.

I am also pleased to note that this is my 100^th blog post. But that is just the beginning! I look forward to providing information of interest and importance to Washington condominium and homeowners associations in 2012 and beyond.

Washington Community Associations Are Subject to New Reserve Study Laws

2012-01-19T13:02:00.000-08:00

On January 1, 2012, the state laws that govern Washington condominium and homeowners associations (RCW 64.34 and 64.38) were amended in significant respects with regard to reserve studies. For condominium associations, the most important change is a new legal obligation placed upon their boards to disclose the following to the owners when providing the budget summary each year:

(1) The current amount of regular assessments budgeted for contribution to the reserve account, the recommended contribution rate from the reserve study, and the funding plan upon which the recommended contribution rate is based;

(2) If additional regular or special assessments are scheduled to be imposed, the date the assessments are due, the amount of the assessments per each unit per month or year, and the purpose of the assessments;

(3) Based upon the most recent reserve study and other information, whether currently projected reserve account balances will be sufficient at the end of each year to meet the association's obligation for major maintenance, repair, or replacement of reserve components during the next thirty years;

(4) If reserve account balances are not projected to be sufficient, what additional assessments may be necessary to ensure that sufficient reserve account funds will be available each year during the next thirty years, the approximate dates assessments may be due, and the amount of the assessments per unit per month or year;

(5) The estimated amount recommended in the reserve account at the end of the current fiscal year based on the most recent reserve study, the projected reserve account cash balance at the end of the current fiscal year, and the percent funded at the date of the latest reserve study;

(6) The estimated amount recommended in the reserve account based upon the most recent reserve study at the end of each of the next five budget years, the projected reserve account cash balance in each of those years, and the projected percent funded for each of those years; and

(7) If the funding plan approved by the association is implemented, the projected reserve account cash balance in each of the next five budget years and the percent funded for each of those years.

For homeowners associations, the 2012 changes are more far-reaching. A legal obligation (subject to exemptions) to obtain a reserve study that meets certain criteria and periodically update it is placed upon those associations for the first time. The annual disclosure obligation placed upon condominium associations discussed above is placed upon homeowners association boards as well.

Washington community associations face an ever-changing and increasingly complex set of federal, state, and local laws that regulate their actions. Boards of such associations should consider establishing a relationship with an attorney to help them comply with those laws.

Washington Court Rules that Condo Association's Insurance Covers Tenant

2011-12-29T10:19:00.000-08:00

A Washington appellate court recently decided that a condominium association’s insurance policy covered a unit owner’s tenant as a coinsured party because the lease did not specifically state otherwise. This is significant because associations’ insurers may not attempt to shift the cost of repairing damage caused by a tenant’s negligence or misconduct to that tenant if he or she is covered by the association’s insurance policy. Washington community associations should consider requiring leases to state that the tenant is not covered by the association’s insurance policy. This could help those associations avoid higher insurance premiums in the future.

Community association insurance can be a difficult subject to grasp, but boards must confront it in order to fulfill their legal duties. Identifying and understanding the portions of the governing documents and state law that govern insurance is the first and most important step. An attorney who focuses on representing Washington condominium and homeowners associations can make this complex area more accessible.

My Twitter Account Is Another Source of Useful Information for Condo Boards

2011-12-13T13:34:00.000-08:00

It is wonderful to live in a time when information can be shared in so many ways. Given the many personal and professional demands on my time, it can be difficult to find the time to write blog posts that meet my high standards in terms of content and style. However, it is usually possible for me to spend a few minutes each morning reading the day's news in general and what other condominium attorneys around the country have written on their blogs in particular. The best stories and posts are included on my Twitter account.

Some attorneys focus their Twitter accounts exclusively on their practice area. I decided to give my account a broader scope that reflects my interests in a more comprehensive way. News and posts relating to condominium and homeowners associations play a major role, but I also include anything else that I think is interesting and deserving of wider attention. Entries about the real estate market, the economy, science, and technology are plentiful. The last five entries provide a good indication of the account's "flavor":

Money Beagle: The wild-card risk of buying a condominium unit. http://bit.ly/uwCZtu

Seattle Times: Rental-property managers find themselves in a sweet spot. bit.ly/uif3kT

Yahoo: Futuristic Taiwan Tower will borrow its design from a tree. yhoo.it/vwG5cQ

AP: Rabbi to become army chaplain, beard and all. yhoo.it/u9hBgY

Seattle Times: Bellevue's Kindering is oasis for special needs kids. bit.ly/u3cZaG

If you would like access to more news regarding community associations and related topics than is provided on this blog, then following my Twitter account may be just what you are looking for. And, as an added bonus, you'll learn a lot about the continuing exploration of our solar system.

Resident Hero Fights Condominium Fire Caused by Smoking on Deck

2011-11-22T11:37:00.000-08:00

On September 22, off-duty firefighter Dan Hess grabbed his gear to battle a blaze on the roof of his north Seattle condominium building. Described as a hero by his neighbors, Hess helped to contain a fire ignited by lit cigarette embers that fell through a deck.

The Washington Condominium Act gives associations the authority to regulate the appearance and use of limited common areas like decks unless their governing documents provide otherwise. Condominium boards can thus usually approve rules regulating or restricting smoking on decks in order to reduce fire and nuisance risks. Consulting with the owners to gauge the level of support for proposed rules affecting smoking on decks is a good initial practice. Boards should also consider asking the association’s attorney to evaluate proposed anti-smoking rules before a vote is taken.

I Was Just Quoted in an Article About Homeowners Associations on MSN.com!

2011-10-31T10:55:00.000-07:00

I was recently quoted in Scot Meyer's article Homeowners associations: Can you fight them and win? on MSN.com. I was pleased to see that he began by emphasizing the positive qualities of community associations that are regularly experienced (and sometimes taken for granted) by a vast multitude of people every day. I was also happy to see him stress at the outset that owners have internal political remedies at their disposal to address their legitimate grievances and effect change in their communities.

The Changing Landscape of Community Association Law

2011-10-12T13:46:00.000-07:00

The October edition of the King County Bar Bulletin contains an article that I authored describing new laws affecting Washington condominium and homeowners associations. The full article can be found on my office’s website. Much of its content has previously appeared on this blog, but the new concluding paragraph expands on that content by emphasizing that most boards can derive great benefit from collaborative relationships with attorneys who focus on community association law.

Court Upholds Huge Penalty on State Agency for Failing to Disclose Records

2011-09-28T13:19:00.000-07:00

The Washington Court of Appeals issued a published decision last week in the matter of Ken Bricker v. Washington State Department of Labor & Industries. In this case, Mr. Bricker sued a state agency after it failed to release public records to him. The trial court imposed a $90 per day penalty for the untimely disclosure of sixteen documents and a $15 per day penalty for the untimely disclosure of three additional documents based on the Washington Public Records Act. The total penalty was $29,445. It was upheld on appeal.

While the Washington Public Records Act does not apply to Washington condominium and homeowners associations, those entities are similarly required by other state laws (and frequently their own governing documents) to make their records reasonably accessible to owners. If those associations fail to promptly disclose records, then they are subject to court-imposed financial penalties. The Bricker decision demonstrates why boards should take owners’ requests to review association records seriously.

New Medical Marijuana Laws Force Seattle Condominiums to Choose Sides

2011-08-29T14:28:00.000-07:00

In 1998, Washington state voters approved a law permitting the use of medical marijuana by patients with certain terminal and debilitating medical conditions. On July 22, 2011, that law was amended to expand state-sanctioned patient protections, permit the formation of collective gardens managed by up to ten qualifying medical marijuana patients, and authorize cities to regulate medical marijuana.

Seattle City Ordinance 123611 went into effect on August 21, 2011. It seeks to regulate the possession, production, and distribution of medical marijuana in light of the fact that there are currently a number of medical marijuana dispensaries operating in Seattle. However, that ordinance also notes that local licensing of medical marijuana does not change the fact that possession, production, and distribution of marijuana (medical or otherwise) violate federal law. Washington Governor Christine Gregoire recently warned that medical marijuana patients and their providers remain subject to federal prosecution and should carefully evaluate the risks associated with their conduct.

Medical marijuana gardens and dispensaries are illegal. Seattle condominium associations confronted with requests to operate marijuana-related enterprises can just say no. Associations that are inclined to grant such requests should first seek the advice of an attorney in order to understand the possible ramifications of that course of action.

Court Rules that Washington Apartment Complex Is Not Liable for Dog Attack

2011-07-28T14:05:00.000-07:00

The Washington Court of Appeals held last month in an unpublished opinion that a woman injured at an apartment complex by a tenant’s dog could not recover from the owner or manager of the apartment complex. The Court based its decision on the well-settled rule in Washington that only the owner, keeper, or harborer of an animal is liable for injuries that it inflicts on others. Liability flows exclusively from ownership or direct control of an animal.

The injured woman argued that the owner and manager of the apartment complex should be held liable because they breached their affirmative duty to maintain the common area in which the incident occurred in a reasonably safe condition. The Court rejected that argument in a telling footnote, pointing out that it ruled in that manner in a similar case fifteen years ago and was overruled in unequivocal fashion by the Washington Supreme Court.

Washington condominium and homeowners associations are sometimes sued in connection with injuries that occur in common areas. Sometimes the owner will have a case, but in other instances (such as those involving dog-inflicted injuries) the owner will have no legal right to recover damages from the association. An attorney who is experienced in community association law can help your board know which lawsuits are all bark and no bite.

New FHA Condominium Guidelines Allow for Higher Delinquency Rates

2011-07-21T12:31:00.000-07:00

The Federal Housing Administration (FHA) Condominium Project Guidelines were recently revised in various respects. One significant change takes account of the financial difficulties that condominium associations and their owners have been facing over the past several years. The previous guidelines stated that associations would not be approved if more than 15% of units were more than 30 days delinquent. Under the new guidelines, condominium associations that exceed that 15% threshold can still qualify for FHA approval if they:

1) Have no more 20% of units that are more than 30 days delinquent;

2) Provide a report showing the past 6 months of assessments charged and collected;

3) Provide a report showing current reserve fund balances and operating accounts that exceed the amount of outstanding delinquencies;

4) Provide a showing that the association has budgeted for delinquencies;

5) Provide a reserve study less than 24 months old demonstrating that the association can meet replacement needs; and

6) Provide evidence of collection efforts, including legal actions and payment plans.

If your association is interested in obtaining FHA approval, it should contact an experienced professional that works in that area to determine whether it meets the many criteria that are involved in that process.

Seattle Condominium Flood Demonstrates Importance of Insurance

2011-06-29T09:52:00.000-07:00

An overflowing bathtub caused by a sleepy owner recently plunged the Seattle condominium known as Mosler Lofts into a nightmare. Property damage was extensive, and many of the units had to be vacated for repairs. An unfortunate incident like this should remind condominium associations and their owners that purchasing adequate insurance coverage is advisable even when it is not legally required. It should also cause condominium boards to evaluate their governing documents to determine who pays their association’s insurance deductible in these types of situations. Ben Kakimoto’s discussion of condominium insurance on the Seattle Condo Blog earlier this month is well worth reading. For an overview of Washington condominium associations’ legal duty to purchase insurance, please review my previous post on that subject.

New Washington Laws Affect Private Transfer Fees, Resale Certificate Charges, and Reserve Study Obligations

2011-05-31T12:13:00.000-07:00

Three significant new laws affecting Washington condominium and homeowners associations were approved during the 2011 legislative session. These laws restrict the imposition of private transfer fee obligations, permit higher resale certificate preparation charges, and require various actions relating to reserve accounts and studies. They will be discussed in the order that they take effect.

Effective April 13, 2011, a new section restricting private transfer fee obligations (“PTFOs”) was added to Title 64 of the Revised Code of Washington. A PTFO is a provision in a declaration or covenant that requires money to be paid to the association when a unit or lot is sold. The new law states that PTFOs recorded on or after April 13, 2011 are not binding or enforceable. It goes on to state that PTFOs recorded before April 13, 2011 are not presumed to be valid and that they will become unenforceable on December 31, 2011 unless the associations that benefit from them record documents containing certain notices before that date. Fortunately, transfer-related assessments payable to community associations in accordance with the state laws that govern them (such as resale certificate preparation fees and priority liens for delinquent assessments) are exempt from this new law and can still be collected in connection with transfers of ownership.

Effective July 22, 2011, the Washington Condominium Act will allow condominium associations to charge up to $275 to prepare resale certificates. The previous limit for this service was $150. To learn more about the obligation to provide resale certificates, please review my previous post on that subject.

Effective January 1, 2012, the Washington Condominium Act and Washington Homeowners’ Associations Act will contain a number of new provisions relating to reserve studies and accounts. Two of the changes affecting condominium associations deserve special mention. First, those associations are now only required to prepare and update reserve studies if this does not pose an unreasonable hardship and if the current total cost of major maintenance, repair, and replacement of reserve components is fifty percent or more of the gross budget of the association, excluding reserve account funds. Second, condominium associations are now required to make certain disclosures about reserve studies and accounts as part of the budget summaries they provide to owners.

This third law also imposes new requirements on Washington homeowners associations to prepare and update reserve studies and to make certain disclosures about reserve studies and accounts as part of the budget summaries they provide to owners. However, such associations are exempt from those requirements if: 1) the cost of the reserve study exceeds five percent of the association’s annual budget, 2) the current replacement value of the major reserve components is less than seventy-five percent of the gross budget of the association, excluding reserve account funds, or 3) there are ten or fewer homes in the association. To learn more about reserve-related obligations, please review my previous post on that subject.

Community association boards should keep in mind that the laws governing them will change from time to time. Establishing a relationship with a lawyer who focuses on representing Washington condominium and homeowners associations can help to ensure that your association fulfills its legal duties.

Innovative Soundproofing Techniques to Address Noisy Condo Units

2011-05-20T11:12:00.001-07:00

Urbnlivn (a Seattle real estate blog) posted a fascinating article about the challenges associated with soundproofing condominiums earlier this week. While a certain amount of sound transmission between units should be expected in most condominiums, excessive noise can prevent residents from enjoying their homes and (in the absence of other solutions) lead to litigation. Products such as mineral wool, ceiling clips, and acoustical sealant may be able to adequately address serious noise issues at a reasonable cost. Since many condominium declarations restrict owners' ability to change flooring or perform other renovations, it is a good policy for owners to check with their condominium's board of directors before beginning any soundproofing project.

Washington Condos Forced to Reconsider Assessment Collection Strategies

2011-04-07T09:18:00.000-07:00

The April edition of the King County Bar Bulletin includes the following article that I authored about the difficulties Washington condominiums are facing in the area of delinquent assessment collection. While I hope that the situation described in this article improves soon, many believe that 2011 will also be a challenging year for condos seeking to collect unpaid dues from owners. An experienced condominium attorney can help associations evaluate the best course of action in each matter, collect the maximum amount possible, and avoid options that involve too much expense and risk.

Like the municipalities to which they are sometimes compared, many Washington condominium associations are struggling to maintain appropriate levels of services in the face of declining revenues. More owners are failing to pay the monthly assessments that fund maintenance and repair of buildings and common areas. Collection actions involve more cost and risk than they did a few years ago. Owner bankruptcies and lender foreclosures have become more common. These realities have compelled condominium associations and the attorneys who represent them to find new solutions to the old problem of debt collection.

It is important to note at the outset that liens and personal liability for unpaid assessments are extinguished by operation of the Washington Condominium Act unless proceedings to enforce the liens or collect the debts are instituted within three years after the assessments became due. This places obvious pressure on Washington condominium associations to address delinquencies in a timely manner.

Personal lawsuits involve obtaining judgments against owners and garnishing their wages or assets to satisfy debts. This can result in payment in some instances, but recovery can be thwarted by several factors. Owners may be unemployed and lack significant assets. Associations may be unable to locate owners’ places of employment or assets. Owners may even file for bankruptcy and receive discharges of their personal debts.

Judicial foreclosures involve filing a lawsuit seeking the sale of the condominium unit to satisfy the owner’s debt to the association. Non-judicial foreclosures involve retaining a trustee to sell the property after providing proper notice. Washington condominium associations have the power to initiate judicial foreclosures, but they do not have the power to initiate non-judicial foreclosures without specific authorization in their governing documents.

Foreclosure actions result in payment in some cases, but there are again significant barriers to recovery. Steep declines in property values have reduced owners’ ability to pay through refinancing and, in isolated cases, have even eliminated their desire to continue owning their units. Association foreclosures also do not affect mortgages on units, which are either mostly or wholly superior to association liens in terms of priority. A limited priority lien over mortgages is contained in the Washington Condominium Act, but that lien only includes assessments based on a periodic budget during the six months immediately preceding a foreclosure sale. Condominium associations therefore do not usually receive payments from lenders exceeding that priority lien amount, and lenders can foreclose on units shortly after associations complete foreclosures. Worst of all, associations do not receive any money as a result of their foreclosure sales if there are no third-party buyers due to a lack of equity.

Terminating a unit’s utilities following the provision of proper notice is another collection option, but only if the condominium was created before July 1, 1990 and if the condominium’s declaration specifies that the association has that power. This is effective if the owner has the ability to pay or if the unit is leased by its owner, but it is not helpful if the owner lacks the ability to pay or if the unit is vacant.

Rent can also be intercepted if units are leased. Many condominium declarations give associations authority to demand that tenants submit rent directly to them when the owner is delinquent without taking additional legal action, and in some cases the association may be given the power to evict tenants that fail to submit rent payments as well. However, owners can respond by evicting tenants unless receiverships have been established.

Receiverships can be established over delinquent units during judicial foreclosure actions if the unit in question is not occupied by its owner. Receivers lease units in order to pay unpaid assessments. This collection method has become more common, in part due to the Protecting Tenants at Foreclosure Act. This federal law requires a foreclosing party to provide 90 days’ notice before attempting to evict a tenant. It also allows a tenant under a lease executed before the foreclosure started to remain for the rest of the lease term unless the property is conveyed to a person that intends to occupy it as a primary residence. The Act makes it possible for associations to lease distressed units for lengthy terms and increases the likelihood that receiverships will generate enough income to justify their expense.

In light of the challenges discussed above, some condominium associations are utilizing more creative methods to address delinquencies. Very long payment plans are being approved as an alternative to legal action. Rights to use common areas and amenities, vote on association matters, and serve on the board are being stripped from delinquent owners. Owners are being pursued in different forums like small claims court to minimize legal expenses. Perhaps most radically, a few associations are deciding to do little more than record liens and wait for lenders to foreclose. All of these approaches deserve consideration if traditional collection methods are not working.

In my experience, condominium board members do not relish the thought of suing neighbors to collect unpaid assessments. They proceed with collection actions because they are obligated to act on behalf of all owners and exercise reasonable care in managing association affairs. Delinquent owners should keep in mind that boards are usually willing to suspend collection actions if reasonable payment plans are proposed.

Report from the Wild World of Florida Condos and HOAs

2011-04-01T09:29:00.000-07:00

Florida seems to be an inexhaustible source of news about condominium and homeowners associations. In honor of this April Fool's Day, I have included links to a few interesting stories to come out of the Sunshine State in recent days. Just for fun, see if you can guess at the start whether all, some, or none of these titles link to real stories.

Homeowners association wants to ban kids from playing outside.

Condo owners locked out of pool, clubhouse due to foreclosures.

Lemonade stand shut down by homeowners association.

Synagogue ousted from condo unit.

The Limited Liability of Conversion Condominium Declarants

2011-03-23T16:12:00.000-07:00

The Washington Court of Appeals recently issued an unpublished decision involving a condominium that was converted from an apartment building in 2005. The Court’s opinion focused on whether implied warranties contained in the Washington Condominium Act were violated by the entity that created the condominium. The Act states that:

[1st] A declarant and any dealer impliedly warrants that a unit and the common elements in the condominium are suitable for the ordinary uses of real estate of its type and [2nd] that any improvements made or contracted for by such declarant or dealer will be:

(a) Free from defective materials;

(b) Constructed in accordance with sound engineering and construction standards;

(d) Constructed in compliance with all laws then applicable to such improvements.

The Court concluded that the construction defects covered by the motion at issue related to the original construction of the apartment building in 1962, not the improvement work “made or contracted for by” the conversion declarant more than four decades later. As a result, the second type of implied warranty provided in the Act was not applicable to those defects and did not support a claim for damages. The Court did indicate that the first type of implied warranty relating to the suitability of the property might still support finding the conversion declarant liable at trial.

Condominiums that have been converted from apartment buildings carry increased risk that construction defects will be discovered that are not covered by statutory warranties. It is important to understand that conversion condominium declarants have limited liability for construction defects and that the cost to repair any defects related to the original construction of the building will most likely have to be paid by the owners.

The Link Between Homeowners Associations and Property Values

2011-03-01T13:30:00.000-08:00

The Everett Herald included a well-written article about homeowners associations on Sunday. Columnist Steve Tytler provided a concise overview of the nature and purpose of such associations while tackling the question of whether a dormant association should be revived. He pointed out that covenants running with land are primarily intended to maintain attractive neighborhoods and enhance home values. He went on to note that homeowners associations, which typically have the power to collect dues from owners, fine misbehaving owners, and place liens on owners' homes, are in most cases the only realistic way to maintain common areas and address covenant violations.

Mr. Tytler concluded his article by contending that homeowners associations may not be necessary in some circumstances. In my experience, those situations are exceedingly rare. Most groups of owners seem to need the structure of an association to consistently achieve common goals. Without that structure, common areas tend to be neglected, covenants tend to be ignored, and property values tend to decline.

How to Collect Unpaid Assessments or Dues from Banks After Foreclosures

2011-02-17T12:21:00.000-08:00

Bank foreclosures are unfortunately expected to peak in 2011. RealtyTrac Inc. estimates that more than 1 million homes will be repossessed this year. The Mortgage Bankers Association just reported that 4.6% of homes were in the foreclosure process last quarter, which is an all-time high for that survey. Condominium and homeowners association boards need to be prepared to deal with bank foreclosures in their communities.

It is a good practice for associations to take pro-active steps to inform banks of their interest in the properties at issue. If owners fail to pay assessments or dues, liens should be recorded on their units or lots. This makes it more likely that foreclosing banks will contact the association. If notices of trustee's sales are received, letters should be mailed to the named trustees regarding the applicable assessment obligations.

If a bank has completed a foreclosure against a property within your association, the board should promptly contact the bank to request payment of any amount due to the association at that time and the regular assessments after the foreclosure date. However, the bank may well ignore such a request. Many community associations have discovered in recent months that many banks' preferred practice is to foreclose and then refuse to pay any pre-foreclosure delinquency or post-foreclosure assessments until the property is re-sold. If your association encounters such a situation, it is entitled to treat the bank the same as any other owner and initiate a collection action against it.

Banks often respond quickly to demand letters from attorneys after foreclosures. One important reason for this is that banks (sensibly) do not want to pay their attorneys and associations' attorneys to argue about money that they are clearly obligated to pay. Associations' legal right to obtain awards of attorney fees related to debt collection against banks provides a powerful incentive for banks to pay associations sooner rather than later.

If banks persist in refusing to pay delinquent assessments or dues after receiving attorney demand letters, associations can pursue their own foreclosure lawsuits and even establish receiverships over properties to collect rent. Those types of aggressive actions are sufficient to convince most banks to pay associations what they are owed.

Interview Spotlights New System to Certify FHA-Approved Condominiums

2011-02-01T13:34:00.000-08:00

I am pleased to note that I was recently quoted in an Inman News article written by Steve Bergsman entitled New FHA Condo Financing Rules Squeeze Sellers. This article offers an engaging examination of new re-certification procedures that condominium associations must follow to preserve access to Federal Housing Administration loans. It also highlights the importance of FHA loans in the current real estate market. You can check your condominium's FHA status by searching the U.S. Department of Housing and Urban Development's condominium database.

Fulfilling the Duty to Address Dangerous Conditions in Common Areas

2011-01-26T15:21:00.000-08:00

The Washington Court of Appeals upheld the dismissal of a negligence action against the City of Seattle in an unpublished opinion issued earlier this month. The case arose when a person fell on an icy sidewalk. The Court first noted that a municipality has a conditional duty to act if it has notice of a dangerous condition and a reasonable opportunity to correct that condition. The Court then decided that the plaintiff failed to satisfy her initial burden of demonstrating that the City may have created or had notice of the icy sidewalk. The Court pointed out that there was no evidence submitted about previous ice complaints at that location or about the length of time ice was present before the fall.

Washington condominium and homeowners association boards should pay attention when owners bring perceived dangers in common areas to their attention. If boards do not properly investigate owners' complaints and fail to take appropriate action to remedy legitimate problems, they leave their associations vulnerable to negligence lawsuits. It is also a good practice for association boards to periodically inspect the common areas to identify hazards before they result in accidents.

When Should Condo and HOA Boards Seek Legal Advice?

2011-01-11T14:26:00.000-08:00

A Spokane homeowners association was recently fined $13,500 by the state for illegally burning a boat dock last June. The burning violated Washington state law because it polluted the air with toxic chemicals. It is presently unclear whether the association will appeal the fine.

Boards of condominium and homeowners associations should consult with their association's attorney before making major decisions like removing structures from their properties. An experienced community association lawyer may have identified the law prohibiting the dock burning, recommended a different method of proceeding, and saved the association a substantial amount of money. Boards considering other important matters like contracts with third parties, proposed amendments to the governing documents, and enforcement actions against owners should also give their association's attorney the opportunity to steer them clear of trouble and advise them regarding the best course of action.

Happy New Year to Washington Condos and HOAs!

2010-12-30T15:31:00.001-08:00

2010 has admittedly been a difficult year for many Washington condominium and homeowners associations from a financial point of view. Associations have faced unprecedented struggles in collecting unpaid dues or assessments, funding new reserve accounts, and maintaining existing levels of services. It is impossible to know whether 2011 will be a better year for associations' finances, but there are encouraging signs that this will be the case. My office stands ready to assist your association if it is dealing with delinquency issues or needs guidance with regard to any other legal question. We look forward to helping our current and future clients solve their problems and improve their communities in the year to come.

New Law Limits Scope of Red Flags Rule

2010-12-21T12:19:00.001-08:00

A new federal law has significantly limited the scope of the Red Flags Rule, a federal law that requires many businesses and organizations to implement a written identity theft prevention program. There has recently been a substantial amount of confusion about whether the Rule imposes new obligations on various persons and organizations (including community associations), and this new law clarifies who must comply with the Rule. The Red Flags Rule now applies to financial institutions and creditors that:

1) obtain and use consumer reports in connection with a credit transaction,

2) furnish information to consumer reporting agencies in connection with a credit transaction, or

3) advance funds to or on behalf of a person, based on an obligation of the person to repay the funds or repayable from specific property pledged by or on behalf of the person.

The third category is apparently intended to cover businesses like payday loan companies that sometimes lend without using consumer reports. Creditors who advance funds on behalf of a person for expenses incidental to a service provided by the creditor to that person are specifically exempted from the Red Flags Rule. Other types of creditors may be required to comply with the Rule if an agency determines that they offer or maintain accounts that pose a reasonably foreseeable risk of identity theft.

The Red Flags Rule does not appear to apply to condominium and homeowners associations under the new law. However, such associations may still choose to adjust their record-keeping procedures to comply with the Rule if they are concerned that it might be interpreted or amended to apply to them or if they want to obtain a heightened measure of protection against identity theft. More information about the Red Flags Rule is available here.

FHA Condominium Recertification Deadline Has Been Extended

2010-12-07T12:33:00.000-08:00

The December 7, 2010 deadline for condominiums that were placed on the FHA approved list before October 1, 2008 to obtain the recertification necessary to allow them to maintain their FHA approved status has just been extended. Here are the new re-certification deadlines:

If approved between 1972 and 1985, deadline is 12/31/10.
If approved between 1986 and 1990, deadline is 5/31/11.
If approved between 1991 and 1995, deadline is 7/31/11.
If approved between 1996 and 2000, deadline is 8/31/11.
If approved between 2001 and 2005, deadline is 9/30/11.
If approved between 2006 and Sept. 2008, deadline is 3/31/12.

Condominiums must meet a number of requirements to qualify for FHA approval. For example, they must be at least 50% owner-occupied, and no more than 15% of their units may be delinquent. Their budgets must fund reserve accounts in an amount equaling at least 10% of those budgets. They must maintain property insurance in an amount equal to 100% of the current replacement cost of the condominium and comprehensive general liability insurance covering the common elements as well.

For more information regarding the FHA recertification process, please refer to my past posts on this subject:

New Requirements for FHA Condominium Loans Delayed and Revised

FHA Loans Will Soon Require Ongoing Approval of Entire Condominium

How to Protect Your Condominium’s Pipes From Freezing Temperatures

2010-11-22T09:55:00.001-08:00

It’s cold out there, and it looks like it's going to get colder over the next few days. Condominium and homeowners associations in the Seattle area thankfully do not have to deal with extremely cold weather very often, but they should be aware of five simple steps that can help prevent the inconvenience of frozen pipes.

1. Disconnect hoses.

2. Insulate exterior pipes and faucets.

3. Insulate pipes and faucets in attics, basements, garages, and crawl spaces.

4. Drain irrigation and sprinkler systems.

5. Caulk around incoming pipes.

Boards should also encourage owners to leave their taps running slightly on particularly cold nights. If pipes freeze despite these measures, damage can be minimized by promptly shutting off the water until a licensed plumber arrives. Stay warm!

Should Your Association’s Attorney Be a Hired Gun or a Legal Navigator?

2010-11-05T14:24:00.000-07:00

Community associations and the owners in them hire attorneys for many different reasons, but they often fall into one of two camps in terms of how they view attorneys’ primary purpose. Some view them as Hired Guns, while others view them as Legal Navigators.

The Hired Gun listens to the stated goal of the client and aggressively pursues that goal without questioning the goal, the likelihood of attaining the goal, or the method advocated by the client to attain the goal. This type of attorney resembles the classic “yes man” found in some corporate board rooms. Clients who want the Hired Gun want an attorney who will charge forward as they instruct with thoughts of nothing but success.

The Legal Navigator seeks to guide the client out of the wilderness it finds itself in by way of the most effective and efficient path. This type of attorney is quite willing to aggressively pursue the client’s goals using its preferred method when the situation calls for it, but he or she will also not hesitate to tell the client that it has made mistakes in the past that require compromise or that its favored plan of action is not the best one under the circumstances. In other words, the Legal Navigator will not shrink from telling clients things that they do not want to hear. In some cases, a well-timed “No” or “I advise a different approach” can result in lower legal expenses and better outcomes.

The “Charge!” approach of the Hired Gun is appealing to many. However, the clients of the Legal Navigator are much less likely to charge off cliffs.

Court Rules that Association’s 55-Plus Age Restriction Violates the Fair Housing Act

2010-10-19T16:17:00.000-07:00

Since its beginning in 1953, the Ryderwood community in Cowlitz County, Washington was intended to be used and enjoyed primarily by persons who receive a pension or retirement annuity. Each home’s deed limited ownership based on that purpose. The Ryderwood homeowners’ association later amended its bylaws to require that anyone owning, purchasing, or occupying a home there must be at least 55 years old, except for a spouse of someone over 55 years old. However, several homeowners recently sued the association to allow them to market their homes to persons of all ages, and in August a federal judge ruled in their favor. This decision is now being appealed by the association as an intense struggle over the future character of this community continues to unfold.

The federal Fair Housing Act (“FHA”) prohibits condominium and homeowners associations from discriminating against families with children. The key issue in the Ryderwood case was whether the association qualified for the Housing for Older Persons Act (“HOPA”) exception to the FHA prohibition. The judge decided that it did not. In order to qualify for the HOPA exception, an association must meet the following requirements:

1. The community must be intended and operated for occupancy by persons 55 years and older;

2. 80% of occupied units must have at least one person who is 55+;

3. The community must consistently publish and adhere to policies and procedures that demonstrate the above intent; and

4. The community must comply with federal regulations for verification of the above requirements, such as submitting surveys, affidavits, written policies and advertising examples.

If an association wants to convert into a 55-plus community, it must first achieve the 80% requirement without discriminating against families with children. If you are on the board of a 55-plus community or want to convert your community into one, an experienced community association attorney can help you understand and comply with FHA requirements and the HOPA exception.

King County Health Department Provides Bed Bug Guidance

2010-10-06T11:45:00.000-07:00

Bed bugs are unfortunately a significant nuisance in some parts of the Seattle area this year. Condominium and homeowners associations should know how to keep bed bug infestations from spreading and how to eradicate these pests. The King County Department of Public Health’s website contains detailed information regarding those topics. Board members and affected residents should consult this useful resource if they must battle bed bugs.

One of the Department’s main messages is that it is usually necessary to hire a pest control company to get rid of bed bugs. It suggests a number of questions to help associations evaluate companies. Indoor pest control companies operating in King County are required to have proof of insurance and a current registration with the Department of Public Health. Boards can verify registrations here.

The Department also warns that over-the-counter pesticide foggers are not an effective way to kill bed bugs. In fact, those products can make the problem worse by causing the insects to scatter and move into walls and other places that are harder to reach. A combination of specially applied pesticides and non-chemical techniques is said to be the best way to eliminate this scourge.

How Should Your Association Respond to Banks' Foreclosure Delays?

2010-09-27T16:31:00.000-07:00

National Public Radio reported earlier this month about the “shadow inventory” problem in the U.S. housing market. There are currently about six hundred thousand homes that banks have foreclosed but not yet put on the market. There are millions more homes in the early stages of foreclosure or more than ninety days past due on the mortgage. RealtyTrac estimates that approximately three million foreclosed homes will enter the market over the next three years. Banks appear to be responding to this situation by slowing down the pace of their foreclosure activity. Why?

Banks own a large number of mortgages on homes that have lost a significant amount of value. However, such transactions do not appear as losses on their books until the homes are re-sold for less than the values of the mortgages. Spreading out the re-sale of foreclosed homes over a longer period of time gives banks time to raise money to cover losses and could result in smaller losses if the market improves. Banks are also concerned about flooding the market with repossessed homes over a short period of time, which would cause home prices to decrease further and could produce another housing crisis. In addition, banks may be finding it difficult to keep up with a volume of foreclosures that has increased tenfold over the last several years.

If foreclosures are inevitable, Washington condominium and homeowners associations have a strong financial interest in them proceeding rapidly. When lender foreclosures are not completed in a timely manner, community associations are faced with an unpleasant choice – endure very long delinquencies or pursue their own foreclosures. Boards may need to adjust their existing collection practices in light of the present slow pace of lender foreclosures. More extensive use of associations’ collection powers has the potential to speed up transitions to new owners and even produce income from delinquent properties until foreclosures are completed.

For more information about community associations’ use of foreclosure, please review these past posts on that subject:

New Tenant Protection Law Helps Associations Collect Delinquent Assessments
The Rising Use of Foreclosure to Collect Delinquent Assessments

Free Fair Housing Training Available for Seattle Area Condominium Associations

2010-09-15T09:54:00.000-07:00

Fair housing laws require Washington condominium and homeowners associations to discuss requests for disability accommodations with owners and to make reasonable accommodations once disabilities have been established. If an association fails to do so, a disabled owner can file charges of discrimination against the association and its board members. It is therefore important for boards to be familiar with their legal obligations in this area.

The King County Office of Civil Rights offers six free three-hour training sessions to educate condominium associations about fair housing laws each year. The next two dates that the county will present its fair housing basics workshop and advanced seminar are October 27 and December 8. These training sessions take place at the Jackson Federal Building, which is located at 915 Second Avenue in Seattle. Preregistration is required, and this can be accomplished by calling (206) 296-7592. The Office's webpage is a useful source of information about fair housing and related topics.

A major benefit of learning more about fair housing issues is a greater sense of caution given the risks involved. Community association boards should strongly consider consulting with an attorney before denying an owner's request for a disability accommodation.

Flag and Sign Display Considerations for Washington Community Associations

2010-09-02T00:13:00.000-07:00

A recent story on The Upshot blog chronicles how homeowners in Arizona and Colorado have fought their associations to fly their flags of choice (a "Tea Party" flag and a "Don't Tread On Me" flag). Both homeowners associations initially demanded that the owners remove the flags. The owners resisted and threatened legal action. The Colorado association eventually decided to reclassify the flags at issue as political signs and allow them. The Arizona association maintained its strict interpretation of that state's law and refused to permit the display of the owner's flag. It is unclear whether the owner in that dispute will challenge the association's position in court.

The Freedom to Display the American Flag Act of 2005 is a federal law that protects citizens' right to display the U.S. flag. It prohibits condominium associations, cooperatives, and real estate management associations from taking action to prevent residents from displaying the U.S. flag on their property in accordance with the Federal Flag Code. The Act permits associations to impose reasonable restrictions on the time, place, and manner of flag displays if those restrictions are necessary to protect a substantial interest of the association.

The Washington state law governing homeowners associations protects the right of owners and residents to both the outdoor display of the U.S. flag on their property and the outdoor display of political yard signs on their property before a primary or general election. Homeowners associations are permitted by those statutes to impose reasonable rules regarding the placement and manner of displays of the U.S. flag and political yard signs.

The Washington state laws governing condominium associations, on the other hand, do not contain any provisions protecting the display of flags or political signs. Washington condominium associations are still required to permit the display of the U.S. flag in accordance with the federal law discussed above, but they do have more freedom than homeowners associations to restrict political signs.

Community associations' governing documents often contain provisions restricting the ability of owners and tenants to display flags and signs, and such provisions are enforceable as long as they do not violate applicable federal and state laws. Since attempts to end flag and sign displays often provoke strong emotional reactions and can incite litigation, boards should base enforcement actions squarely on the standards stated in their associations' governing documents and apply those standards uniformly across their communities.

Plant Containers Represent Unappreciated Fire Hazard

2010-08-25T13:14:00.000-07:00

Earlier this year, a condominium in Calgary, Canada was destroyed by the combustible combination of a cigarette and potting soil. A person smoking outside the building apparently put a cigarette “out” in the dirt of a nearby planter. The planter contained two flammable ingredients: dry peat moss and fertilizer. The result was a massive fire and 250 people homeless.

Condominium boards should warn residents that potted plants and planters can pose a potential fire hazard. It is a good policy to either encourage or require residents to use ashtrays when they smoke on decks or porches and when they smoke in common areas. The association’s attorney and property manager can help identify the sources of association authority in this area and any limitations on that authority.

Owners Use Political Process to Challenge Stricter Covenant Enforcement Policy

2010-08-20T16:21:00.000-07:00

Parking restrictions can lead to intense disputes between boards and owners. For example, home owners in a West Lafayette, Indiana subdivision are currently battling their board of directors over a covenant amendment banning street parking. The amendment was enacted in 2003, but it was not strictly enforced until November of 2009. Some owners complained that they were no longer able to host gatherings as a result of the new enforcement policy. The board responded to the outcry by starting a pilot program that allows owners to pay a refundable deposit for up to five street parking permits in advance of an event. The protesting owners were not satisfied with that solution, and they are now attempting to call a special meeting and replace the board members.

As a general rule, community association boards may begin enforcing existing covenants more strictly as long as all owners are notified of the change and are equally subject to the new policy. However, boards should also consider the reaction of the owners to abrupt changes in the standards governing their property. Giving owners an opportunity to state their concerns in advance and modifying the enforcement policy to address those concerns will reduce the odds of a major conflict.

The various political remedies described in every association’s governing documents (such as the ability to amend the governing documents, override board-adopted rules, and recall board members) often represent the best options for owners that want to challenge a strict enforcement policy. Mediation and some types of arbitration can also be effective ways to resolve such disputes. On the other hand, legal action is too slow, expensive, and uncertain for many owners to consider it a viable option, and litigation has the added drawback of greatly reducing the potential for dialogue and compromise.

New EPA Rule Regarding Lead Paint Will Affect Repair Work on Older Buildings

2010-08-11T17:38:00.001-07:00

Lead-based paint, which has been shown to be the cause of serious health problems, was unfortunately common in buildings constructed before 1978. Under the Environmental Protection Agency’s Renovation, Repair, and Painting ("RRP") Rule, contractors and painters are currently required to follow specified lead safety work practices and to provide lead safety information to owners and tenants before they start renovation, repair, or painting work on pre-1978 residential housing and child-occupied facilities. On October 1, 2010, the Environmental Protection Agency ("EPA") will also begin enforcing a new portion of the RRP Rule that requires contractors and painters to obtain lead paint safety certification before working on pre-1978 buildings covered by the rule. To become certified, contractors and painters must attend a training course provided or approved by the EPA that provides instruction on how to work safely with lead-based paint.

Owners of rental housing and maintenance workers in multi-family housing (including condominiums) must follow the requirements of the RRP Rule. However, this rule does not apply to owners working on their own property (without tenants), and it also does not apply to “minor” maintenance or repair activities.

Associations and individual owners with pre-1978 homes or condominiums must be careful when hiring contractors and painters. They should ask what specific lead safety work practices will be used, and (after October 1st) ask to see the contractor’s or painter’s EPA certificate. For more information about lead paint safety, read the EPA’s information pamphlet (Renovate Right: Important Lead Hazard Information for Families, Child Care Providers, and Schools). For further information about the requirements of the RRP Rule, visit the EPA’s Renovation, Repair and Painting website or contact your association’s attorney.

Civil Rights and Nuisance Claims Result in Massive Judgments Against Homeowners Association

2010-08-03T13:08:00.000-07:00

In June, a Boston jury awarded Scott J. Hyman and Donald and Julie Prescott judgments with a combined value of over $2.5 million against their homeowners association. The owners' successful legal claims were based on nuisance and infringement of civil rights. This case serves as a reminder of the robust legal remedies (including those contained in the Civil Rights Act and the Fair Housing Act) available to address misconduct by and in community associations.

Mr. Hyman, who is Jewish, was told by members of the homeowners association’s board of directors that his kind was not welcome in the community. He was denied the right to vote on association matters. Someone smeared excrement over his living room. Shortly after an association member mentioned that “someone is going to burn him out”, Mr. Hyman's primary residence (located elsewhere) was destroyed by fire. The Prescotts stood up for him and were similarly victimized. Mr. Hyman and the Prescotts had swastikas painted on their garages and were photographed hundreds of times. This pattern of harassment persisted for two years.

Condominium and homeowners association boards can subject their associations and their members to civil liability through both action and inaction. Boards should be careful to avoid taking actions that are inconsistent with applicable statutes, their association's governing documents, or a legal duty owed to another person. Boards should also give due consideration to owner complaints and known information and take action when they have a legal duty to do so. The association’s attorney can help the board evaluate how to respond to problems as they arise.

Illinois Court Favors Owner in Dispute Over Access to Association Records

2010-07-15T00:06:00.000-07:00

Requests to review association records should be taken seriously. In the recent case of Palm v. 2800 Lake Shore Drive Condominium Association, a condominium unit owner in Illinois believed that the board president and the board as a whole were exceeding their authority. The owner asked the association to provide him with records relating to those allegations. The association refused, and the owner responded with a lawsuit. The trial and appellate courts ordered the association to produce the records immediately and to pay the substantial attorney fees incurred by the owner.

Washington law imposes a broad requirement on condominium and homeowners associations to make their records reasonably available to owners and their agents. Homeowners associations also must provide their records to mortgage holders and their agents and avoid releasing the unlisted telephone numbers of owners. If you think that an owner’s request for records goes too far, contact the association’s attorney before refusing to grant it.

To Lease or Not to Lease - Rental Restrictions in Washington Condominiums

2010-06-30T01:51:00.000-07:00

The right to lease a condominium unit is a valuable one, but this right can be restricted if limits appear in the condominium’s original declaration or if enough owners approve an amendment to that document. Condominium boards, owners, and prospective purchasers of units should ask two crucial questions with regard to leasing. First, is there currently a rental restriction in the declaration or an amendment to the declaration? Second, what percentage of owners is necessary to amend the declaration to restrict leasing in the future? The answer to the second question depends on when the condominium was created.

If a condominium’s declaration was recorded on or before July 1, 1990, it can be amended to restrict leasing with the approval of sixty percent of the owners unless the declaration or an amendment to that document specifies a higher requirement. If a condominium’s declaration was recorded after July 1, 1990, ninety percent of the owners (including all units that are being rented) is required to amend it to restrict leasing unless the declaration or an amendment to that document specifies a higher requirement. This thirty point gap is the difference between “possible” and “unlikely” in most associations.

Most rental restriction amendments contain hardship exceptions that permit leasing over rental caps in certain circumstances, but it is a gamble for owners to rely on such provisions. Many condominium boards strictly interpret hardship exceptions and deny most requests that are submitted to them. Even if the present board views hardship requests favorably, the next board may not.

Court Upholds Seattle Condominium Association's Default Judgment Against Insurance Company

2010-06-18T18:33:00.001-07:00

In 2005, the Lakewest Condominium Owners Association in Seattle discovered that several of its buildings required major repairs due to rain damage. The Association filed and pursued claims against numerous insurers to pay for the damage, which culminated in lawsuits against some of them. The Association was granted a default judgment in the amount of 7.5 million dollars against Tokio Marine & Fire Insurance Company, Ltd. in October of 2007. A default judgment is entered when a person is served with a lawsuit and does not respond within the time allowed by law. Tokio argued to the court more than one year after the judgment (the applicable deadline) that the judgment should be vacated. The court agreed with Tokio, but this ruling was reversed on appeal in an unpublished decision issued earlier this month. The association's default judgment is thus valid and enforceable against the insurance company.

Washington condominium and homeowners association boards should not be hesitant to file claims with their insurance companies when serious property damage occurs, and they should encourage owners to proactively contact their insurers as well. This is sometimes the only way to avoid major special assessments. It is sometimes necessary to sue insurance companies if they will not respond or if they deny claims that appear to be covered by the policy. Such litigation can obviously turn out very well indeed for the association if the insurer drops the ball and is found in default. The Lakewest case demonstrates that default judgments have value and will be upheld by the courts in some circumstances.

Little Boxes, Big Disputes: Religious Observance Sparks Condo Debate

2010-06-09T11:29:00.000-07:00

The King County Bar Bulletin published an article this month that was written by my office. The article discusses three disputes between condominium boards and Jewish unit owners over the display of a small object called a mezuzah on the units' exterior doorposts. It concludes that boards should consider permitting such religious displays subject to reasonable size restrictions. The full article appears on my office's website.

Goat Dispute Highlights Best Practices for Covenant Enforcement

2010-06-02T23:31:00.000-07:00

A North Carolina couple has won a legal battle with their homeowners association to keep two Nigerian dwarf goats named Fred and Barney in their yard. The association’s covenants state as follows: "No animals, livestock or poultry of any kind shall be raised, bred or kept on any lot except that horses, dogs, cats and other pets may be kept provided they are not kept, bred, or maintained for any commercial purposes." Several neighbors complained to the board about the smell and noise caused by the goats, so the board ordered the owners to remove them. Litigation ensued, and a judge eventually ruled that Fred and Barney should be permitted to stay because they are pets.

As the cliché goes, life is not black and white. Gray is a popular color in the world of law. Many covenants can be reasonably interpreted in more than one way. Boards should make an effort to play devil’s advocate and view covenants from owners’ perspectives before issuing demands or initiating litigation.

Another lesson that can be gleaned from this story is that it is sometimes better to focus on minimizing the negative effects of a disputed behavior rather than attempting to end that behavior. For example, it may be possible to address the goat odor issue by requiring more frequent bathing and waste removal. It may also be possible to address the goat noise issue by restricting them to certain portions of the property. Boards should always be on the lookout for creative approaches that lead to win-win solutions.

Embezzlement Prevention Strategies from Accountant Andrew Cohen

2010-05-24T14:45:00.000-07:00

In light of recent reports regarding embezzlement in Washington condominium and homeowners associations, I recently decided to consult with a local professional who provides financial management and accounting services and discuss strategies to protect association funds. Andrew Cohen is a seasoned Seattle accountant and the co-owner of CoHo Accounting. Andrew and his company focus on providing personalized concierge-level accounting services, and he generously submitted the insights that follow regarding how to prevent embezzlement in community associations.

Embezzlement is similar to being pick-pocketed. You know it happens all the time, but to other people. UNTIL it happens to you! Like being pick-pocketed, embezzlement can be prevented or minimized with just a few basic safeguards.

The consequences of embezzlement can be significant for your association. It often starts when a volunteer gets into some sort of financial trouble or feels undervalued. The person might record their association dues as having been paid when they haven’t. The person might start paying a fake vendor a few hundred dollars a month and charge that expense to maintenance. Such fraudulent transactions are typically buried in the association’s most active expense line, both in terms of dollars and transactions. The person might even write themselves checks from the association’s account.

Boards should implement a system to prevent embezzlement:

1. Diligently review the association’s financial records.
2. Put internal controls in place to make theft more difficult.
3. Pay attention to the behavior of board members.

Diligence

• Review bank statements on a monthly basis.
• Evaluate who is receiving association funds – are any of them odd or unknown?
• Instruct accountant to examine books for discrepancies each quarter.

Internal Controls

• Set limits on the length of board service in the same position.
• Sign checks by hand. Do not use a signature stamp.
• Establish separate banking duties:
o The person who writes checks shouldn’t sign them or reconcile accounts.
o The person who deposits checks should not be able to cash them or open mail.

Here is one way to separate duties on an association board:

1. Secretary – Opens mail; records checks received; sends checks and check register to Treasurer; sends a copy of check register to President; sends bills to Treasurer; and sends bank statements to President.

2. Treasurer – Deposits checks; enters accounts payable and prepares checks for payment; coordinates with the board on insurance and liabilities; ensures that taxes are paid; brings prepared checks to President for signature; generates financial records like profit and loss statements and balance sheets.

3. President – Reviews and signs checks; reviews bank statements to ensure that:
o Deposits coincide with receipt record of HOA dues or assessments paid;
o The cash balance on the bank statement and the balance sheet agree; and
o There are no unusual expenditures. If clear explanations of such expenditures are not forthcoming, this is a red flag. It may simply be lax bookkeeping, but laxity is an opportunity for theft.

Behavior

Boards should stay alert for indications of an elevated risk of embezzlement. For example, does a person with access to association funds:

• Rarely take a vacation? If someone is always there, they can cover their tracks.
• Rarely delegate tasks, yet complain of being too busy? Control includes the power to conceal.
• Have personal financial problems? This increases the motivation to steal.
• Have a very close relationship with or control over a particular vendor? This can provide a way to obtain association funds secretly.
• Use drugs or alcohol to excess? This clouds judgment and lowers inhibitions.

If you are interested in learning more about how to protect your association from embezzlement, CoHo Accounting can help with innovative financial services designed to provide clients with peace of mind.

Dog Waste Problem May Cause Board to Implement Drastic Measures

2010-05-18T12:51:00.000-07:00

The Scarlett Place Condominium in Baltimore is in the midst of a pooch poop predicament. According to a recent story in The Baltimore Sun, one board member believes that the amount of dog waste that is regularly left in the common areas has gotten out of hand, and he has proposed a novel way to identify the culprits – DNA testing. All dog owners would be assessed $50 per animal to cover testing costs and $10 per month to cover removal costs. A Tennessee-based company would create a database representing all pets at the Condominium and match offending samples to a particular dog. The dog’s owner would then pay a $500 fine.

Boards of Washington condominium and homeowners associations should be cautious when contemplating new regular assessments on a specific group of owners. Assessments must generally be charged on the basis of the percentages or values found in the association’s declaration or covenants. The Washington Condominium Act does permit all condominium associations in the state to charge common expenses benefiting fewer than all of the units exclusively to the units that are benefited, but only if such authority is explicitly provided for in their declarations. If an association’s declaration does not provide for the authority to charge certain common expenses to benefited owners, the declaration can be amended to give the association that power.

There are other possible ways to deal with dog waste that do not involve new assessments on dog owners or fines for noncompliance with removal rules. For example, dog owners could be persuaded to periodically assign one of their number to pick up the poop. The association could also include a line item in the annual budget to pay an owner to perform this task.

Contracts - Review Them, Revise Them, and (Sometimes) Reject Them

2010-05-10T09:17:00.000-07:00

Many community associations periodically execute contracts with vendors to obtain essential services. If you are on the board of a condominium or homeowners association, you should resist the temptation to sign contracts without thoroughly reviewing them. Important legal rights are at stake.

The board needs to make sure that the contract accurately describes the agreement. It should be clear how the price will be calculated and what variables will affect it. The contract should specifically describe what goods or services the association is buying and all applicable performance standards.

The contract should also protect the association if something goes wrong during performance. Requiring the vendor to carry insurance that covers the association is one way to do this. Obtaining a release from liability for claims arising out of the work is another. Dispute resolution procedures should be established, and the causes that allow a party to terminate the contract should be described in detail.

Proper review and editing of proposed contracts can help associations get the best value for their money and avoid costly disputes with vendors. The board should attempt to envision how the contract will be performed under a variety of circumstances and the problems that could be encountered along the way. If the board has trouble identifying areas of concern, experienced attorneys and property managers can facilitate this process.

Washington Supreme Court Resolves Dispute Over Addition to Bellevue Condominium

2010-05-03T12:07:00.000-07:00

The Washington Supreme Court issued an important decision last month regarding the Horizontal Property Regimes Act (the state law that governs condominiums created on or before July 1, 1990). This decision is significant for two reasons. First, the first few pages of the Court’s opinion provide an excellent overview of the Act. Second, the Court’s opinion clarifies that an owner in an older condominium can expand his apartment into the common area with board approval if the association’s declaration permits it.

An owner at the Woodcreek Condominium in Bellevue, Washington built a second story addition to his townhouse-style condominium apartment with the approval of the Woodcreek Condominium Association. This new addition blocked light to and views from another apartment, and the owner of that apartment sued the first owner and the association, arguing that the common areas either could not be divided or could not be combined with an apartment without a unanimous vote of the owners. The Court rejected those arguments and ruled in favor of the owner who built the addition and the condominium association.

The Court first held that the Act and the association’s declaration do not bar the division of a condominium’s common areas. It next held that the Act and the declaration do not require the unanimous consent of the owners to combine a portion of the common area with an apartment. The Court explained that the unanimous consent provision in the Act only applies to changes in the percentage ownership rates assigned to each apartment. It also noted that the association’s targeted increase in the assessments charged to the owner that completed the addition was invalid.

This case serves as a reminder to condominium boards and owners to determine whether Washington law and the governing documents allow them to pursue courses of action that affect others. Older condominiums face many challenges as they evolve, and owners' interests will sometimes clash. A thorough understanding of Washington law and the declaration is essential to resolving these conflicts without costly litigation.

Interview Examines Scope of Homeowners Association's Authority

2010-04-25T22:35:00.000-07:00

I was recently interviewed for the third part of an article entitled "New Cases Scrutinize HOA Architectural Committee Decisions" on HOAleader.com. The Washington case discussed in this article illustrates the negative consequences that can occur when a condominium or homeowners association fails to comply with its declaration or CC&Rs. Here is a link to the article: Here is a link to the article: http://www.hoaleader.com/public/417.cfm

New Wave of Lender Foreclosures Threatens Community Associations

2010-04-16T14:14:00.001-07:00

According to a recent industry report, the number of U.S. homes taken over by banks jumped 35 percent in the first quarter from a year ago. If the current pace of foreclosures continues, more than one million homes will be seized this year. Rick Sharga, a senior executive at RealtyTrac, Inc., indicated that banks are beginning to work their way through the backlog of distressed properties and predicted that the pace of lender foreclosures will accelerate in the months ahead.

If a Washington condominium or homeowners association receives a notice of default or a notice of trustee’s sale with regard to a delinquent unit, it should take prompt action to record a lien on the property and notify the trustee of its interest. Once these initial steps have been taken, the board should evaluate whether it should establish a receivership over the property or pursue a personal lawsuit against the owner in advance of the trustee’s sale.

If an owner's lender completes a foreclosure, the association’s lien for delinquent assessments will be mostly or completely erased. If a limited priority lien remains on the property after the foreclosure, the association can ask the new owner to pay it. The association can also obtain a personal judgment against the former owner for the full amount of the debt and pursue garnishment remedies.

Aggressive legal action to collect a debt can produce results even with a lender foreclosure on the horizon, but this is not always the appropriate response. In some circumstances, the best course of action may be to simply wait for a lender’s foreclosure to occur.

Know the Boundaries and Respect the Trees

2010-04-09T17:28:00.000-07:00

The Washington Court of Appeals recently filed an unpublished opinion that involved Washington’s timber trespass statute. This law requires persons that cut down or injure trees on other people’s land without lawful authority to pay treble damages. In the appellate case, the claimed damages were $225,000, so the total amount of the award was $675,000. This case did not involve a community association, but it does raise an important issue for such associations.

Condominium and homeowners associations in Washington sometimes trim or cut down trees in common areas adjacent to other properties. In many situations, such as when an old or sick tree poses an unacceptable risk to people and property, this is the right course of action. However, associations should also be careful to avoid the liability associated with inadvertently removing or pruning trees on neighboring properties. If there is reason to doubt the exact location of a boundary line, the board should consider obtaining a professional survey before firing up the chainsaw.

Enhancing Your Association's Bylaws

2010-04-02T18:51:00.000-07:00

A community association’s bylaws focus on procedure. The Washington Homeowners’ Associations Act and the Washington Condominium Act contain similar requirements regarding bylaws. Under both laws, bylaws must describe the number of board members and officers, their qualifications, their powers and duties, their terms of office, and the manner of their election and removal. Both laws also require bylaws to specify which, if any, of the Association’s powers the Board may delegate to a managing agent. The Washington Condominium Act (but not the Washington Homeowners’ Associations Act) also states that bylaws must include a statement of the applicable standard of care for officers and board members (ordinary and reasonable care for elected positions).

Some associations’ bylaws may impede good policies by imposing unduly burdensome procedural requirements. Associations may want to reduce quorum size, allow electronic notices, or allow voting by mail to facilitate action on issues that affect them. However, boards that are pursuing such changes should confirm that the proposed amendments to the bylaws are consistent with their associations’ declaration or covenants and state law. If they are not, then the amendments will be invalid.

How Broad Is Your Association's Entitlement to Attorney Fee Awards?

2010-03-26T16:47:00.000-07:00

An unpublished opinion by the Washington Court of Appeals earlier this month dealt with a homeowners association’s attempt to enforce a restrictive covenant limiting tree height. The trial and appellate courts both ruled in favor of the association. However, the trial court refused to award the association its attorney fees, and the appellate court upheld that decision. The reasons why these courts reached those conclusions are too complicated to adequately address here, but one important lesson (associations might not recover their attorney fees even if they prevail in litigation) is much easier to explain.

In a lawsuit concerning a violation of the Washington Homeowners' Associations Act or the Washington Condominium Act, the court "may" award “reasonable” attorney fees to the prevailing party "in an appropriate case". The quoted portions of the last sentence give judges discretion to award less than all (and perhaps none) of the attorney fees that associations incur during lawsuits that they eventually win. While it may be true that judges often award prevailing parties all of their attorney fees pursuant to these laws, it is unwise for board members to view this as a guarantee.

Some condominium and homeowners associations have additional rights to collect attorney fees built into their governing documents. Such provisions typically state that the prevailing party in a lawsuit concerning the governing documents or collection of delinquent assessments is entitled to an award of its “reasonable” attorney fees. This is broader protection for victorious litigants, but it still leaves the door open for partial awards if judges decide that attorney fee requests are too large.

How to Protect Your Association from Embezzlement

2010-03-19T17:47:00.000-07:00

The former treasurer of a condominium association located in the Capitol Hill neighborhood of Seattle was recently charged with felony theft after he allegedly stole more than $80,000 in common funds. The former treasurer apparently wrote dozens of checks to himself using the association’s account. He then fled to California. Local prosecutors are now attempting to bring him back to Washington to stand trial.

The last year has seen a marked increase in news stories and industry concern about theft committed by association board members. A recent national conference of community association lawyers included a very well-attended seminar called “Keep Fraud’s Ugly Head Out of Your Community Association”. The current Community Associations Network newsletter includes five different stories about embezzlement of association funds. This threat is real and should be taken seriously.

There are many ways to prevent fraud or minimize the impact of fraud if it ever arises. First, associations should obtain annual audits of their finances by an independent third party. Second, associations should require two board members to sign association checks. Third, associations should ask their banks to provide statements to a board member that is not involved in maintaining its financial records. Fourth, requests for reimbursement by board members should be scrutinized to ensure that they are legitimate. Finally, associations should consider obtaining fidelity bonds to insulate them from embezzlement that slips through the cracks.

Recent Case Upholds Homeowners Association's Power to Assess Owners

2010-03-12T14:49:00.001-08:00

The Washington Court of Appeals filed an unpublished opinion last week in a case about the scope of a homeowners association’s power to assess owners. Several owners challenged the Driftwood Key Club’s authority to demand dues from them because the Club’s covenants were almost completely silent about that subject. The court decides that the Club’s articles of incorporation and bylaws complement its covenants and provide it with broad authority to impose assessments on owners. Washington courts are apparently willing to allow articles and bylaws to substantially elaborate on (but not contradict) very sparse language in an association’s covenants.

During the course of this opinion, the court significantly rejects the Club’s argument that it inherently has the power to assess listed in the “Association Powers” section of the Washington Homeowners’ Associations Act. It is important for boards of both condominium and homeowners associations to remember that the association powers listed in their governing documents are their primary source of authority. If a state law lists available powers that are not contained in an association's governing documents, then the association must seek to amend the governing documents if it wants to take advantage of those powers.

The Club’s attorney cited Wikipedia at one point in its brief to the appellate court. This did not go over well. The court responds that “the best citations to Wikipedia for legal practitioners are those citations that underscore its potential for inaccuracy and user abuse.” It then describes how The Colbert Report showed Stephen editing his show’s entry in Wikipedia to describe Oregon as (among other things) “Washington’s Mexico”.

Evaluating Condominiums from the Buyer’s Perspective

2010-03-05T14:50:00.000-08:00

The March edition of the King County Bar Bulletin includes an article written by yours truly. The article focuses on helping prospective condominium buyers make more informed decisions. Board members may find the overview of resale certificates and reserve studies to be useful, and the article may also cause them to view their associations from a different angle. Without further ado, the text of the article appears below.

The origins of the condominium concept stretch back two thousand years to the Roman empire. Condominiums involve individual ownership of units (living spaces) and joint ownership of common areas (such as siding, roofs, and recreational areas). This form of ownership is currently popular with individuals on either end of the adult age spectrum because condominiums are generally less expensive than single-family homes, allow people to live in more desirable areas, and greatly reduce owners’ direct role in maintenance and repair work.

Persons interested in buying a condominium unit should conduct a thorough inquiry to make sure that they understand what kind of community they are joining and what their obligations will be once they are a member of that community. Condominium owners are responsible for common expenses and must comply with the restrictions contained in the association’s governing documents. It is therefore important for potential purchasers to evaluate a condominium association’s financial health and the types of rules that it expects owners to follow.

People considering condominiums should know how to spot warning signs that this is not the place to call home. Paying close attention to four key R’s - resale certificates, reserves, records, and residents - can help buyers make the best choices and savor condominium life.

Resale Certificates

A resale certificate must be given to a prospective purchaser of a condominium unit. The owner of the unit is legally obligated to provide such a document before the sale. An officer or agent of the condominium association is legally required to sign that document based upon actual knowledge.

Resale certificates contain a plethora of useful information. If delinquent assessments are owed by the current owner, this must be disclosed. If repair work is anticipated that will cost more than 5% of the annual budget, 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. It is important to review historical financial data as well as current reports. A reserve study must be provided or a mandatory disclosure about the lack of a reserve study must be given. Most importantly, a copy of the declaration, bylaws, and rules must be provided. These governing documents contain the rules by which a condominium buyer must live.

One broad entitlement to information in resale certificates that should not be overlooked 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 reasonable (and therefore discoverable in a resale certificate) if it is reasonably available to the association. Fannie Mae and HUD have recently begun requesting much more information about condominium associations, including owner occupancy rates and delinquency rates. Obtaining this type of information can help prospective purchasers make informed decisions.

Reserve Studies

Reserve studies have been legally required for most Washington condominium associations since June 12, 2008. If funded, reserve studies ensure that major common expenses will be collected in small increments over time. The alternative is paying for major repairs with loans and/or special assessments, and that approach tends to result in foreclosures and strife. Associations that have not obtained reserve studies pose an increased risk of financial disruption that should be taken into account when condominium shopping. Any potential buyer of a condominium unit should find out if the association in question has its financial life in order.

A closely related issue is the amount of money that is in an association’s reserve account. Washington law does not require condominium associations to place any money in reserve accounts. As a result, some associations have a reserve study but have not set aside enough funds to fully or even mostly fund the expenses described in that study. This raises the risk of a future special assessment on the owners to make up the difference.

Records

Association records reflect important events in the life of a condominium. Minutes of the meetings of the board and the owners provide a particularly revealing window into the affairs of an association. It is prudent to obtain and review (at some length) the association’s governing documents and meeting minutes before pulling the trigger on a transaction. This can help identify sources of future conflict.

The governing documents of a condominium are usually long and difficult to understand, but taking the time to evaluate their contents can prevent major headaches down the road. A few associations ban smoking in units and/or the common areas. Some associations ban pets or place severe restrictions on their behavior. Some associations restrict the ability of owners to lease their units or run businesses out of them. Most associations limit what can be placed on windows, doors, and porches to preserve a uniform exterior appearance. Almost all associations have the general authority to punish behavior that an owner’s neighbors reasonably find annoying, and this can lead to heated disputes over noise and odors. The severity of fines for violations of the governing documents varies greatly. If people want to live in a condominium, they must be willing to subject themselves to the restrictions contained in the governing documents and the board’s reasonable elaborations on those restrictions.

Residents

Perhaps the most overlooked method to learn about a condominium is to speak with residents. Conversations with several board members and several other owners can provide a glimpse of the challenges facing the association and the general philosophy of those in power. This is often a valuable way to discover what life is like in that community.

Assessing condominiums’ strengths and weaknesses is difficult and time-consuming work, and many people seek out professionals that can guide them through this process. In light of the misery that can ensue if the wrong choice is made, this is time and money well spent.

Maintenance and Repair of Condominium Buildings - Who Pays?

2010-02-26T14:43:00.000-08:00

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.

When Homeowners Associations Attack

2010-02-19T16:19:00.000-08:00

"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.

Resale Certificates - Provide a Proper Preview

2010-02-12T16:39:00.001-08:00

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.

Census Calls for Cautious Cooperation

2010-02-05T16:01:00.001-08:00

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.

Use It or Lose It - The Three-Year Limitation on Collecting Delinquent Condominium Assessments

2010-01-29T13:38:00.000-08:00

The Washington Condominium Act states in part as follows: "A lien for unpaid assessments and the personal liability for payment of assessments is extinguished unless proceedings to enforce the lien or collect the debt are instituted within three years after the amount of the assessments sought to be recovered becomes due." This basically means that a Washington condominium association does not have the right to collect assessments that are more than three years old unless a lawsuit seeking payment or foreclosure is already pending. This law applies to condominiums created before July 1, 1990 as well as newer condominiums.

The three-year limitation on collecting delinquent assessments obligates condominium boards to monitor the length of delinquencies and take legal action to collect them before it is too late. Beginning a personal lawsuit against the owner in small claims or superior court within the three year period will preserve the owner’s obligation to pay the full debt. Beginning a foreclosure lawsuit against the unit within the three year period will preserve the association’s full lien rights. Being proactive in this manner will help to maximize the association’s ability to collect the money it is owed.

Using Executive Sessions of Board Meetings to Address Sensitive Matters

2010-01-22T15:47:00.000-08:00

Most of the important decisions regarding a condominium or homeowners association are made at board meetings. The attendance of owners at board meetings has many benefits, but owners may be excluded in certain situations. Such closed portions of board meetings are called executive sessions.

The Washington Homeowners’ Associations Act requires board meetings to be open for observation by owners and their agents. It goes on to state that boards may vote during meetings to hold executive sessions that only directors may attend. The motion to hold an executive session must specifically state the purpose of that session. The Act lists five areas that are appropriately handled in executive session:

1) Consideration of personnel matters.
2) Consultation with attorneys or consideration of legal advice.
3) Discussion of likely or pending litigation.
4) Discussion of possible violations of the governing documents.
5) Discussion of an owner’s possible liability to the association.

After an executive session has concluded, the board must vote in open session in order to take any action with regard to the matters discussed in executive session. Homeowners associations’ governing documents may impose additional procedures relating to board meetings and executive sessions.

Washington laws governing condominiums do not contain specific requirements pertaining to the attendance of owners at board meetings or executive sessions. However, many condominium associations’ governing documents contain provisions that cover those topics. If an association’s governing documents are silent, the board may wish to consider complying with the rules applicable to homeowners associations to give its actions an extra measure of protection.

The Nuts and Bolts of Association Meetings - Notices, Quorums, and Proxies

2010-01-15T14:55:00.000-08:00

The Washington Condominium Act states that condominium associations must hold at least one meeting a year. The Act requires meeting notices to be hand-delivered or mailed to the owners at least 10 days before the meeting and no more than 60 days before the meeting. The notice must describe the issues that are before the owners for a vote, including the general nature of proposed amendments to the declaration or bylaws, changes in a previously approved budget that alter assessment obligations, and proposals to remove a director or officer.

Unless the governing documents specify a higher percentage, a quorum is present in a condominium covered by the Washington Condominium Act if 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. This is the minimum acceptable quorum. A proxy is void if it is not dated or if it claims to be revocable without notice. Unless the proxy states otherwise, it terminates 11 months after it was executed.

The Washington Homeowners’ Associations Act largely includes the same meeting and notice requirements in the first paragraph above, but it requires a minimum of 14 days notice of association meetings to be given to owners. Unless the governing documents specify a different percentage, a quorum is present at a homeowners association meeting if owners to which 34% of the votes in the association are allocated are present in person or by proxy at the beginning of the meeting. This is the default quorum, and it can be adjusted in either direction by the governing documents. There is no provision in this law about proxies.

These two laws are not the only source of information about association meetings. The association’s declaration and bylaws must also be consulted. The quorum amounts established by governing documents are often higher than the percentages stated in the laws. It is fairly common for bylaws to elaborate on the content of valid meeting notices and proxies as well. Following the requirements relating to notices, quorums, and proxies will help to deflect any challenges to actions taken at association meetings.

The Sword, the Shield, and the Guide - Working with the Association's Attorney

2010-01-08T14:01:00.000-08:00

A board should strive to get the most out of its relationship with the association’s attorney. There are three types of attorney roles that a board is likely to encounter – sword, shield, and guide. The third role is just as important as the first two, but it is often the least understood.

Boards retain attorneys to enforce the CC&Rs and collect delinquent assessments. The attorneys are swords used to produce compliance. Boards hire attorneys to defend the association from legal action by owners or others. The attorneys are shields used to deflect liability. Most board members are familiar with these two attorney roles.

Some boards retain attorneys to provide comments and recommendations about association affairs as they happen. The attorneys are guides used to ensure that the association is managed in accordance with the governing documents and applicable laws. They can amend declarations to produce more desirable results. They can inform boards of the risks and benefits involved when faced with difficult choices. The attorneys add their knowledge and experience to board deliberations and (hopefully) help boards make better decisions.

The guide role can produce many benefits for an association, but it does require the commitment to regularly inform the attorney of the significant business before the board. Once the proper procedures are in place, the attorney can often help resolve a matter with a brief email or phone call.

Court Requires Washington Condominium Associations to Submit Construction Defect Claims to Binding Arbitration

2009-12-31T15:45:00.000-08:00

The Washington Supreme Court ruled last week that Washington condominium associations are bound by arbitration clauses contained in purchase and sale agreements between developers and original unit owners even though the Washington Condominium Act guarantees them a day in court. Since such arbitration clauses are almost always present in those agreements, this decision means that most Washington condominium associations no longer have the ability to successfully sue developers for construction defects. They must instead submit those claims to binding arbitration.

Arbitration is a less favorable forum than litigation for condominium associations asserting construction defect claims for at least three reasons. First, the expansive right of associations to obtain information and documents from developers during litigation is significantly curtailed in the arbitration process. Second, arbitrators are not explicitly required to decide matters in accordance with the law (much of which is designed to protect consumers). Third, there is anecdotal evidence that juries of ordinary citizens are more inclined to identify with condominium associations than professional arbitrators selected by developers.

Washington condominium associations still have the right to hold developers accountable if the initial construction of their buildings did not meet applicable standards. However, it is unfortunately difficult to avoid the conclusion that it just got harder for associations to win those claims and obtain enough money to perform necessary repairs.

Enforcing Restrictions on Holiday Decorations

2009-12-18T12:09:00.000-08:00

The holiday season can be tough on community association boards. Owners sometimes place decorations on or near their homes that violate the governing documents, pose safety hazards, and/or annoy other owners. Informal attempts to reign in their exuberance typically result in accusations that the boards are acting like Scrooges and blunt refusals to tone down or remove the displays. Boards are then forced to decide whether the decorations merit fines or other punitive measures.

There is nothing wrong with enforcing restrictions on owners’ holiday displays if those restrictions have a reasonable basis (maintaining a uniform appearance, reducing the risk of property damage, etc.) and all owners are held to the same standard. However, boards may also wish to consider amending their association’s governing documents to reflect the prevailing practice in the community or a more permissive policy in general. This usually involves allowing owners to display holiday decorations within a specified time period as long as they do not pose a danger or unduly bother other owners. Boards retain the power to act in extreme situations while otherwise permitting the owners to celebrate the season as they see fit.

As a wise man said long ago, there is a time and place for everything. Strict enforcement of broad rules is appropriate in many situations. A more flexible approach may be preferable in other situations. Boards that make these types of distinctions are laying the groundwork for happier communities.

New Tenant Protection Law Helps Associations Collect Delinquent Assessments

2009-12-11T13:52:00.000-08:00

The Protecting Tenants at Foreclosure Act went into effect in May of 2009. This federal law requires a foreclosing party to provide 90 days notice before attempting to evict a tenant. It also allows a tenant under a lease executed before the foreclosure started to remain for the rest of the lease term unless the property is conveyed to a person that intends to occupy it as a primary residence (which is usually not the case in lender foreclosures). These tenant protections also enhance community associations’ ability to collect unpaid assessments.

All Washington condominium associations and most Washington homeowners associations have the power to foreclose their delinquent assessment liens. An association is entitled to the appointment of a receiver over the property during a foreclosure action if the property is not occupied by the owner. A receiver seeks to collect rent to pay off receivership costs and unpaid assessments. The new federal law allows receivers to install long-term tenants into properties (or execute long-term agreements with existing tenants) even though lender foreclosures during the lease terms are probable. Collecting rent for a number of months could resolve many delinquencies.

The increasingly frequent elimination of delinquent assessment liens by lender foreclosures has been a major source of frustration for condominium and homeowners associations this year. Receivership is now a more potent collection tool that can be used to address this problem in some circumstances. A board should give this option serious consideration if the owner of a vacant or leased property owes the association a significant sum. Temporarily stepping into the role of landlord may be the only realistic way to collect the unpaid assessments.

Conflicting Covenants Result in Victory for Owner in Roof Litigation

2009-12-04T11:49:00.000-08:00

The covenants that govern condominium and homeowners associations sometimes contain provisions that are inconsistent, and those imperfections can spark disagreements about board decisions and costly litigation. The Washington Court of Appeals issued an unpublished opinion last month that discussed the problem of conflicting covenants in a homeowners association. The owners prevail over the association in that case, and the reason why might surprise you.

In 2003, James and Janice Geary purchased a lot in the Flying H Ranch subdivision in Buckley, Washington. In late 2005, their house’s composition roof began to leak. The Gearys learned that their house could not support the tile roofing material permitted by the covenants. Another composition roof appeared to them to be the best available option. The Gearys’ proposal to the architectural control committee was rejected because the covenants do not allow composition roofs. The Gearys installed a composition roof anyway. The Flying H Ranch Homeowners’ Association filed a lawsuit against them nine months later.

Flying H Ranch’s covenants state that construction does not require committee approval and complies with the covenants if the association has not started a lawsuit by the time of its completion. However, the covenants also provide for an automatic $10 per day fine on lots that violate the covenants. The trial court concluded that these two provisions contradict each other and make the meaning of the covenants unclear. Since the developer (the source of the uncertainty) was actively involved in this dispute, the trial court strictly interpreted the covenants in the Gearys’ favor. The appellate court agreed with this result, but it also pointed out that covenants are more liberally interpreted in favor of restrictions once developers are no longer involved.

The Geary case demonstrates how inconsistencies in covenants can disrupt enforcement efforts. Identifying conflicting provisions and amending the covenants to fix those problems can prevent many headaches down the road. This case also shows how important it is for boards to be familiar with the portions of the covenants that are time sensitive.

Thanksgiving Thoughts for Community Association Boards

2009-11-27T13:39:00.000-08:00

A Zogby survey conducted several years ago indicated that over 70% of participating owners in condominium and homeowners associations viewed community living in a positive light. Nearly 80% of those owners thought that the covenants and rules in their associations enhanced property values. In short, most owners appear to be thankful for their associations and the boards that manage them.

The same survey also indicated that about 10% of participating owners were unhappy with community living. Board members can be forgiven if they are not thankful for those owners’ criticism and complaints. However, listening to those owners in a receptive manner and addressing their concerns when appropriate is a crucial part of every board’s work.

Recent Washington Case Illustrates Rule Enforcement Pitfalls

2009-11-20T14:47:00.001-08:00

The Washington Court of Appeals filed an unpublished opinion last week in a case involving a community association. This opinion provides valuable guidance regarding enforcement of governing documents and the limits of rule-making authority.

Gloria Holcomb purchased an undeveloped lot in Kitsap County that was subject to restrictive covenants. The covenants established an architectural control committee and prohibited building on the lots without written approval from the committee. However, the covenants also stated that the committee’s written approval was not required if the committee did not approve or disapprove a project within 30 days after construction plans had been submitted to it.

Ms. Holcomb planned to build her retirement home on the undeveloped lot. She submitted construction plans to the committee in May of 2006. In June and July of 2006, the committee requested more detailed plans in accordance with a stricter procedure recently enacted by the committee. Ms. Holcomb did not provide more detailed plans, and eventually abandoned the project. She then sued the community association, claiming that it violated the covenants by preventing her from proceeding with the project. The trial court ruled in favor of the association, and Ms. Holcomb appealed.

The appellate court’s opinion instructs the trial court to reconsider the case and determine whether the committee violated the covenants by unreasonably delaying approval of her construction project. If the committee is found to have acted improperly, Ms. Holcomb will be awarded damages that naturally flowed from the committee’s misconduct, which in this case could exceed $50,000. This serves as a reminder to boards and committees that failure to reasonably enforce the governing documents can result in liability.

During the trial court’s initial consideration of this case, it significantly concluded that the stricter procedure adopted by the committee was unenforceable because it conflicted with the covenants. The appellate court agreed that the committee exceeded its authority. This serves as a reminder to boards and committees that the rules they enact must be consistent with the association’s declaration or covenants.

New Requirements for FHA Condominium Loans Delayed and Revised

2009-11-10T13:10:00.000-08:00

The U.S. Department of Housing and Urban Development has announced that most of the new guidelines for Federal Housing Administration (FHA) loans related to condominiums will not be implemented until December 7. The "spot loan" approval process is now scheduled to be eliminated on February 1, 2010. All currently approved condominium projects will be transferred to the new FHA approved list. Projects that were approved before October 1, 2008 will require re-certification by December 7, 2010. Projects that were approved between October 1, 2008 and December 7, 2009 will require re-certification within two years of their approval date.

The new standards governing FHA condominium loans that were first announced in June have also been revised. One significant change is that condominiums are not required to maintain a current reserve study. A "budget review" process has been inserted instead. This review must determine that the budget is adequate and meets the following standards: 1) Includes allocations to ensure sufficient funds are available to maintain amenities and unique features; 2) Provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; and 3) Provides adequate funding for insurance coverage and deductibles. If a condominium's budget does not meet these standards, a lender may request to review a reserve study that is less than a year old to assess the project's financial stability.

Another important revision to the new FHA standards concerns the kinds of insurance coverage that must be in place to obtain approval. Condominium associations are required to maintain property insurance in an amount equal to 100% of current replacement cost of the condominium and comprehensive general liability insurance covering common elements, commercial space, and public ways. Associations with 20 or more units must also maintain fidelity insurance with coverage in an amount no less than the sum of three months assessments on all units plus reserve funds. If the project is located on a 100-year flood plain, a certain type of flood insurance is required as well.

If the board of your condominium association is concerned about obtaining or maintaining FHA approval, then it should consider seeking guidance from an attorney or other real estate professional that is familiar with this complex area.

The Statue Standoff - Lessons for Curbing Community Conflict?

2009-11-06T16:31:00.000-08:00

A few months ago, Glenn and Laura Wolf bought a house in a planned development in South Corvallis, Oregon. They placed five statues (ranging from 6 inches to 3 feet in height) in their front yard, including Christian figures, a Hindu deity, and an Indian chief. A neighbor complained. The association informed the Wolfs that the statues required board approval. The Wolfs responded that there is nothing in the governing documents that specifically addresses statues. Statuegate was born.

The Wolfs and the association each hired attorneys. An effort to recall three members of the association’s board is underway. The board recently offered to settle the dispute by allowing the current statues to stay as long as no more are added. The Wolfs rejected that offer, and they appear to be willing to litigate the issue. The Wolfs’ strong perception that the board is selectively enforcing the rules against them may make legal action inevitable.

Statuegate serves as a reminder that disputes over rules can escalate quickly if certain conditions are present, including ambiguous governing documents, debatable harm to the community, and owners who believe that they are being singled out for different treatment. Boards should always consider the likelihood of a legal challenge when deciding how to exercise broad authority and apply specific rules. Giving owners an adequate opportunity to be heard, discussing their concerns in a civil manner, and offering compromises when appropriate can keep small fires from turning into large ones.