Why Washington Condominium and Homeowners Associations Need Attorneys

Washington condominium and homeowners associations encounter a number of legal issues each year.  Many of those issues arise when owners fail to comply with the association’s governing documents. Other legal issues relate to the association’s compliance with local, state, and federal laws, many of which impose affirmative duties on community associations. For example, Washington state law requires condominium associations to periodically approve budgets, hold meetings, obtain reserve studies, purchase insurance, and maintain records.  Associations that are not represented by attorneys are not likely to consistently fulfill those legal obligations.  It is therefore highly advisable for community associations to regularly seek guidance from attorneys who are familiar with this area of the law.

Associations should not expect their property managers to draft legal documents for them or to provide them with legal advice.  As a Florida court once pointed out, property managers who draft documents which establish an association’s rights or who advise associations about what the law requires in specific situations can be sanctioned for practicing law without a license. Improperly drafted, approved, or executed documents and incorrect statements of legal requirements can also create expensive headaches for associations.  Associations should instead instruct their attorneys to draft or review documents which affect their rights and seek advice from their attorneys regarding how to conduct the association’s affairs in accordance with current legal requirements.       

Association boards should not be under the false impression that working with attorneys necessarily costs a lot of money.  The attorneys who practice in the area of community association law have different methods, opinions, and personalities.  Some of them, including myself, place a high value on providing concise advice and minimizing legal fees to the extent possible.  If your association works with the right attorney, then the benefits reaped as a result of that relationship will far outweigh the costs associated with it.                  

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

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.

Embezzlement Prevention Strategies from Accountant Andrew Cohen

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.

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

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.

Enhancing Your Association's Bylaws

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.

Maintenance and Repair of Condominium Buildings - Who Pays?

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

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

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

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

Resale Certificates - Provide a Proper Preview

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

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

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

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

Using Executive Sessions of Board Meetings to Address Sensitive Matters

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

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

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.

Mediation Can Defuse Disputes with Owners

Owners in condominium and homeowners associations that view their boards as biased or oppressive often complain that there is no way to challenge the board other than expensive litigation. The intervention of a neutral party that is not a member of the association can cause unhappy owners and boards to see each other in a different light.

Mediation may be helpful if an owner is calling the board's impartiality or honesty into question. The mediator will listen to the board and the owner and try to help them understand the other side's point of view and the strengths and weaknesses of both positions. A mediator that raises the possibility that the board is merely trying to fulfill its obligations to the best of its ability can convince the owner to grudgingly conclude that the decision at issue is within the board's authority (even if the owner would have reached a different decision). 

My office offers mediation services as well as legal services.  If you are involved in a dispute with a condominium or homeowners association or an owner in such an association, then you should consider contacting my office to discuss mediation of that dispute.  

Using Board Meeting Minutes to Communicate with Owners

Condominium and homeowners association boards should strive to communicate effectively and often with owners. One of the main causes of discontent in such associations is boards that do not tell the owners what they are doing. Distribution of board meeting minutes is an excellent way to keep owners informed.

Board meeting minutes should reflect the meeting date, the persons that attended the meeting, the status of the previous meeting’s minutes, the general nature of each topic discussed at the meeting, and actions taken by the board. It is not necessary to record the comments or views of individual board members. Meeting minutes should be signed by the person that recorded them.

Many owners want to know about the decisions the board is making on their behalf, and sending them a regular stream of information about board activities reduces the potential for unfounded accusations and conflict. Making board meeting minutes widely available can also help boards better understand the wishes of their communities.

Fair Housing Act Requires Boards to Accommodate Disabled Residents

The Fair Housing Act requires condominium and homeowners associations to make reasonable accommodations for persons with disabilities to allow them to use and enjoy their homes. Any necessary modifications to the property should be performed at the disabled person’s expense. If an association refuses to make a reasonable accommodation, federal agencies can get involved to enforce the law and levy penalties.

In August, the U.S. Justice Department announced a $35,000 settlement with the Valley View Apartments in Longview, Washington. A handicapped tenant had asked to use two adjacent parking spaces until a handicapped-accessible space became available. The association refused to grant this request and began eviction proceedings. This proved to be a very expensive course of action when the tenant fought back with a complaint alleging discrimination against disabled persons in violation the Fair Housing Act.

In September, an administrative law judge ordered the Astralis Condominium Association in Carolina, Puerto Rico to provide accessible parking spaces to two disabled residents and pay $25,000. The judge determined that the association violated the Fair Housing Act by denying the residents’ request to use available handicapped-accessible parking spaces near their unit. The judge also concluded that the association harassed the residents by placing stickers on their car windows and filing a lawsuit to prevent them from using the handicapped parking spaces.

Responding to fair housing complaints can be expensive and stressful even when no misconduct has taken place. Boards should work with disabled residents when those individuals seek to modify the property to suit their needs, and boards should preserve written evidence of their efforts to do so. It may be possible for a board to identify alternative solutions that are less disruptive to the other owners than the original proposal.

A Quick Guide to Budget Ratification

The board of the Issaquah Highlands Community Association recently had a landscaping problem on its hands. Undeveloped common areas that were too steep for people to reach safely or cheaply were becoming overgrown and unsightly. The board responded by renting herds of goats to munch on the unwanted vegetation for several weeks. The board’s creativity and frugality will probably be appreciated as the association considers its next budget. As community associations enter another budget season, they should make sure that they are following the correct procedures.

The Washington laws that govern condominium and homeowners associations require boards to provide owners with summaries of proposed budgets and schedule owners’ meetings between 14 and 60 days later to consider ratification of proposed budgets. Unless owners holding a majority of the voting power or any larger percentage specified in the declaration reject the proposed budget at the meeting, the proposed budget is ratified (whether or not a quorum is present at the meeting) and takes effect. If the proposed budget is vetoed or the required notice is not given, the last budget ratified by the owners continues until another budget is ratified. An association’s governing documents may impose additional requirements pertaining to budgets as well.

The budget ratification meeting is the board’s best opportunity to proactively address owners’ concerns about the size of their assessments and the association’s spending priorities. For example, if the budget increases reserve account contributions, the board should be prepared to explain how this added expense will contribute to the common good. Taking the time to reveal the reasons behind the numbers at the budget ratification meeting will put many owners at ease and can prevent larger disputes later.

Association Records – The What, the When, and the Audit

A former Florida condominium association bookkeeper was arrested earlier this month on charges of stealing almost $500,000 from the association since 2005. The individual allegedly wrote checks to herself, transferred association funds into her personal account, and submitted fraudulent invoices. It was reported last week that an audit of a Virginia community association discovered nearly $700,000 missing from its accounts. The association’s treasurer disappeared at the end of June. Proper maintenance and evaluation of association records can help boards avoid problems of this magnitude.

The state laws that govern Washington condominium and homeowners associations do not specify what records should be maintained or how long they should be kept. It can be inferred that financial documents like bills and receipts should be kept at least the length of time necessary for them to be reviewed during the annual CPA audit (mandatory for Washington condominiums consisting of more than 50 units and mandatory subject to annual waiver for all other Washington condominiums and also Washington homeowners associations with annual assessments of $50,000 or more).

The state law governing Washington nonprofit corporations requires them to maintain, among other documents, financial statements and meeting minutes at their registered offices. Washington condominium and homeowners associations that are nonprofit corporations should comply with this law. The state law governing Washington profit corporations requires them to maintain meeting minutes on a permanent basis and states that they must keep, among other documents, shareholder meeting minutes, annual financial statements, and communications to shareholders at their registered offices for at least three years. Boards could decide to comply with those standards as an added safeguard. The governing documents of many associations contain specific record-keeping requirements that must be followed as well.

Diligent maintenance and evaluation of association records can help boards make more informed financial decisions, defend against owners’ claims of misconduct, and spot theft of association funds more quickly. Boards should ensure that their association records policies allow them to take advantage of those benefits.

Amending Your Association's Declaration or Covenants

The original United States Constitution has been amended 27 times in the 222 years since its adoption. There have also been 6 other proposed amendments that passed Congress but were not ratified by enough states to become binding amendments. Most condominium and homeowners associations also find it necessary to amend their declarations or covenants from time to time to correct inconsistencies, shift responsibilities, and furnish themselves with additional tools to address recurring problems.

Condominiums created before July 1, 1990 are legally required to obtain the approval of at least 60% of the owners to amend their declarations. Condominiums created after July 1, 1990 are legally required to obtain the approval of at least 67% of the owners to amend their declarations. Those newer condominiums must also secure the approval of at least 90% of the owners (including the owners of all affected units) to enact certain types of amendments (including those that change unit boundaries, allocated interests, or uses of units). Some condominium declarations state that higher percentages of owner approval and the consent of a specified number of mortgagees are required for amendments. Washington law does not specify a minimum amount of owner consent that homeowners associations must obtain to amend their covenants, so it necessary to review those covenants to determine what is required to amend them.

Governing document amendments can take many forms. Some amendments require owners to maintain and repair specified portions of the property (such as windows) and repair damage to common property if certain circumstances are present. Others restrict the ability of owners to alter their property (such as by installing hard surface flooring) without the board’s consent. Amendments can provide associations with more options to collect delinquent assessments (including non-judicial foreclosure) and can enhance their lien rights in some cases. They can also place limits on how owners may use the property (for example, by imposing a cap on rentals). If an association’s governing documents contain contradictions (documents that make maintenance and repair of limited common elements the responsibility of owners in one place and the association in another are surprisingly common), amendments can fix those mistakes.

An association’s governing documents reflect its values and priorities. Seeking input from the association’s property manager, attorney, and owners at an early stage will make the amendment process as smooth and productive as possible. The end result will be a document that empowers the board to better serve the needs of the community in the future.

Understanding the Reserve Study Requirements in the Washington Condominium Act

My wife Elisabeth does her best to place a small portion of our income into a savings account each month. She is currently in good company. The New York Times reported last month that the national savings rate is at its highest rate in over 15 years. In a similar vein, the Washington Legislature took action last year to nudge Washington condominium associations towards a more saving-oriented mindset by requiring them to obtain and update reserve studies. Condominium board members should be aware of the obligations imposed by those new provisions of the Washington Condominium Act.

A reserve study attempts to project how much an association must save each year to pay for certain common expenses (including major projects such as replacing a roof) that will need to be paid in the future. Condominium associations must prepare and update reserve studies unless this imposes an unreasonable hardship. Associations must also establish reserve accounts. Initial reserve studies must be based upon a visual site inspection conducted by a reserve study professional. Existing reserve studies must be updated annually unless this imposes an unreasonable hardship, and they must be updated at least every three years based upon a visual site inspection conducted by a reserve study professional.

The Washington Condominium Act does not require condominium associations to place any funds in their reserve accounts. The Act permits associations to withdraw any funds that are deposited in such accounts to pay for unanticipated expenses subject to certain notice and repayment conditions. The Act states that owners holding at least 20% of the voting power can demand that an association obtain a reserve study prepared by a reserve study professional if more than 3 years has passed since one was obtained. An association can overcome such a demand if it demonstrates that obtaining a reserve study would impose an unreasonable hardship, and the Act provides that an unreasonable hardship definitely exists if the cost of preparing a reserve study exceeds 10% of an association’s annual budget.

Subject to the general guidelines described above, condominium board members have broad discretion to make decisions regarding reserve studies. The Act provides that condominium associations and their board members may not be held liable for monetary damages for failing to obtain or update reserve studies. The most significant legal consequence for failing to comply with this part of the Act is that an association must include a specific disclosure in resale certificates warning potential purchasers of units that the association’s lack of a current reserve study increases the risk that they may be forced to pay a large special assessment at some point.

Collection of Delinquent Assessments - Understanding Your Options

Martial arts students are taught to hope that they will never need to use their skills to harm others. However, they are also instructed to use those skills quickly and decisively when the situation calls for it. So it is with the collection of delinquent assessments in condominium and homeowners associations. Boards should understand the nature of the collection powers contained in their associations’ governing documents and provided by Washington law, and should use those powers to address delinquencies before they get out of hand.

A foreclosure action against the property is a collection option that is almost always available to community associations. This method can take two forms – judicial and non-judicial. In judicial foreclosure, the association files a lawsuit against the owner and entities that hold liens on the property that seeks a court order that the property must be sold by the county sheriff to satisfy the owner’s debt to the association. Most community associations have the ability to pursue judicial foreclosure. In non-judicial foreclosure, the association directs a trustee to sell the property after providing notice to the owner and to entities that hold liens on the property. Community associations do not have the right to pursue non-judicial foreclosure unless their governing documents specify that they have this power.

A personal lawsuit against the owner is another collection option that is usually available to community associations. This method can be pursued in small claims court (which allows a board member to present the case) or in superior court. If a judgment is obtained against the owner, the association will then need to attempt to garnish the owner’s wages or assets to satisfy the debt.

Terminating the utilities that serve a property following the provision of proper notice is a third collection option that is sometimes available to community associations. However, this method is only available to a condominium association if the condominium was created before July 1, 1990 and if the condominium’s declaration specifies that the association has this power. Condominium associations can not terminate utilities to a unit due to a delinquency if the condominium was created after July 1, 1990. The Washington law governing homeowners associations does not mention termination of utilities in response to past due assessments, and those associations’ governing documents typically do not provide for the use of that power.

Intercepting rent from an owner’s tenant is a fourth collection option that is sometimes available to community associations. The Washington laws governing condominium associations states that they are entitled to the appointment of a receiver to collect rent during foreclosure actions. Many condominium declarations also give the association the authority to demand that tenants submit their rent payments directly to the association when owners are delinquent without taking additional legal action, and in some cases those declarations state that the association may take legal action to evict tenants that fail to submit rent payments as directed. The Washington law governing homeowners associations does not mention rent interception or the appointment of a receiver to collect rent, and those associations’ governing documents are usually silent with regard to those matters as well. Homeowners associations may be able to use the Washington law governing receiverships to collect rent from tenants during foreclosure actions.

Every community association board needs to understand what tools are at its disposal to extract funds from delinquent owners. If the board examines the association’s governing documents and is disappointed that one or more of the options discussed above is not present, then it should consider an attempt to amend those documents to provide for broader collection powers.

Enforcing the Governing Documents

The United States Supreme Court, at the time led by Chief Justice John Marshall, ruled in 1832 that the forced migration of the Cherokees from South Carolina was unlawful. President Andrew Jackson is said to have responded as follows: "John Marshall has made his decision. Let him enforce it." The Cherokees were subsequently removed to Oklahoma.

If owners are not complying with the restrictions contained in a community association’s governing documents, the board of directors must decide how to respond. The association’s governing documents typically provide the board with several enforcement powers, which include imposing fines, suspending the right to use recreational facilities, and beginning a lawsuit. The preferred initial course of action is usually imposing a fine, but the board should make sure that it is acting in accordance with the Washington laws that govern this power.

There are three basic rules to remember regarding fines. First, a fine must be reasonable, which means that the fine amount should be related to the harm caused by the violation. Second, a fine must be based on a previously established schedule that has been adopted by the board and distributed to the owners. Third, a fine may only be imposed after the owner has been given notice that a fine is being considered and an opportunity to be heard by the board of directors or a designated representative regarding the alleged violation. Failing to meet these legal requirements will give the owner a basis to challenge the fine.

However, some violations may call for a different response. As noted in a recent KING 5 report, many condominium owners attempting to sell their units are being compelled by negative financial circumstances and the sour real estate market to rent their units on a month-to-month basis until they are sold. Such short-term rentals are often inconsistent with their associations’ governing documents. Boards confronted with this issue may wish to simply approve these types of rentals based on the “hardship exception” that is typically present in the governing documents. Boards likewise have the discretion to make exceptions with regard to other types of restrictions in the governing documents if extraordinary circumstances justify it.

Dealing With Difficult Owners

Many people who have served on the board of directors of a condominium or homeowners association have a story about an owner who made their life miserable. An owner may have regularly questioned the board's decisions and authority to govern the association. An owner may have submitted a steady stream of complaints about other owners to the board. An owner may have engaged in vicious personal attacks against board members. In some cases, explanations, warnings, fines, mediation, and even police visits do little to resolve these problems. What should board members do when confronted with these types of situations?

One way to handle difficult owners is to redefine how owners may communicate with the board. The board can explain to the owners that communications regarding association matters must be submitted in writing to a designated board member or presented in person at the next board meeting. This can have the effect of limiting the stress from an owner's behavior to one day a month rather than throughout the month. The Board can also limit the amount of time that owners can speak at meetings to avoid long confrontations. The owners can be instructed to make a short presentation and await a written decision from the board after the meeting. However, it is important to make any rules regarding communication with the board applicable to all owners.

Another way to handle difficult owners is to develop pre-determined responses to certain situations and stick to them. The board is obligated to consider the issues that owners raise at any point in time, but it should briefly refer to its previous decision and move on if a similar problem has been addressed before. Decisively resisting the temptation to debate or reconsider the same issue multiple times can convince an owner that a battle is no longer worth fighting.

Board members should also try to keep the big picture in mind. If the board and its members are acting in accordance with the association's governing documents, applying the governing documents in the same manner with respect to all owners, and exercising reasonable business judgment (which basically means taking all relevant facts into account and consulting with professionals when necessary), the rare owner that actually begins a lawsuit is unlikely to succeed. Furthermore, the association may have insurance that insulates the board and its members from liability in most circumstances and provides for the appointment of an attorney to defend the board and its members if they are sued. These realities can help to preserve a board member's peace of mind when dealing with a difficult owner.