New Laws Apply to Washington State Community Associations

The Washington State Legislature recently approved several new laws that affect existing community associations. The first new law prohibits community associations from prohibiting, unreasonably restricting, or limiting the use of properties for licensed family home child care or as licensed child daycare centers. An association may require properties being used in that manner to: 1) provide direct customer access from the outside of the buildings or through publicly accessible common areas, 2) be licensed by the state, 3) indemnify the association against all claims related to that use except for claims that arise in common elements that the association is solely responsible for maintaining under the governing documents, 4) obtain daycare insurance or provide self-insurance, and 5) provide the association with signed waivers from the guardians of each child being cared for that release them from legal claims related to that use. An association may impose reasonable rules pertaining to family home child care and licensed child daycare centers, but those rules must apply equally to all other association members. This law took effect on May 1, 2023.

The second new law permits community associations to require owners who lease their properties to use a tenant screening service or obtain background information, including criminal history, pertaining to their prospective tenants at the owners’ sole cost and expense before executing leases and to require proof that this has been done. However, associations may not require that tenant screening reports or any background information pertaining to tenants be furnished to them. This law takes effect on July 23, 2023. 

The third new law requires community associations to keep and maintain the following records: 1) the current budget, detailed records of receipts and expenditures affecting the operation and administration of the association, and other appropriate accounting records within the last seven years, 2) minutes of all meetings of its owners and board other than executive sessions, a record of all actions taken by its owners or board without a meeting, and a record of all actions taken by a committee in place of the board on behalf of the association, 3) the names of current owners, addresses used by the association to communicate with them, and the number of votes allocated to each property, 4) its organizational and governing documents, including all amendments, 5) all financial statements and tax returns of the association for the past seven years, 6) a list of the names and addresses of its current board members and officers, 7) its most recent annual report delivered to the Secretary of State, if any, 8) copies of contracts to which it is or was a party within the last seven years, 9) materials relied upon by the board or any committee to approve or deny any requests for design or architectural approval for a period of seven years after the decision is made, 10) materials relied upon by the board or any committee concerning a decision to enforce the governing documents for a period of seven years after the decision is made, 11) copies of insurance policies under which the association is a named insured, 12) any current warranties provided to the association, 13) copies of all notices provided to the owners or the association in accordance with state law or the governing documents, and 14) ballots, proxies, absentee ballots, and other records related to voting by owners for one year after the election, action, or vote to which they relate.

Community associations’ records must generally be made available for examination and copying by all owners, holders of mortgages on the properties, and their respective authorized agents during reasonable business hours or at a mutually convenient time and location and at the offices of the association or its managing agent. However, records retained by associations must have the following information redacted or otherwise removed prior to disclosure: 1) personnel and medical records relating to specific individuals, 2) contracts, leases, and other commercial transactions to purchase or provide goods or services currently being negotiated, 3) existing or potential litigation or mediation, arbitration, or administrative proceedings, 4) existing or potential matters involving federal, state, or local administrative or other formal proceedings before a governmental tribunal for enforcement of the governing documents, 5) legal advice or communications that are otherwise protected by the attorney-client privilege or the attorney work product doctrine, including communications with the managing agent or other agent of the association, 6) information the disclosure of which would violate a court order or law, 7) records of an executive session of the board, 8) individual property files other than those of the requesting owner, 9) unlisted telephone number or electronic address of any owner or resident, 10) security access information provided to the association for emergency purposes, and 11) agreements that for good cause prohibit disclosure to the owners. Prior to disclosure of the list of owners, an association must also redact or otherwise remove the address of any owner or resident who is known to the association to be a participant in an address confidentiality program.

Community associations may charge a reasonable fee for producing and providing copies of any records and for supervising an owner's inspection of records, but an owner is entitled to receive a free annual electronic or paper copy of the list of owners from the association. The right to copy records includes the right to receive copies by photocopying or other means, including through an electronic transmission, if available, upon request by an owner. Associations are not obligated to compile or synthesize information for an owner who requests to review or receive records. This law takes effect on July 23, 2023.

The fourth new law imposes additional requirements on community associations related to the collection of past due assessments. Associations must mail a specified pre-foreclosure notice to delinquent owners along with the first notice of delinquency for past due assessments and the same notice again before beginning a foreclosure action against those owners’ properties. The second notice may not be mailed sooner than sixty days after the first notice is mailed. Associations may not begin foreclosure actions against delinquent owners’ properties unless they owe a sum greater than: 1) three months or more of assessments, not including fines, late charges, interest, attorneys' fees, or costs incurred by the association in connection with the collection of the delinquent owner's account, or 2) $2,000 of assessments, not including fines, late charges, interest, attorneys' fees, or costs incurred by the association in connection with the collection of a delinquent owner's account. This law takes effect on July 23, 2023.

The laws that apply to community associations grow more numerous and complex every year. It has unfortunately become virtually impossible for associations to comply with all of those laws without legal guidance. Community association boards should strongly consider consulting with an attorney who specializes in this area on a periodic basis.

Washington Court of Appeals Rejects Owner's Assessment Exemption Claim

An owner in a condominium association recently refused to pay assessments on his unit and argued that he was exempt from doing so due to the association's mismanagement of common funds. The Washington Court of Appeals rejected the owner's argument. It ruled that the association was entitled to a summary judgment because the owner did not contest the amount of the unpaid assessments or the association's right to impose those assessments pursuant to the condominium's declaration. It further ruled that the owner had not submitted any evidence that the association had committed any acts or omissions that violated its duty to manage the common funds with ordinary and reasonable care.

Washington Supreme Court Upholds Homeowners Association's Assessment Decision

The Washington Supreme Court recently issued an opinion upholding a homeowners association's member-ratified decision to raise funds through a combination of use-based fees and per-lot assessments as authorized in its governing documents. An owner sued the association and claimed that its decision violated a section of the governing documents that required assessments to be charged on an equitable basis. The Court held that the association's governing documents grant the association broad discretion in setting assessments and that the association's decision on assessments was reasonable and entitled to substantial deference. The Court's analysis is described in the following paragraph.

When a covenant grants a homeowners association broad discretion in a particular area, that discretion must be exercised reasonably and in good faith. Discretion is not reaonably exercised when the procedures laid out in the governing documents and relevant statutes are not followed or when the information used in the decision-making process is not reasonably accurate. When a homeowners association makes a discretionary decision in a procedurally valid way, courts will not substitute their judgment for that of the association absent a showing of fraud, dishonesty, or incompetence. Reasonable care is required. The respect due to the self-governance of homeowners associations, the importance of finality in budgeting, and the avoidance of interfering in associations' ability to meet their financial obligations are important considerations. To hold otherwise would subject associations to lawsuits any time a homeowner disagreed with a discretionary choice made by the board and ratified by the members.

It is important to note that this decision was based on provisions of the association's governing documents that are not present in the governing documents of condominium associations and many homeowners associations. If your association has questions about how assessments may be charged or how budgets may be adopted, then it should seek legal advice from an attorney with experience in this area.

HOA Unpaid Assessments Are Subject to a Six-Year Statute of Limitations

The Washington Court of Appeals recently decided that the applicable statute of limitations for an action to enforce a homeowners association's lien for unpaid assessments is six years. It noted that a Washington statute establishes a six-year statute of limitations for actions upon a contract in writing or liability arising out of a written agreement and ruled that the association's declaration of covenants is a written agreement. The Court further held that each unpaid annual assessment constituted a separate claim, which limited the association to the collection of unpaid assessments imposed over the preceding six years. During the course of its opinion, it pointed out that the WUCIOA establishes a six-year statute of limitations for actions arising out of that statute and that the Washington Condominium Act establishes a three-year statute of limitations for actions arising out of that statute. 

Washington common interest associations should consider obtaining legal counsel before beginning collection actions that involve lengthy delinquencies. This will help avoid potential liability if the matter is litigated.

Washington Court of Appeals Affirms HOA's Removal of Gate and Boulders

A homeowners association removed boulders and a gate that two owners had placed in a road easement and assessed those owners for the cost of that removal.  When the owners failed to pay that assessment and monthly dues, the association filed a lien foreclosure action. The trial court permitted foreclosure of the association's lien, and the Court of Appeals upheld that decision. The Court held that the covenants governing the property express the "intent to grant the homeowners association plenary power over use of the roads and to preclude any owner from obstructing a road" and grant the association the exclusive authority to erect gates.

The owners argued that the association's failure to object to the gate and boulders for twelve years supported the conclusion that the association authorized their installation. The Court of Appeals rejected that argument, noting that the covenants contained an anti-waiver clause that allows the association "to enforce any of its provisions even if it did not enforce the provision initially."

How Will Coronavirus Affect Your Community Association?

The coronavirus pandemic is likely to have serious consequences for many Washington condominium and homeowners associations.  Those associations' financial, maintenance, enforcement, and meeting policies may be significantly impacted by this crisis.  Prudent boards will anticipate virus-related problems and prepare for them.

A large number of owners may soon lose a substantial amount of income in the near future due to severe illness, lengthy school closures, and fewer hours at their jobs.  If the economy slips into recession, then some owners will become unemployed for lengthy periods.  Those events are likely to result in more unpaid assessments in the short to medium term.  Association boards should consider temporary adjustments to their policies concerning payment plans for unpaid assessments (for example, smaller payments over longer terms) and referral of delinquent accounts to attorneys for collection.  Boards should also anticipate an increased need to incur attorney fees in order to pursue legal action against seriously delinquent accounts.  As a result, they should consider increasing the amount provided for legal expenses in the association's budget.  

Given the probable increase in delinquencies in the near future, boards should consider delaying non-urgent maintenance and repair work for at least the next several months.  This will give them an opportunity to evaluate the effect of the virus on their associations' finances and to reschedule projects and reallocate funds if necessary.  However, boards should also consider arranging for commonly used items and surfaces in their associations' common areas to be cleaned and disinfected more frequently and thoroughly over the next several months in order to reduce the number of transmissions that occur in those areas.  

The difficulties that many owners will soon face due to sickness, child care, and loss of income may result in more antisocial behavior and covenant violations over in the short to medium term as well.  This may necessitate the imposition of more fines and more referrals to the association's attorney for enforcement action. A community association board in Washington state is not legally permitted to fine an owner until it has adopted a fine schedule, distributed it to all owners, and given the owner notice and an opportunity to be heard.

Given the necessity for a period of social distancing, associations may find it more difficult to hold meetings due to lack of quorums. Boards should consider temporarily allowing owners and directors to attend meetings by telephone or video-conference and to vote by mail or e-mail. Boards should also consider cancelling social gatherings in common areas for at least the next several months.

WA Court: HOAs May Record Liens Without Providing Owners With Notice and Hearing

Happy Halloween!  Collecting past due assessments can certainly be scary sometimes. After one homeowners association recorded a lien on a delinquent property and obtained a judgment against its owners, they appealed to the Washington Court of Appeals.  The court ruled that the association was permitted to record the lien without providing the owners with notice and an opportunity to be heard.  

The court first pointed out that Washington law only requires homeowners associations to provide owners with notice and an opportunity to be heard before they impose fines for violating the governing documents and otherwise grants those associations discretion to establish their procedures within their governing documents. Since the governing documents of the association allow it to record a lien for delinquent assessments without notice and an opportunity to be heard, the court ruled that it may do so. The court concluded by noting that the owners were not deprived of their right to due process because the lien was based on a binding contractual agreement between them and the association (the recorded covenants).

Washington Condo Associations Do Not Have Lien Priority Over Existing HOAs

The Washington Court of Appeals affirmed last month that a condominium association's lien for assessments was not entitled to statutory priority over similar assessments made pursuant to the covenants of an existing homeowners association within which the condominium was organized.  It based that decision on an exception to lien priority found in RCW 64.34.364(2)(a) for encumbrances on property before the recording of the declaration.  The appellate court concluded that the homeowners association's covenants are encumbrances because they consist of "restrictions that diminish the value of the condominium."  It affirmed the trial court's award of attorney fees to the homeowners association and awarded it appellate attorney fees as well.  

Collection Options for Community Associations

Assessments are the lifeblood of community associations.  If owners fail to pay their assessments, then associations can not perform their duties.  Once reminder notices have proven ineffective, associations should consider taking legal action to collect delinquent assessments.  The available collection options always include a lien foreclosure action and a personal lawsuit followed by garnishment.  Community associations may also have the ability to terminate the utilities of delinquent units if their governing documents provide for that option.  Consistent application of a written collection policy is advisable.

If your community association is struggling to collect delinquent assessments, then my office is available to help you resolve that issue.

Washington Court of Appeals Rules in Favor of Association in Collection Dispute

The Washington Court of Appeals ruled in favor of a Camas homeowners association’s actions concerning board membership and delinquent assessments in a recent unpublished opinion.  The Court's opinion begins by stating that “[w]e afford great deference to an organization’s interpretation of its Bylaws, and will only invalidate an interpretation if it is arbitrary and unreasonable …. [H]omeowners associations must be given room to interpret and apply their own governing documents.”  The opinion points out that the association unsuccessfully attempted to elect board members every year and that in the absence of a quorum the association was permitted to allow an appointed board member to serve out the unexpired portion of a term until a quorum could be reached and a proper annual election could be held. The Court's opinion concludes that the association’s board is properly constituted and that the association has the power to collect assessments and record liens.

Court Rejects Condominium Owner's Attempt to Invalidate Assessments

In a recent unpublished opinion, the Washington Court of Appeals affirmed the trial court's summary judgment denial of a condominium owner's legal challenges to the assessments charged to his unit.  The owner argued that the assessments were invalid in a variety of ways, but the Court held that he did not offer sufficient evidence to support any of them.  The Court also noted that "the owner of a condominium residential unit may not withhold payment of condominium assessments as a form of protest."        

Receivers to the Rescue?

The Washington Court of Appeals issued a published opinion last month pertaining to the Washington Receivership Statute (RCW 7.60).  The Court noted that "the legislature intended the Receivership Statute to benefit creditors having interests in property administered by the courts."  Receivers may thus be appointed by courts upon the commencement of foreclosure actions in order to lease properties.  The Washington Condominium Act (RCW 64.34.364(10)) describes such receiverships in the following manner:

"From the time of commencement of an action by the association to foreclose a lien for nonpayment of delinquent assessments against a unit that is not occupied by the owner thereof, the association shall be entitled to the appointment of a receiver to collect from the lessee thereof the rent for the unit as and when due. If the rental is not paid, the receiver may obtain possession of the unit, refurbish it for rental up to a reasonable standard for rental units in this type of condominium, rent the unit or permit its rental to others, and apply the rents first to the cost of the receivership and attorneys' fees thereof, then to the cost of refurbishing the unit, then to applicable charges, then to costs, fees, and charges of the foreclosure action, and then to the payment of the delinquent assessments. Only a receiver may take possession and collect rents under this subsection, and a receiver shall not be appointed less than ninety days after the delinquency. The exercise by the association of the foregoing rights shall not affect the priority of preexisting liens on the unit."

My office is available to assist your association if it wants to appoint a receiver to lease a delinquent property during a foreclosure action.    

Leasing Vacant Properties to Collect Delinquent Assessments

All is not lost for community associations when delinquent owners conclude that they must abandon their properties.  Associations and owners have much to gain by entering into voluntary agreements that authorize associations to lease vacant properties.  The rent can then be used to pay delinquent and future assessments.  If such agreements are not possible, then Washington condominium associations also have the ability to ask courts to appoint receivers over vacant units, which can then be leased until the lenders foreclose. 

Community associations must comply with a complex web of federal, state, and local laws that relate to the landlord-tenant relationship when they lease properties.  By way of example, the Washington Residential Landlord-Tenant Act can be found here, and information about Washington's new requirement that residences must be equipped with carbon monoxide detectors can be found here.  Obtaining legal advice regarding the association’s obligations as a landlord is highly recommended.

How to Pursue Delinquent Owners in Small Claims Court

Owners in condominium and homeowners associations unfortunately do not always pay their assessments.  When that occurs, associations have many collection options available to them.  Most of those options involve hiring an attorney, but Seattle-area community associations can also pursue delinquent owners on their own by filing small claims in King County District Court.

If your association wants to file a small claim against a delinquent owner, then the first step in that process is to submit a notice of small claim form to the court.  The fee for filing a small claim is currently $35.  The court will add a case number and trial date to the notice of small claim and send two copies of that document back to the association.  Trials are typically scheduled between 40 and 90 days after the claim is filed.

The second step in the small claim process is to serve the completed notice of small claim on the delinquent owner.  Process service must take place at least 10 days before the scheduled trial date, and this can be accomplished by the sheriff's office, a professional process service company, or by certified mail with return receipt requested (as long as the owner signs the return receipt). 

The third step in the small claim process is to appear in court on the trial date.  If a mandatory mediation does not result in a settlement, then the trial will proceed.  A member of the association's board of directors must present its case at the trial.  Consulting an attorney in advance can help to ensure that the association's position is presented properly. 

While the small claim process can be a useful collection tool, associations should also be aware that it has significant drawbacks.  First, small claim judgments cannot exceed $5,000.  Second, associations’ ability to collect judgments will be limited by the amount of owners’ personal assets and wages that can be located and garnished.  Third, judgments will not prevent owners from continuing to reside in or lease their homes without paying assessments.  Fourth, board members must take time out of their busy schedules to travel to court and appear on the association’s behalf.  Despite those drawbacks, pursuing a small claim can be the best course of action in certain circumstances, particularly when the debt and the association’s legal budget are small.  Discussing the available collection options with an attorney can help associations decide if the small claim process is the right way to seek collection of unpaid assessments.          

The King County District Court’s website is an excellent resource if your association wants to learn more about pursuing small claims.

Super Priority Lien Gives Washington Condo Associations Leverage Over Lenders

The Washington Condominium Act grants condominium associations a super priority lien over mortgage holders. This super priority lien ensures that some delinquent assessments (those that are due during the six months immediately preceding the foreclosure) will be paid by lenders if foreclosures occur. It can also be a powerful weapon if lenders do not respond to associations’ foreclosure actions. In the recent decision of Summerhill Village Homeowners Association v. Roughley, the Washington Court of Appeals held that a mortgage on a unit can be completely eliminated by a condominium association’s foreclosure action if an association has a super priority lien and the lender does not respond.

If a Washington condominium’s declaration was recorded after July 1, 1990, then it automatically has the right to claim the super priority lien contained in the Washington Condominium Act. If a Washington condominium’s declaration was recorded on or before July 1, 1990, then its association can probably not take advantage of the super priority lien until its declaration is amended to include it. All Washington condominium associations that cannot currently claim the super priority lien should strongly consider amending their declarations to give themselves the ability to do so.

A condominium board that wants to amend its declaration should consult with an experienced real estate attorney to ensure that all applicable legal requirements are met. Failing to obtain such legal advice can have dire consequences. In a recent unpublished decision, the Washington Court of Appeals affirmed a trial court’s ruling that an amended set of covenants for a homeowners association was void and unenforceable because it was not properly executed.

Washington Condos Forced to Reconsider Assessment Collection Strategies

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.

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

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 law applies to condominiums created before July 1, 1990 as well as newer condominiums.  Boards should thus monitor the length of delinquencies and take action to collect them in a timely manner.  This will maximize the association’s ability to collect the money it is owed.

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.

Dealing with Delinquent Owners

The recent drumbeat from the media regarding the economy is steady and depressing. Housing construction nationwide plunged to its second-lowest level on record last month. Foreclosure filings in King, Pierce, and Snohomish counties last month were up 25 percent from February and 111 percent from March 2008. The unemployment rate in Washington has risen over the last three months at the fastest rate on record and is currently 9.2%. As a result of the deteriorating economic climate, most condominium and homeowners associations either have a significant delinquency problem or soon will. How should they respond?

Many board members are understandably reluctant to refer one of their neighbors to a collection attorney. They justify inaction by focusing on the owner’s personal misfortunes. The feelings of compassion and community at the root of that reaction are commendable, but they should not be allowed to dominate the board’s decision-making process. Board members must also consider the impact of delinquencies on the other owners and the association as a whole.

The board of directors of a condominium or homeowners association has a legal obligation to exercise reasonable business judgment and act in the best interest of the entire community. The community needs money to maintain and repair the common areas and to ensure that essential services are provided. If an owner is not paying the ongoing assessments, the board should seriously consider taking prompt legal action to attempt to collect the debt. Failing to do so within the first several months of the delinquency substantially reduces the likelihood of recovering the full amount owing, increases the likelihood that the other owners will eventually be forced to pay more, and leaves the board vulnerable to being sued by one or more owners for breach of its duties.

The board should address delinquencies with a mixture of compassion and firmness. The board should attempt to work out a payment arrangement with a delinquent owner before referring the matter to an attorney, and in these difficult times it should consider approving payment plans that are longer than those that have been approved in the past. However, boards need to be prepared to take decisive action to deal with owners that either can not or will not work with them to address their delinquencies. Adopting a uniform collection policy and sticking to it is one way to ensure that the association does not suffer its own financial crisis.