Foreclosure Mess: Federal Bank Punishment Inconsequential; Will Pending Case Make Difference in Oregon?

Foreclosure Mess: Federal Bank Punishment Inconsequential; Will Pending Case Make Difference in Oregon?

By: Alicia Vial Beesley

Date: December 15, 2011

Recently, Nevada has taken action to remedy their state’s foreclosure mess; will Oregon step up to the challenge? Despite the fact that [earlier this year] the federal government attempted to punish large banks for continuing the practice of robo-signing, it had little affect on their practices. The law Nevada passed now makes it a felony to carryout robo-signing, forcing banks to get the proper documentation together before going through a foreclosure. Since this law went into effect, Nevada foreclosures have slowed dramatically. Will this example be able to influence other areas of the country?

Oregon has been one of the states hit hardest with foreclosures. There are still thousands of homes in default, where foreclosure processes have not even begun. The inability of the banks to handle these mass amount of defaults is clear as they continue to make the mess worse by foreclosing on those legitimately trying pay and hold onto their homes, while simultaneously ignoring their ability to take foreclosure action on the numerous abandoned homes (sometimes left unattended for years). The entire situation is complicated by the fact that the Oregon Courts have failed to implement a clear interpretation of the Oregon Trust Deed Act, leaving banks and title companies uncertain on how to proceed with foreclosures.

In Oregon, it appears legislation will not solve the foreclosure problems any time soon. All eyes now look toward the case Rebecca Niday v. GMAC Mortgage, LLC, which the appellate court of Oregon has agreed to hear on January 17^th, 2012. The decision of the court will dramatically affect the banks’ procedures for foreclosure in the future.

In addition to the sheer number of foreclosures, those that held onto their homes are also undergoing hardship, with home prices continually driven down across the country and Oregon among the leaders of this trend. How does this affect homeowner associations? In this situation, those among HOAs are seeing more and more abandoned properties sitting for years without any action to foreclose by the banks. When the banks fail to foreclose, the remaining association members are forced to pay more in order to make up for those owners that have abandoned their property; they are responsible for the assessments until a foreclosure sale is held. The longer the banks wait to foreclose, the more the property values are driven down, and the higher the HOA dues become for those remaining. It is advised associations in this situation not wait to take action in an attempt to collect; there is often a solution, so all avenues should be explored. There may even be a chance to collect dues from the ones who have caused a lot of the mess: the banks them selves.

While the Oregon courts and legislature work to sort out the process of foreclosures and find a solution to decreasing home values, remember to speak with an attorney regarding any foreclosure questions or assistance you may need help with, including collections tactics if you are part of an HOA with foreclosed homes.

FHA Approval for Condominiums

FHA Approval for Condominiums

What Managers, Board Members and Others Need to Know

Author: Matt McMullin

Date: October 1, 2011

A great deal of confusion currently surrounds the issue of FHA approval for condominiums.  I get phone calls on an almost daily basis from board members and managers who are curious, confused, or confounded by all the recent changes to the FHA approval process.  To help alleviate some of this confusion, I felt it would be helpful to provide a brief overview of the approval process itself, clarify recent developments in this area, and address a few of the common questions that owners, board members, and managers have been asking.

 

What is all this fuss about “FHA Approval” anyway?

For those unfamiliar with the background and recent news surrounding FHA approval for condominiums, here is a [very] brief overview: The Federal Housing Administration (FHA) is a government agency that provides mortgage insurance on loans made by FHA-approved lenders and is a subdivision of the US Department of Housing and Urban Development (HUD).  During 2009, HUD published a series of new guidelines that dramatically changed the FHA approval process for condominiums.  The most significant changes were as follows:

1) Each condominium project as a whole must now obtain FHA approval before any individual unit in the project will be eligible for FHA financing.  Prior to the recent changes, it was possible to obtain an FHA loan on an individual unit even if the condominium project was not on the list of FHA-approved condominiums.  However, this “spot loan” approval process was completely eliminated by the new guidelines.

2) Condominium project approval now expires every two years.  In the past, once a condominium project received FHA approval, the approval was more or less indefinite and had no fixed expiration date.  Once a project is approved under the new guidelines, it will need to go through a [supposedly more simple] recertification process every two years to ensure continued compliance with FHA guidelines. 

3) The details of the application process itself, the exact eligibility requirements that condominiums must meet, and the required documentation that must be submitted with applications have all changed significantly.

All projects approved under the old guidelines have either already expired or will expire in the very near future.  You can check the following website to verify whether your condominium is FHA approved, and if so, when the current approval is set to expire:  https://entp.hud.gov/idapp/html/condlook.cfm

Is FHA approval really all that important?

In order to address this question, it is helpful to first understand a bit about FHA financing.  The Federal Housing Administration (FHA) itself does not issue individual loans to borrowers.  Rather, the FHA agrees to insure certain loans that, in turn, allow the lender to offer a better deal to borrowers.  Because the loan is FHA-insured, the lender has less risk exposure and can typically offer lower down payments (as low as 3.5% of the purchase price, as opposed to 20-25% down for most conventional loans), less strict credit qualification criteria, and (often) lower closing costs.  A growing number of buyers are turning to FHA loans, either because they currently cannot qualify for traditional financing, or simply because they prefer to take advantage of these benefits.

In light of the still-lingering economic and housing mess, FHA-backed financing offers an attractive alternative to potential homebuyers.  According to recent reports, the FHA’s share of new loans increased from 7% in 2007 to 37% in 2009 and 36% in 2010 (Federal Financial Institutions Examination Council press release, September 22, 2011).  In short, this means that a condominium that is not FHA-approved is limiting its pool of potential buyers by more than one-third of the market. 

What factors might prevent a condominium association from obtaining approval?

In order to be eligible for FHA approval under the new guidelines, condominium associations must meet numerous criteria.  A few of the major eligibility factors that will be considered include the following:

1. Pending or recent litigation – will often prevent eligibility, particularly if involving construction defects.

2. Pending or recent special assessments – not an automatic disqualifier, but a major red-flag that must be disclosed and adequately explained.

3. Adequate budget and reserve funding  – typically, the association’s budget must clearly reflect that at least 10% of the total budget is allocated to reserves (when this requirement is not met, a recent reserve study must be submitted to show the adequacy of reserves).

4. Owner-occupancy ratio - at least 50% of units must be owner occupied.

5. Adequate insurance coverage - in particular, many associations have insufficient fidelity (also known as “employee dishonesty”) insurance coverage.

6. Delinquent assessments - no more than 15% (20% if certain other conditions are met) of units may be more than 30 days past-due.

7. Commercial use – no more than 25% of the total floor area (of an individual unit or of the condominium project as a whole) may be used for commercial purposes.

8. Investor ownership – no more than 10% of the units may be owned by any single investor.

9. Governing documents – any provisions that violate FHA guidelines may need to be amended (for example: certain types of rental restrictions or restrictions on an owner’s right to convey a unit will be problematic).

Please note that the above list is merely a summary of a few of the major factors involved in determining a condominium project’s eligibility.  Numerous other criteria may also come into play and must be evaluated.  Feel free to contact us if you have specific questions relating to the potential eligibility of an individual project.

What recent changes should I be aware of?

On June 30, 2011, FHA issued revised lending guidelines that, yet again, made significant changes to the FHA approval process for condominiums.  This most recent guidance came in the form a new FHA Condominium Project Approval and Processing Guide—a 95-page beast of a document—that completely replaces all prior guidelines and becomes the only “official” approval guideline for condominiums. 

Although the intent of this new guide was to clarify and consolidate the complex details and requirements of the approval process, the process is—in reality—no easier to understand than before.  While the guide did help to clarify a few previously ambiguous eligibility requirements, it also introduced a number of controversial requirements, the most notable of which is a Project Certification that must now be signed and submitted with every FHA approval application. 

The Project Certification is so broad and unrealistic in its scope that it could make any board member or manager preparing and submitting an FHA application think twice before signing.  The submitter must certify to the following three items:

1. The project complies with all state and local condominium laws and all FHA condominium approval requirements;

2. The information and statements contained in the application are true and accurate; and

3. “The submitter has no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a mortgage secured by a unit in the project to become delinquent (including, but not limited to: defects in construction, substantial disputes or dissatisfaction among unit owners about the operation of the project or the owners association, and disputes concerning unit owners, rights, privileges, and obligations).  The submitter understands and agrees that the submitter is under a continuing obligation to inform HUD if any material information compiled for the review and acceptance of this project is no longer true and correct.“

Of particular concern is the “continuing obligation” to inform HUD of any changes in circumstances post-approval that might affect any of the eligibility criteria.  It is unclear at this point exactly how broad of an obligation this may impose on the either the condominium association itself or on the submitter of the application; however, many industry organizations are up in arms about the unreasonableness of the current wording of the Certification and the overly broad obligations that it appears to impose. 

Community Associations Institute (CAI) has already filed an administrative challenge against the FHA, in part seeking to modify the language of the Certification.  Fortunately, HUD officials acknowledged at a recent training conference that they are seriously considering modifying this language in order to reflect more realistic expectations.  Unfortunately, for the time being, any individual submitting an application must sign and submit this onerous Certification.

Needless to say, board members and managers should also be very cautious about certifying to compliance with state and local laws and may want to make sure their D&O or E&O insurance coverage is current and that such a certification would be covered under their policy before doing so.

To add to the state of anxiety about the Certification, HUD has further “encouraged” the use of caution by emphasizing the strict penalties that can result from knowingly and willfully using or making a false or fraudulent statement in connection with the FHA application, namely: a fine of up to $1,000,000 and imprisonment for up to 30 years.  Overkill or not, this is what we currently have to work with.

Will there likely be any additional significant changes to the application process?

Yes…  I recently returned from a training conference in Santa Ana where I spent two full days discussing the gritty details of the FHA approval process with both the national HUD officials who wrote the new FHA guidelines, and the local HUD staff that actually reviews the applications submitted for approval.  We discussed recent changes to the application process and the approval/eligibility requirements, as well as additional anticipated changes that are in the works and will be implemented over the coming months and years.

If I learned one thing from the conference, it is that the FHA approval process is still very fluid.  The new FHA guidelines are undergoing constant review and revision and will continue to be subject to modification for the foreseeable future.

 

The details of the application process itself, as well as the actual eligibility requirements for approval, are still being refined, modified, and—in some instances—changed altogether to account for previously unforeseen and unaddressed issues that have arisen.  Due to the complexity involved, anyone who is considering submitting an application for FHA approval should be prepared to expend a significant amount of time, effort, and frustration, or be willing to engage the services of someone who understands the intricacies of the approval process and stays abreast of the continual changes to the process.

How can an association obtain FHA approval?

Associations can obtain FHA approval in one of two ways.  One option is to work through a lender if the association already has a potential buyer of a unit to push the process forward.  Certain lenders are eligible to certify condominium associations under the Direct Endorsement Lender Review and Approval Process, or DELRAP.  Under this process, the association or its manager supplies the necessary documentation and information to the lender, who then reviews and processes the application materials.  Fees and approval processing time vary by lender.

The second and most common method is for the association to apply directly to HUD, which oversees the FHA.  This process is called the HUD Review and Approval Process, or HRAP.  Under HRAP, approvals are typically processed within four to six weeks, if the application is complete and correct when submitted.  However, any missing documentation or information will cause the application to be rejected and sent to the back of the line upon being re-submitted. 

Due to the complexity of the application process and the headache of dealing with government agencies, many associations choose to hire an experienced attorney to assess their eligibility for approval, review their governing documents for FHA compliance, assemble and review the necessary documentation, and submit the application to HUD.

Obviously, not all condominium associations will meet the eligibility requirements for FHA approval.  However, given the current market conditions, nearly all condominium associations should seriously evaluate whether seeking FHA approval would be in the best interest of their community.  Most eligible associations will benefit from obtaining FHA approval.  Regardless of whether there is currently a potential buyer waiting, approval will 1) open the door to a significantly larger pool of buyers; 2) offer owners the ability to market their units as “FHA Approved;” 3) help maintain the property value of homes in the association; and 4) avoid possible legal actions by owners against the board or the association for failing to seek approval.

When should a condominium association begin the application process?

Due to the length of time involved in the application process and the numerous factors that can delay the process, associations that wish to become FHA compliant should start the application process immediately and be careful to maintain their eligibility.

According to HUD, applications are typically processed and a decision reached within four to six weeks.  In my experience, it is often possible to receive an approval within roughly three weeks from the time a complete application is submitted.  However, the exact amount of processing time will depend on the current volume of applications received and the current backlog at HUD.  Regardless, be aware that the application process will take a significant amount of time and cannot be expedited by HUD (yes, even if there is a sale pending and the only thing holding it up is the receipt of FHA approval). 

We can help

Whether you need someone to handle the entire approval process from start to finish, or whether you just need assistance evaluating your association’s potential eligibility, we can help.  In most cases we charge a flat fee, determined up front, for preparing and submitting the application materials and taking care of any necessary follow up with HUD.  For those attempting the application process on their own, we are also happy to act in a consulting role on an hourly basis.  We have significant experience helping condominium associations evaluate their eligibility for FHA approval, identify and deal with potential barriers to eligibility, and successfully obtain approval.  Feel free to contact us with any questions or to get the process started!

Matt McMullin

msm@vf-law.com

503-684-4111, ext. 207

Foreclosures and HOAs: A Bit of Sunshine in the Economic Downpour

Date: August 17, 2011

Written By: Alicia Vial Beesley
Edited By: Jeremy O. Evans

Homeowners and condominium associations everywhere are suffering. People are walking away from their properties and not paying their dues. Those still holding onto their properties are left making up for the deficit of others who are not paying these dues. However, there is a small ray of sunshine among all these gloomy issues.

How did we end up in this mess in the first place?

Due to deregulation of the mortgage industry, banks across the country were able to loan money as mortgages on houses without having to worry about whether or not the person taking out the mortgage would be able to make their mortgage payments. The reason they were able to do this: they could sell mortgages into investment pools before they even lent the money. Then, at the same time the banks sold the loans into these investment pools, they took out insurance, so—even if the mortgagee defaulted—they would still get paid insurance.

When a bank sold a mortgage to another bank/investment pool, they assigned all their interest in that mortgage to the buying party. This reduced the risk to the bank, and therefore reduced the care the bank took to review the credit worthiness of each borrower, because the bank would not have to bear the consequences of a default. The bank got paid commissions for making the loans, they got paid when they sold the loans, and they got paid through insurance when the loans they no longer owned defaulted. What no one expected, however, was a massive wave of defaults resulting in an unprecedented drop in home values across the country.

Now, because of the steady flow of owners defaulting, banks are stuck owning too many homes. A foreclosure takes place when the property is sold at auction. Often, no one bids at the auctions, so the banks end up owning the property. Banks are reluctant to foreclose on more homes while their inventory of foreclosed homes is already high. Properties lay abandoned for years before banks finally do foreclose. While banks wait, the former owners often have no interest in maintaining assessments current, so, it is therefore the HOAs who suffer while the banks wait around to take action.

Where’s the Sunshine?

Challenging the banks is paying off!

An association can obviously try to collect pre-foreclosure assessments from the pre-foreclosure owner. However, under some circumstances, a condominium or homeowner association can also challenge the right of a bank to foreclose. The bank is a much better source of assessments than the foreclosed-upon owner. If the bank serves the HOA with notice of a judicial foreclosure, the HOA should hire an attorney to fight for the HOA’s lien rights. Typically, the HOA lien would be second in priority to a first mortgage holder of record, however, often banks are unable to prove that they actually are the first mortgage holder and—therefore—have no right to foreclose. A non-judicial foreclosure is more common, and it can be challenged as well.

The HOA’s ability to challenge the foreclosures stems from the bank’s use of MERS. MERS stands for Mortgage Electronic Registration System. Certain banks decided it was time to come up with a new system for the digital age, a system that would track all the buying and selling of mortgages, as the mortgages were sold from bank to bank, to investment trusts, etc.

MERS was meant to replace the need to record all assignments of the mortgages in the county records, and did away with proper assigning of the promissory notes. MERS was meant to track the entity that bought and sold individual mortgages, but it did not always do so. Now, when banks foreclose on a property, there is often no way to prove how they came to own the mortgage. All that can be proved is that the foreclosing bank has a document stating that MERS assigned that mortgage to the bank. There are missing links; all the previous assignments of that mortgage are nowhere to be found. As an example: Bank A lends a mortgage on a house and holds the deed of trust and the promissory note. Bank A then sells that interest to Bank B. Bank B sells it to Trust A, Trust A to Trust B, and finally Trust B to Bank C. Bank C then forecloses. The only proof of all these assignments that can be traced is that—at some point—Bank A had an interest and then, somehow, MERS (claiming that it is acting on the behalf of Bank A) assigns its interest to Bank C. Often, Bank A has filed for bankruptcy long ago, so—obviously—it did not have an interest for MERS to assign to Bank C. The chain of ownership is broken beyond repair…

That all being said, the banks know that their gig is finally up. Numerous court cases have been won on behalf of homeowners recognizing the fact that banks are unable to prove their interest in a property and their right to foreclose. Vial Fotheringham is one of the firms taking the position that, if the bank cannot prove its interest in the first mortgage, they have to payoff the HOA lien from before the foreclosure. The title companies are often not willing to ensure title unless the banks clear the recorded HOA liens.

So, while we are all wading through this economic downpour, we can enjoy this one ray of sunshine: The fate of pre-foreclosure dues from an insolvent owner is no longer a necessary write off; there are now other means to collect that money for the HOA. If you have more questions or are in a similar situation, feel free to email us for help at lawfirm@vf-law.com.

How to Keep Board Meetings Under Control: Method and Discipline

Date: July 18, 2011

Written By: Ashley M. Yorra

On the first day of college, in my first class, a professor pounded his fist on the table and yelled, “Method and Discipline, Method and Disciple, that’s all it takes to be successful in college.” While that advice petrified everyone in the class, years later, I find those two elements are all it takes to be successful in almost every situation, including board meetings. It is critical that boards adopt the methods required by the statute for notice, open meeting, parliamentary procedure, and executive sessions; they must also be disciplined in the application of these tools. Consistent use of the proper tools will lead to controlled and manageable board meetings.

First, all boards should properly notice every board meeting, and make sure they are open to all owners who wish to attend. This is critical because it allows owners an opportunity to understand the decisions the board is making for the associations, and allows owners an opportunity to express their points of view to the board. (Note: for Oregon, proper notice is required by law: board members must give owners notice at least 72 hours ahead of time and by a method “reasonably calculated to inform . . . owners of such meetings” ORS 94.640(8); 100.420(3)).

The next method to keep board meetings under control is for the board to run all meetings using parliamentary procedure. Using Robert’s Rules of Order makes a meeting highly efficient. In the past, I have encountered boards that are resistant to using parliamentary procedure because it is hard to learn. I recommend picking up the Dummy’s Guide to Roberts Rules (a truly detailed and helpful publication, not just for “dummies!”), and the board can be running the meeting properly and efficiently in no time.

Another important tool for the board to properly use is executive sessions. An executive session is where the board meets in absence of any owners during a board meeting. An executive session may only be used for discussion of an issue. Remember, any decisions of the board must be made during the open meeting, so—after the executive sessions ends—the board must reopen the meeting to owners. Generally speaking (for all states, but declared specifically by Oregon law), executive sessions are limited to the following situations: (1) employment issues; (2) personnel matters; (3) consultation with association counsel; (4) negotiation of contracts with third parties; (5) collections of unpaid assessments. If there are any other issues the board needs to discuss that are not within the scope of these topics, the board must go back into the open meeting before discussing the issue(s).

These are just a few tools to keep a board meeting running smoothly and under control. Remember, with these methods and the discipline of a board, these few tools will go a long way to keep your board meetings under control, as well as your board in communication with the owners.

Renting Units in an HOA

Date: June 20, 2011

Written By: Michael D. Montag

To some homeowners, the ability to rent out their house or condominium unit is a fundamental right of ownership. To others, living in a community full of renters deprives them of their right to live in a stable community of upstanding, responsible homeowners like themselves. No matter which side of the fence you’re on, if you’re a part of an HOA board, then chances are you’ve heard plenty from both sides of the issue. Chances are even better that you haven’t heard the last from either camp… Rentals within your community association is always going to be a hot-button issue, so it’s beneficial to take a step back and review the information and the handful of issues that could perpetually arise.

There are two categories of rental issues in HOAs: First, whether and how the association will regulate rentals. Second, assuming rentals are allowed, what rights and responsibilities does the association have vis-à-vis the renter?

In general, unless your association’s declaration says otherwise, owners have the right to rent their home. Many owners, however, feel that having too many renters within their community has a negative impact on both livability and property values. Many financial institutions agree, and will not sell or insure mortgages for a house or condominium unit in an HOA that is 75 or 80 percent owner occupied. To comply with those limits, an association can impose a “rental cap;” that is, the association can establish the maximum percentage of owners allowed to rent their home. Because a rental cap infringes on owners’ fundamental property rights, it can only be instituted by amending the association’s declaration. Likewise, any future change to the cap requires an additional declaration amendment.

Once your association has decided to limit rentals, you will need to hammer out the details. If existing rentals already exceed the new cap, the rental restriction amendment will need to include a “grandfather” clause that allows existing rentals to continue. If owner demand for rentals remains higher than the cap, you will need to establish a waiting list procedure for determining which owners are allowed to rent. This is typically combined with a rental application procedure, which provides for the manner in which an owner seeks and receives approval to begin renting their home. It is also wise to include a hardship exception to the rental cap, which permits the board to allow an owner to rent in violation of the cap in order to prevent undue hardship. This situation often arises when an owner is required to relocate for employment, but hasn’t been able to sell their home. Such procedural matters do not substantially affect owners’ property rights, and therefore do not need to be established through declaration amendment. Instead, the board may adopt procedures related to rental by resolution, or include rental guidelines in the association’s rules and regulations.

Another issue for a board to consider is whether it wants to regulate rentals beyond merely the percentage of owners allowed to rent. Most associations choose to require written lease agreements, that those leases last for a minimum of six months or a year, and that owners provide tenants with all association governing documents. Others, however, take this type of regulation to a higher level. These associations require tenant background checks and credit checks, seek to exclude certain “undesirable” tenants (such as sex offenders), or reserve for themselves the right to evict an owner’s tenant (or to force the owner to do so). While many such regulations may be permissible, they also call into play sets of laws that many HOA boards are not familiar with. Boards should be wary of fair housing and landlord/tenant laws when imposing any sort of tenant screening policies, and should seek legal advice when implementing any such rules or policies.

These issues blend into the second category of problems association boards face when dealing with rentals – what can the association do about so-called problem renters? The answer to this question always comes back to the fundamental rule that the owner is always responsible for what his or her renters do. If a renter incurs a fine for violating an association rule, the owner must pay the fine. If an owner has included as part of the lease that the renter is responsible for paying assessments and the renter fails to pay, the owner is still liable to the association. A good solution is to require owners to provide all association documents to their renters, and to go one step further by including a provision in the lease that requires the renter to abide by all association rules and regulations. That way the owner has some recourse if their renter causes problems. Most owners want to protect their investment, and—when they start receiving bills for fines caused by their renter’s misdeeds—will spring into action. If the owner is reticent and fails to pay the fines, the association can collect them in the same manner as any other assessment, and ultimately may be able to garnish the rent the owner collects.

An article detailing the unique issues surrounding rentals within HOAs could go on for pages and pages. A basic understanding of those issues, however, can help a board know what to look out for, and when to ask an expert for guidance to avoid a serious problem.

Guidelines for Effective Rules and Regulations in a Community Association

Date: June 20, 2011

Written By: Ryan D. Harris

A tool all community associations may access to protect the peace, quiet, and aesthetics of the community is rules and regulations. Almost all associations’ governing documents give the board of directors (or a rules committee) the power to pass rules. Even without that authority in the documents, both the Oregon Planned Community Act (ORS 94.630) and the Oregon Condominium Act (ORS 100.405) give associations the power to regulate use of the common areas or elements. That being said, association rules are often a double-edged sword. Clear rules that address real problems within the association can go a long way to promoting a sense of community and preventing owner conflicts. Unclear rules, in contrast, may themselves result in conflict as owners fight over the meaning of the rules. Deficient rule may be worse than no rule at all…
As a lawyer, I’m frequently asked to review homeowners association rules and regulations. Below are some recommendations I have for board members as they try to draft rules for their community:

1. Pass Rules that Comport with Your Governing Documents
The board of directors usually has great flexibility to pass rules it feels are appropriate. Nevertheless, the board should make sure it has the power to pass a proposed rule before adopting it. The board should identify authority in statute or in the association’s governing documents supporting its authority to adopt a rule. Rules cannot conflict with the association’s governing documents; for example, the board can usually clarify ambiguous terms in the documents, such as defining a “commercial vehicle.” However, if the association’s declaration requires owners to install cedar shake roofs, the board cannot allow composite roofing by rule —it must pass a declaration amendment to effect the change.

2. Adopt Clear Rules
Good rules are not vague or too discretionary. Your association’s rules should set out clear standards that the board can apply easily and uniformly over time. Words like “reasonable” or “regularly” may be used, but should be avoided if possible.

3. Use Terms Consistently
Well-drafted rules avoid using one word to reference two separate things, or two words to refer to one thing. Common problems include interchanging or inconsistently employing the words “tenant,” “resident,” and “owner.” Rule-drafters also frequently interchange the terms: “visitor,” “invitee,” or guest” for one another. If “visitor” and “guest” refer to the same thing, then pick one term and stick with it; if they mean different things, then define each term at the beginning of the rules so that owners know the difference. I would recommend avoiding the term “invitee” all together, as it has a specific legal meaning that you probably do not intend.

4. Eliminate Discretion
It’s hard to foresee every possible problem before it arises. In an attempt to solve this problem, boards will sometimes enact vague rules that give the board broad discretion to determine whether a violation has occurred. However, rules that leave everything to the unfettered discretion of the board do not provide owners with adequate notice or guidance about what behavior is prohibited. Discretionary rules also leave the board open to attacks about favoritism and bias. If at all possible, do not leave standards to be determined by the board in an ad hoc manner.

5. Don’t Go Overboard
Good rules are not overly complicated. Let’s face the facts: most owners do not read the association declaration or bylaws. Therefore, they probably aren’t going to read the rules you adopt either and—if they do read them—they will most likely only read them once. Your rules should not be so complicated that the owner needs a law degree to decipher their meaning. Simple, straightforward rules in plain English are the easiest to enforce.

6. Make Rules Available
Secret rules are not legally effective. You’re association’s rules need to be circulated to the members to be effective. The board should also be aware that rules are not recorded, and so owners who move into the association after the rules are passed will not have a copy. The board should ensure that these new owners are provided a copy of the rules shortly after move-in. It’s also a good idea to make rules available online.

Note: The general recommendations are applicable for most states, but for Washington, Utah, and Idaho specifics (statutes), please email lawfirm@vf-law.com with your request!