HOAdvisor

Foreclosure Mess

2012-01-05T13:04:00.000-08:00

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

By: Alicia Vial Beesley

Date: December 15, 2011

Recently, Nevadahas taken action to remedy their state’s foreclosure mess; will Oregon step upto the challenge? Despite the fact that [earlier this year] the federalgovernment attempted to punish large banks for continuing the practice of robo-signing,it had little affect on their practices. The law Nevada passed now makesit a felony to carryout robo-signing, forcing banks to get the properdocumentation together before going through a foreclosure. Since this law wentinto effect, Nevada foreclosures have slowed dramatically. Will this example beable to influence other areas of the country?

Oregon hasbeen one of the states hit hardest with foreclosures. There are still thousandsof homes in default, where foreclosure processes have not even begun. The inabilityof the banks to handle these mass amount of defaults is clear as they continueto make the mess worse by foreclosing on those legitimately trying pay and holdonto their homes, while simultaneously ignoring their ability to takeforeclosure action on the numerous abandoned homes (sometimes left unattendedfor years). The entire situation is complicated by the fact that the OregonCourts have failed to implement a clear interpretation of the Oregon Trust DeedAct, leaving banks and title companies uncertain on how to proceed withforeclosures.

In Oregon,it appears legislation will not solve the foreclosure problems any time soon. Alleyes now look toward the case Rebecca Niday v. GMAC Mortgage, LLC, which theappellate 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 additionto the sheer number of foreclosures, those that held onto their homes are alsoundergoing hardship, with home prices continually driven down across thecountry and Oregon among the leaders of this trend. How does this affecthomeowner associations? In this situation, those among HOAs are seeing more andmore abandoned properties sitting for years without any action to foreclose bythe banks. When the banks fail to foreclose, the remaining association membersare forced to pay more in order to make up for those owners that have abandonedtheir property; they are responsible for the assessments until a foreclosuresale is held. The longer the banks wait to foreclose, the more the propertyvalues 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 anattempt to collect; there is often a solution, so all avenues should beexplored. There may even be a chance to collect dues from the ones who havecaused a lot of the mess: the banks them selves.

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

FHA Approval for Condominiums

2011-10-01T11:41:00.000-07:00

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 ofFHA approval for condominiums. Iget phone calls on an almost daily basis from board members and managers whoare curious, confused, or confounded by all the recent changes to the FHAapproval process. To helpalleviate some of this confusion, I felt it would be helpful to provide a briefoverview of the approval process itself, clarify recent developments in thisarea, and address a few of the common questions that owners, board members, andmanagers have been asking.

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

For those unfamiliar with the background and recent newssurrounding FHA approval for condominiums, here is a [very] brief overview: TheFederal Housing Administration (FHA) is a government agency that providesmortgage insurance on loans made by FHA-approved lenders and is a subdivisionof the US Department of Housing and Urban Development (HUD). During 2009, HUD published a series ofnew guidelines that dramatically changed the FHA approval process forcondominiums. The most significantchanges were as follows:

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

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

3) The details of the application process itself, the exacteligibility requirements that condominiums must meet, and the requireddocumentation that must be submitted with applications have all changedsignificantly.

All projects approved under the old guidelines have eitheralready expired or will expire in the very near future. You can check the following website toverify whether your condominium is FHA approved, and if so, when the currentapproval 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 firstunderstand a bit about FHA financing. The Federal Housing Administration (FHA) itself does not issueindividual loans to borrowers. Rather, the FHA agrees to insure certain loans that, in turn, allow thelender to offer a better deal to borrowers. Because the loan is FHA-insured, the lender has less riskexposure and can typically offer lower down payments (as low as 3.5% of thepurchase price, as opposed to 20-25% down for most conventional loans), lessstrict credit qualification criteria, and (often) lower closing costs. A growing number of buyers are turningto FHA loans, either because they currently cannot qualify for traditionalfinancing, 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 potentialhomebuyers. According to recentreports, the FHA’s share of new loans increased from 7% in 2007 to 37% in 2009and 36% in 2010 (Federal Financial Institutions Examination Council pressrelease, September 22, 2011). Inshort, this means that a condominium that is not FHA-approved is limiting itspool of potential buyers by more than one-third of the market.

What factors might prevent a condominium association fromobtaining approval?

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

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

2. Pending or recent special assessments – not an automaticdisqualifier, but a major red-flag that must be disclosed and adequatelyexplained.

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

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

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

6. Delinquent assessments - no more than 15% (20% if certainother 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 usedfor commercial purposes.

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

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

Please note that the above list is merely a summary of a fewof the major factors involved in determining a condominium project’seligibility. Numerous othercriteria may also come into play and must be evaluated. Feel free to contact us if you havespecific questions relating to the potential eligibility of an individualproject.

What recent changes should I be aware of?

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

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

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

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

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

3. “The submitter has no knowledge of circumstances orconditions that might have an adverse effect on the project or cause a mortgagesecured by a unit in the project to become delinquent (including, but notlimited to: defects in construction, substantial disputes or dissatisfactionamong 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 agreesthat the submitter is under a continuing obligation to inform HUD if anymaterial information compiled for the review and acceptance of this project isno longer true and correct.“

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

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

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

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

Will there likely be any additional significant changes tothe application process?

Yes… I recentlyreturned from a training conference in Santa Ana where I spent two full daysdiscussing the gritty details of the FHA approval process with both thenational HUD officials who wrote the new FHA guidelines, and the local HUDstaff that actually reviews the applications submitted for approval. We discussed recent changes to theapplication process and the approval/eligibility requirements, as well asadditional anticipated changes that are in the works and will be implementedover the coming months and years.

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

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

How can an association obtain FHA approval?

Associations can obtain FHA approval in one of twoways. One option is to workthrough a lender if the association already has a potential buyer of a unit topush the process forward. Certainlenders are eligible to certify condominium associations under the DirectEndorsement Lender Review and Approval Process, or DELRAP. Under this process, the association orits manager supplies the necessary documentation and information to the lender,who then reviews and processes the application materials. Fees and approval processing time varyby lender.

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

Due to the complexity of the application process and theheadache of dealing with government agencies, many associations choose to hirean experienced attorney to assess their eligibility for approval, review theirgoverning documents for FHA compliance, assemble and review the necessarydocumentation, and submit the application to HUD.

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

When should a condominium association begin the applicationprocess?

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

According to HUD, applications are typically processed and adecision reached within four to six weeks. In my experience, it is often possible to receive anapproval within roughly three weeks from the time a complete application issubmitted. However, the exactamount of processing time will depend on the current volume of applicationsreceived and the current backlog at HUD. Regardless, be aware that the application process will take asignificant amount of time and cannot be expedited by HUD (yes, even if thereis a sale pending and the only thing holding it up is the receipt of FHAapproval).

We can help

Whether you need someone to handle the entire approvalprocess from start to finish, or whether you just need assistance evaluatingyour 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 andtaking 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 helpingcondominium associations evaluate their eligibility for FHA approval, identifyand deal with potential barriers to eligibility, and successfully obtainapproval. Feel free to contact uswith any questions or to get the process started!

Matt McMullin

msm@vf-law.com

503-684-4111, ext. 207

Owner Assessments Video

2011-09-20T15:40:00.001-07:00

Foreclosures and HOAs

2011-08-17T10:00:00.000-07:00

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.

Board Meetings Control

2011-07-18T11:00:00.000-07:00

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

2011-06-20T09:58:00.000-07:00

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.

Effective Rules and Regulations

2011-06-20T09:30:00.000-07:00

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!

Media Alert: House Bill 104

2011-06-17T11:06:00.000-07:00

Media Alert: House Bill 104
June 16, 2011
Where the Registry Can be Found

On June 16, the State of Utah Department of Commerce released a Media Alert regarding the new online Utah Homeowner Associations Registry (a result of 2011 legislative-passed House Bill 104). For the benefit of our local Utah communities, we are passing on this information. Please view the Department of Commerce's release here for full details: Utah HOA Registry Alert.

Also, the new HOA/COA online registry can be found at this link: House Bill 104 Registry.

We encourage everyone to take a minute to view this information, and do not hesitate to contact either of our Utah offices if you have any questions or need assistance!

SLC Area:
Email: phh@vf-law.com
Phone: 801.355.9594

Southern Utah:
Email: bcj@vf-law.com
Phone: 435.656.8200

Idaho's FREE HOA Handbook

2011-05-02T11:43:00.000-07:00

Idaho's HOA Handbook Now Available, for Free!

Idaho's Official Board Guide: Records and Resources

NW HOA Law Center

May 1, 2011

The Boise office of Vial Fotheringham LLP is proud to announce the arrival of its new publication for Idaho association boards. "The Official Board Guide: Records and Resources" is a collection of legal advice on topics like governing documents, minutes, and running board and annual meetings in Idaho. It is housed in a recognizable, three-inch, orange binder that is large enough to hold our resources and your copies of important documents.

There has not been any single legal resource for associations and board members in Idaho up until now. Based on Idaho law and association practices, as well as their collective decades of community association experience, the attorneys of Vial Fotheringham have put together this straight-forward, easy-to-read legal advice to help board members during meetings and all of their decision making processes.

To receive one of these complimentary Official Board Guides (also known as the big orange binder!), Vial Fotheringham is happy to offer one free copy to each association board. Please give us a call at (208)629-4567 or email boise@vf-law.com to see if you qualify.

HOA Liens in Utah

2011-04-27T15:57:00.000-07:00

NEW HOUSE BILL: Enforcing Community Association Liens in Utah

Written By: Carson B. Bagley

Date: April 27, 2011

Effective July 1, 2011: Utah homeowner and condo associations must comply with a new registry, or they will be unable to enforce their liens

As of this May, community associations in Utah will need to take additional steps to ensure the enforceability of their liens at closing. This new development is incredibly important to note, as being able to record a lien against a lot or unit is vital for HOAs to collect outstanding assessments, and may be the only way for the association to receive the money it is owed.

In the past, associations have been able to enforce their liens and get paid at closing on a sale of a unit/lot without much trouble. However, in the 2011 Utah legislative session, certain changes were made that impact all Utah community associations in reference to enforcing liens. Under House Bill 104 (“H.B. 104”), sponsored by Representative Curt Webb, homeowner and condominium associations are now required to register with the Department of Commerce (in addition to being registered with the Division of Corporations). All associations must be registered by July 1, 2011. During any period of noncompliance with this new requirement—including not keeping the registration information current—a lien for nonpayment of common expenses may not arise, nor can the association enforce a previous lien.

Under the new registry with the Department of Commerce, associations are required to provide the following:

*The name and address of the homeowner or condominium association

*The name, address, and telephone number and—if applicable—email address of the president of the association

*The name and address of each management committee member

*The name, address, telephone number, and—if the contact wishes to use his email or facsimile transmission for communicating information—the email address or fax number [as applicable] of a primary contact person who has the information a closing agent needs in connection with the closing of a unit/lot, as well as the financing, refinancing, or sale of the owner’s unit

*A registration fee not to exceed 37.00

*The lien payoff information within five (5) business days of a closing agent making proper request for the same, or the lien is not enforceable at closing

Members of homeowner and condominium associations know and understand the importance of being able to lien real property in order to collect past-due assessments; therefore, the requirement to register in this additional location [and keep the information current] is of vital importance. Also, please note: H.B. 104 prohibits associations from charging a fee for providing payoff information needed for closing on the sale of a lot/unit, unless the fee is provided for in the declaration; this fee may not exceed .

Please contact our firm, Vial Fotheringham, for assistance in complying with H.B. 104, or for any additional information and detail regarding the most recent legislative changes that impact community associations in Utah.

Salt Lake City Area: 801.355.9594
Southern Utah: 435.656.8200
lawfirm@vf-law.com
www.vf-law.com

Unpaid fees in HOAs

2011-04-20T09:25:00.000-07:00

Published: Monday, April 18, 2011,
By Jeff Manning, The Oregonian

Another symptom of the downturn: Unpaid fees at housing associations

Leland Jaquay, a gregarious 32-year-old, loves his role as president of the Fairview Terrace Homeowners Association.

For most of his stint on the Fairview board, the issues were generally minor, mainly stemming from "the three P's," as Jaquay shorthands it, the pool, parking and dog poop. That allowed Jaquay to concentrate on what he liked most: the barbecue, the casino night and other social events that helped the east-Multnomah County development build a sense of community.

"I feel like I'm mayor of a small town," he said.

But in recession-plagued 2011, the problems are deeper and grimmer.

Fairview, like homeowners associations all over the state, is enduring a financial storm brought on by the economic slump and housing bust. Hard-pressed residents are not paying their HOA dues in numbers that professional condo managers say they've never seen. The delinquencies are depriving associations of a crucial revenue stream and forcing some to defer maintenance or levy special assessments on the paying neighbors to make up the shortfall.

Fairview has increased its monthly HOA dues from $175 to $260. Yet it's not been nearly enough to cover the shortfall, which now exceeds $180,000. Jaquay's association, like many others, has chosen to file collections lawsuits against its own members and former members.

"Its something that I'm learning: to try and sue someone, to garnishee their wages," Jaquay said. "It's sad, very sad. When you see someone losing their home, bringing in the moving men, you ask yourself where are they going. I'm sure it will affect them the rest of their lives."

HOA dues hit a growing number of Oregonians as they moved into condos and townhomes and other planned communities. Nationally, just over 2 million people lived in communities governed by homeowner associations in 1970. By 2010, the number was 62 million.

The creation of these instant villages inevitably leads to tension as neighbors bicker over noise, pets, kids or that obnoxious battleship-size RV parked on the street. Throw in a nasty recession, job losses and pay cuts that led to widespread HOA delinquencies, and the little villages start to resemble war zones.

The associations are governed by volunteer boards, often assisted by professional managers. The monthly dues are intended to cover maintenance and repair of common areas such as swimming pools, landscaped areas and clubhouses. In condos and townhomes, the dues, which generally range from $200 to $500 a month, cover larger repairs such as new roofs and siding.

Even before the recession, HOA boards had serious issues to consider. Many have had to sue the developers and builders of the project to cure water damage and other problems brought on by construction defects. For many associations, such as Jaquay's, the HOA delinquency issue comes on the heels of an expensive legal battle over construction problems.

"We've got some HOAs suffering 5 percent to 40 percent delinquencies" on their association dues, said Karna Gustafson, a Portland attorney whose firm represents more than 1,000 associations. "What ends up happening is all these delinquencies have to be split up among the homeowners who are paying, so it increases their fees. Then they can't afford it and they go into default. It's like a domino effect."

Lawyers such as Gustafson and the Vial Fotheringham firm in Tigard, which also specializes in representing homeowner associations, have had to become debt collection specialists, pursuing delinquent homeowners for their HOA clients.

Rich Vial said his firm's collections cases have soared from 632 in 2009 to nearly 3,000 today.

Developer owes

The lawsuits can be painful, obviously, pitting neighbor against neighbor. But it's not always cash-strapped homeowners who renege on their HOA dues.

Residents of the Hunters Ridge development in Sherwood are facing a shortfall of more than $182,000. The Hunters Ridge association claims most of that sum, about $140,500, is owed by a company controlled by J. Patrick Lucas, the real estate developer who built Hunters Ridge.

Lucas leased the various commercial spaces in the Hunters Ridge development to a mortgage company, a chiropractor, insurance agent and other businesses. The association filed liens against Lucas' company in an unsuccessful effort to collect.

Lucas, in an email, said his partnership, Sherwood Crossing LLC, "entered into a settlement with the HOA and our lenders and the matter is behind us."

John Carswell, of the Hunters Ridge association board, said while the association has settled a construction defect lawsuit against Lucas' company, it has not settled the dispute of the HOA dues. The association is still mulling its options. "It may be a dry hole," Carswell said. "Do you really want to risk throwing good money after bad?"

The impact of unpaid HOA dues goes deep. Fannie Mae and Freddie Mac announced a year ago that it would no longer buy mortgages on the secondary market involving homes in associations suffering HOA delinquencies of 15 percent or more.

Absent a willing buyer on the secondary market, many banks are unwilling to lend money to buyers wanting to buy into the developments. The Federal Housing Administration has declined to make new loans for would-be homebuyers in associations with more than 15 percent delinquencies.

Some argue that those lending restrictions have contributed to the crushing depreciation of condos and townhomes, which has been worse than the 25 to 30 percent average price declines suffered by single-family homes in Oregon.

Doug Farrell, a resident of the Rockwood Village development in east Portland and former president of its HOA, said a 1,200-square-foot unit at Rockwood sold for $165,000 before the recession. After the housing bust and foreclosure wave, vacant Rockwood units have sold for as little as $35,000.

Those were distressed sales, and the actual market value of the Rockwood units may be well more than that. But Farrell, 73, fears that the $55,000 he still owes on his unit may be more than its worth.

"We're underwater," he said. "This house was supposed to fund our retirement."

In Sherwood, Carswell figures, the Hunters Ridge units could sell for close to their original value in nondistressed situations. But units that came on the market via bank short sales or foreclosure auction have sold for as low as $72,000, less than half the original asking price.

"Ghost foreclosure"

The foreclosure issue is particularly frustrating to HOA volunteers. Homeowners faced with the threat of foreclosure might simply walk away from their homes, and obviously stop paying the HOA dues. When banks repossess a condo or townhome unit, they generally are good about paying new HOA obligations as they come due.

But in many cases, the bank or servicer chooses not to proceed with foreclosure for months or even years. The result is what HOA officials call a "ghost foreclosure." The owner is long gone, the bank refuses to step up and take possession, and the HOA dues go unpaid as the home sits in limbo.

"The pending foreclosures really drive me crazy," Jaquay said. "The banks delay and delay, and we're getting nothing for months and months."

Gustafson got a bill introduced in the Legislature that would give homeowners associations some relief. Senate Bill 300 would give associations in certain circumstances the right to step ahead of banks and collect six months of HOA dues from foreclosure sale proceeds. But the bill has yet to get a hearing and appears dead.

Jaquay said the banks need to take into account the HOAs' concerns. The associations are, after all, paying to maintain property that the banks have an interest in.

For all the issues that Jaquay is dealing with, he remains defiantly optimistic about Fairview and willing to face whatever battles lie ahead. "My lawyer calls me the Winston Churchill of HOA presidents," he said.

Association Transfer Fees in Idaho

2011-03-15T13:39:00.000-07:00

Association Transfer Fees in Idaho: Transfer Fee Bans

Date: March 15, 2011

Written by: Jeremy O. Evans

On March 8, the Idaho Senate sent an act restricting deed-based transfer fees to the House. To those of us following association law, this looked a lot like the contested federal lending restrictions that the FHFA is currently considering for fees found in declarations. (FHFA Transfer Fees Resource Page.) Is this new act a rematch of the federal fight in a state-based setting?

Fortunately, it appears that the victories won at the federal level by CAI (a non-profit, pro-association group) and other groups have resulted in accommodations to associations at the state level, even here in Idaho. As a result, Idaho associations will not have to repeat the same fight. They will be excluded from application of the rule, and—with a little careful review of their documents—can be sure they will not be affected. A brief summary follows of 1) The FHFA proposed federal lending rule; 2) Idaho’s proposed law; and 3) Five practical tips for Idaho associations and managers in light of Idaho’s new law.

Transfer fees can represent important income for associations. They help defray administrative costs involved with enrolling new members to the association, make important contributions to reserve accounts, pay management companies for their services, or otherwise help stabilize a budget. Associations have just right to be concerned by threats to this income.

The Federal Housing Finance Agency, or FHFA, regulates all federal funding of mortgages by determining which mortgages may be purchased by entities like Fannie Mae, and those that may be bundled into securities. In so doing, the FHFA can determine which properties are marketable, and which are not. If a property cannot be mortgaged by federal funds, its value drops, because few people buy homes without federal loans. Last year, the FHFA proposed a regulation that would have prohibited the purchase of a mortgage of any property with a deed-based transfer fee.

The intent of the FHFA regulation was to discourage third-party transfer fees. For example, a developer could encumber each parcel of her property with an obligation to pay a fee to herself or to some third party any time the property sold in the future. These obligations could then be packaged and securitized, much like the notorious high-risk mortgages that caused the U.S. housing crash. This would create a stream of revenue for the developer or security-holder unrelated in any way to ongoing benefits to the property. In some cases, these obligations were not recorded or otherwise disclosed to potential purchasers, causing unforeseen problems for real estate and financial professionals at closing. This practice, in the view of the FHFA, is unsound.

Unfortunately, one way to create these disfavored third-party obligations is through an obligation recorded on a deed. At first glance, this obligation may look very much like the declaration creating an association; the original proposed FHFA rule did not distinguish between the two. Although the intent and impact of association transfer fees are not at all like the investment schemes targeted by these laws, associations can be equally affected by any broad prohibition on deed-based transfer fees.

CAI and some four thousand other individuals or entities commented on the proposed FHFA rule. In response, during January of this year, the FHFA clarified that properties subject only to association transfer fees would not be impacted by their proposed rule. The FHFA recognized that association transfer fees increase property values, result in lower regular association dues, create a more desirable community, and can serve a beneficial purpose when used for capital improvements and repairs. The revised FHFA proposal specifically defines an “excepted transfer fee covenant” to mean “a covenant to pay a private transfer fee to a covered association that is used exclusively for the direct benefit of the real property [so]encumbered…” [Proposed 12 U.S.C. §1228.1]http://www.fhfa.gov/webfiles/19667/PrivTransFeeNPR020111.pdf FHFA also recognized that many states have already implemented private transfer fee prohibitions, and left room for these laws to operate.

Idaho law champions the importance of the free use and transfer of property, at times to the detriment of declaration-based associations. So, it was no surprise that only months after the revised FHFA notice was released, the Idaho Senate passed a bill to create Idaho’s first private transfer fee prohibition. The new Idaho legislation begins by emphasizing that, “the public policy of this state favors the transferability of interest in real property free from unreasonable restraints…” Idaho does not have a common-interest ownership law for homeowner associations, or protections found in other states so, a reader of the Idaho legislation would be justified to worry that the Legislature might not recognize the value provided by associations.

However, Idaho’s new law would clearly exempt most association-imposed transfer fees from regulation. The law recognizes the existence of “associations” created pursuant to a declaration. It explicitly excludes from the law:

“Any provision of a document requiring payment of a fee or charge to an association or any entity that operates for the benefit of the association, its members or property of the association or its members to be used exclusively for purposes authorized in the document, so long as no portion of the fee is required to be passed through to a third-party designated or identifiable by description in the document or another document referenced therein.” I.C. 55-3102(f) (S.B. 1123)

Obviously, while not following the exact model of the FHFA’s rule, Idaho’s legislature was also concerned about the same third parties benefitting from transfer fees. Fortunately, Idaho’s legislature was also savvy enough to adopt the post-comment period approach that the FHFA took to association-based fees. Clearly, the legislature did not intend to prohibit the enforcement of association transfer fees, but felt some need to prevent associations from being used as pass-through mechanisms for third-party investors.

Lastly, it should also be noted that the Idaho law would only prohibit transfer fees from being recorded after the enactment date of the law. In addition, it appears that no new liens may be filed on pre-enactment covenants for transfer fees. Therefore, any attempt to enforce older transfer fee covenants that are covered by the law would result in civil liability. To avoid liability, these transfer fee covenants must fit within the exception included in the law. This suggests a number of prudent steps for associations in Idaho to consider at this time:

1) Review governing documents to verify there is no language in them that might be considered a banned “transfer fee” under the legislation. A litigious owner may be able to take advantage of that language to make collection efforts difficult or impossible.

2) Review contracts with third parties. Verify that contracts reflect the specific language of governing documents, and that they do not unintentionally create a “third-party” beneficiary to the transfer fee covenant.

3) Managers are especially aware of transfer fees. Review manager’s contracts to verify that transfer fees are used only for “purposes authorized in the document [meaning Declaration].” Update contracts if needed.

4) Also, if needed, amend governing documents before the enactment of this new law [if possible] to avoid any “near miss” situations where careless provisions create unnecessary litigation.

5) Keep an eye on legislative developments, whether it is through our informational Vial Fotheringham Resource Page, Community Association’s Institute (CAI)’s website, or the Legislature’s online “Bill Center." While associations have some favor with legislators and rule makers right now, a minor amendment to these laws or rules could inadvertently limit association access to an important source of funding.

Also, should you decide your association needs help, our Boise attorneys at Vial Fotheringham are ready to assist you with the action best suited to the wellbeing of your community.

Meeting Organization and Procedure

2011-03-01T14:36:00.000-08:00

Date: March 1, 2011

By: Greg Coxey, Attorney

In a homeowner or a condominium association, the decisions are made in meetings. It is important to understand the role that meetings play in the overall administration of an association, as well as what the rights and duties are for the owners and directors at these meetings.

First of all, it is crucial to remember that there is a difference between an owners meeting and a board of directors meeting. Owners meetings typically occur once a year; this is called the “annual meeting.” Here, owners vote to elect a board of directors that will run the association for the next term. Owners can make motions and then vote on them, assuming that the owners have been given the right to vote by their governing documents. It’s important to note that if the board is allowing owners to vote on items that are exclusively within the board’s control, the board may be breaching their fiduciary duty to the association. There are certain occasions when a “special meeting” of the owners is called when it is necessary to do so; however, a special meeting is only necessary if the owners have an issue that they can vote on… Most of the time the Board can allow owners to discuss items at an “open forum,” either at the beginning or end of a board meeting.

Board meetings are meetings that are held so the board can conduct business. These meetings can be both regular and special meetings. Board meetings are typically open so that the owners can attend. However, because the decision making body is the board, owners do not have the right to speak at the board meeting; the chair may choose to allow the owners to speak, but it is not an absolute right. In fact, if an owner is unable to refrain from interrupting the board meeting, the board may have the owner removed. Also at these board meetings, the directors make decisions in the best interest of the association, as they are authorized to do by statute and the governing documents.

For both kinds of meetings it is important to review the governing documents and relevant statutes to make sure that both kinds of meetings are conducted in an appropriate manner. Meeting notice requirements must be met and for each meeting, and there must be a “quorum” met in order to conduct business. Minutes must also be taken, which are an important record of the motions and actions taken at each meeting. Following proper meeting procedures will help associations run efficiently and effectively.

Association Reserve Funding Basics

2011-02-20T14:22:00.000-08:00

Date: February 20, 2011

By: Bruce Jenkins, Attorney

Preparing the annual budget and overseeing the association’s finances are perhaps the most important responsibilities of board members. The annual operating and reserve budgets reflect the planning and goals of the association and set the level and quality of service for all of the association’s activities.

1. PREPARING THE BUDGET
The association’s budget consists of two basic parts, income and expenses. When preparing the association’s budget it is wise to begin with expenses. This allows for an objective statement of needs before determining the sources of income. After the expenses are identified and quantified, ideal expectations may then be weighed against practical considerations and a balanced budget may be prepared.

2. DETERMINING EXPENSES
The budget process begins with an accurate inventory of all the major components for which the association is responsible. Determining what constitutes an operational versus a reserve expense may have a major impact on the financial plans of the association and subjective determinations should be minimized. The following should be considered when labeling an expense:

A. Operational Expenses. Operational expenses occur at least annually and can be effectively budgeted for each year. They are characterized as being reasonably predictable both in terms of frequency and cost.

B. Reserve Expenses. Reserve expenses are major expenses that occur other than annually and which must be budgeted for in advance in order to provide the necessary funds in time for their occurrence. Reserve expenses are reasonably predictable both in terms of frequency and cost. However, they may include significant assets which have an indeterminable but potential liability if they were not reserved for in advance. Examples of reserve expenses include paint, asphalt overlays and roof repair.

C. Budgeting. Budgeting is normally excluded for repairs or replacements of assets which are deemed to have an estimated useful life equal to or exceeding the estimated useful life of the facility or community itself, or exceeding the legal life of the community as defined in an association’s governing documents. Examples include the complete replacement of elevators, tile roofs, wiring and plumbing.

3. PREPARING THE RESERVE STUDY
Once the reserve assets have been identified and quantified, their respective replacement costs, useful lives and remaining lives must be assigned so that a funding schedule can be constructed. Replacement costs and useful lives can be found in published manuals such as construction estimators, appraisal handbooks, and valuation guides. Remaining lives are calculated from the useful lives and ages of assets and adjusted according to conditions such as design, manufacture quality, usage, exposure to the elements and maintenance history.

Certain calculations must be performed on the compiled data in order for the study to take on a practical meaning, ranging from simple to complex methods. The least complicated method is the straight-line approach in which the replacement cost in today’s dollars, less accumulated reserves, is divided by the estimated remaining life of the components.

The association should update the report on an annual basis to reflect such changes as shift in economic parameters, additions of phases or assets, or expenditures of reserve funds. The reserve analysis update process can be simplified by keeping accurate records of these changes throughout the year.

4. DISTRIBUTION OF ACCUMULATED RESERVES
To determine the ideal level of reserves and actual distributions for each asset an evaluation of the second step is to identify the ideal level of reserves for each asset. A calculation of the component’s age proportionate to its estimated useful life and current replacement cost must be made as follows.

IDEAL LEVEL OF RESERVES =
AGE
USEFUL LIFE X CURRENT REPLACEMENT COST

This method of calculating the ideal level of reserves does not consider future replacement cost, nor interest earned on the accumulated reserves. However, it is a general indicator of the adequacy of the Association’s current reserves, based on current conditions and replacement cost. If the reserves are underfunded, the monthly contribution requirements can be expected to be higher than normal.

5. LEGAL REQUIREMENTS
Most Association governing documents require the funding of a reserve. Further, several states now have laws requiring reserve studies.

Reserves are often under funded in the development stage of the project. Developers have competing objectives: first, to maintain low Association dues to entice buyers, but second, to collect sufficient dues to maintain an adequate reserve. Developers may have a fiduciary duty to provide for an adequate reserve.

Association Liability

2011-02-15T12:32:00.000-08:00

Date: February 15, 2011

By: Chris Tingey

Without a doubt, the most common question I am asked as an attorney by my homeowners’ association clients is “What can we do to protect ourselves from getting sued?” My answer is always the same: “Nothing!” In this era of quick-trigger and frequent litigation, there truly is nothing that an association can do to stop itself from being sued. However, it is important to understand that the clients are asking the wrong question. Instead, they should be asking what the association can do to protect itself from being held liable in a lawsuit.

There is, truly, a great deal that associations can do to protect themselves from being found liable in a lawsuit. It is important to determine the sources of potential liability in the association and take protective measures to limit or eliminate the potential liability. Such action may not stop you from getting sued, but it certainly will limit the effectiveness and pain of such a suit. To that end, I offer three basic tips to assist association boards in understanding their liability risks and taking steps to limit it.

1. Know the sources of potential liability.
2. Insurance, insurance, insurance.
3. Be proactive.

First, it is important for association boards of directors to understand the sources or bases of potential liability. For example, does the potential liability arise from a contract to which the association is a party, general principles of tort law, such as negligence, or a statute such as the Planned Community Act or Condominium Act? The source or basis of potential liability often affects many issues involved in a lawsuit, such as insurance coverage, indemnity obligations, and statutes of limitation. In assessing these issues, boards should visit with their legal counsel to discuss their rights, responsibilities, and ramifications of their actions.

Second, association boards should make certain that their association’s insurance coverage is current and adequate. Boards should review their coverage at least annually, and should meet with their broker to discuss their needs. A straight renewal of the existing policies may be sufficient on some occasions, but boards should not simply rely on last year’s insurance in determining this year’s insurance needs.

Finally, association boards need to be proactive in their efforts to limit or eliminate potential liability. Boards should meet with their experts—accountants, reserve study specialists, management team, insurance broker, maintenance team, attorneys, and others—at least annually to gather the information necessary to protect the association’s assets and members. Boards should keep their eyes open about the condition of the common property in the community. They should ensure that the governing documents are being enforced evenly and consistently.

In short, anyone can sue another at any time for anything. Now, whether the lawsuit has any merit is another question. But, association boards can limit or eliminate potential association liability by following the three guidelines discussed above.

We WIN Court Case!

2010-12-03T16:36:00.000-08:00

Vial Fotheringham Wins Major Washington County Court Case!

Press Release

On December 3. 2010, a Washington Circuit Court judge issued an opinion in favor of clients represented by Vial Fotheringham lawyers Kevin Harker and Ryan Harris. The case began when Measure 37 was adopted by Oregon voters in 2004. Harker’s clients filed a Measure 37 claim requesting that land use regulations adopted after the clients’ date of acquisition be waived. Washington County and the State of Oregon approved the claim.

However, in 2007, Measure 37 was modified with the passage of Measure 49. Measure 49 replaced the procedures and criteria for receiving a waiver of land use regulations after an owner’s date of acquisition.

Harker’s clients filed a Measure 49 claim, seeking the same relief requested in the previous Measure 37 claim.

Without adequate justification, the State of Oregon denied the Measure 49 claim.

Harker then filed suit against the State asking for judicial review of the State’s decision. Oral argument was held on November 1, 2010. Harker argued that under Measure 49, his clients were entitled to establish additional dwellings on their property under the land use regulations and criteria in effect at the time of acquisition. The Washington County Circuit Court agreed and ruled in favor of Harker’s clients.

Hundreds of Measure 49 claims have been filed with the State of Oregon with facts and circumstances similar to those of Harker’s client—most have been denied by the State. The Court’s decision in Harker and Harris' case is a victory for the proponents of Measure 37 and Oregonians who are in favor of land use regulations and policies that treat land owners with fairness and reasonableness.

New FHA Guidelines

2010-11-15T15:32:00.001-08:00

The New FHA Guidelines for Condominiums!

NOTE: Updated December 8, 2010

By: Matt McMullin

November 5, 2010

Beginning in June of 2009, the U.S. Department of Housing and Urban Development (“HUD”) and the Federal Housing Administration (“FHA”) proposed, implemented, and modified new guidelines regarding the qualification of condominium projects for FHA-insured financing. These guidelines are highly complex and still evolving, and will likely be subject to further modification and clarification by HUD and the FHA over the coming months and years. Nonetheless, every condominium association should have already evaluated the need for approval, or—if your association is FHA-approved already—applied for renewal, since many current approvals expire during December of this year.

These new guidelines are complex and arduous, and immediately affect the majority of condominium communities. Read on to learn more about these new guidelines, the process, and how it affects your association!

What are FHA loans and why should I care?
The Federal Housing Administration (FHA) itself does not issue individual loans to borrowers. Rather, the FHA agrees to insure certain loans, which—in turn—allows 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 lower closing costs. A growing number of buyers are turning to FHA loans, either because they can’t currently qualify for traditional financing, or simply because they prefer to take advantage of the benefits.

In light of the recent economic and housing mess, FHA-backed financing offers an attractive alternative to your potential buyers. Four years ago, FHA loans made up 1.7% of all residential loans in the United States; however, by the end of 2009, the FHA had insured roughly 30% of all residential mortgages in the United States (Chicago Tribune, April 2010). Even more staggering are recent reports that, in 2010, approximately 50% of all residential mortgages will have been FHA insured (National Association of Realtors, November 2010). In short, this means that a condominium that is not FHA approved is limiting its pool of potential buyers by half.

What does this mean for your condominium association?

The new FHA guidelines have the potential to severely and immediately impact your condo association in a number of ways. First and foremost, under the new guidelines, buyers of condominiums are no longer eligible for FHA-insured loans unless the condominium project—as a whole—has been FHA-approved. In the past, FHA approval could be obtained for loans on certain units under an individual “spot loan” approval process; however, the new guidelines have completely eliminated this process. Now, the entire condominium project must secure FHA approval before any FHA-insured loans will be made to potential buyers of units. Failure to obtain FHA approval may significantly hinder condominium sales by limiting the pool of potential buyers to those who both can and are willing to obtain conventional financing with its much higher required down payment.

Another significant change imposed by the guidelines is that FHA approval will now last for only two years, after which recertification is required. Projects that received FHA approval prior to October 1, 2008 were initially scheduled to expire on December 7, 2010. (Update: Many of those condominiums that were scheduled to expire on December 7, 2010 have received an extension ranging from a few weeks to a few months. However, according to HUD, no further extensions are likely to be granted). This means that numerous currently FHA-approved condominiums will require recertification in the very near future. You can check if your condominium is currently FHA-approved, and when that approval will expire, at the following website: https://entp.hud.gov/idapp/html/condlook.cfm

Condo association boards of directors should seriously consider seeking FHA approval (as soon as possible) for their association as a means of facilitating sales, maintaining property values, protecting the equity investments of unit owners, and fulfilling their fiduciary duties to act in the best interests of the association.

How do I know if my condominium association is eligible for approval?

In order to be eligible for FHA financing under the new guidelines, your condominium association must meet numerous criteria, including, in part, the following:

- All condominium association governing documents must comply with Oregon law
- At least 50% of units must be owner-occupied
- Projects must meet FHA’s minimum insurance coverage requirements for Hazard, Liability, Fidelity, and Flood insurance (where applicable)
- No more than 15% of units may be more than 30 days past-due on assessments
- No more than 25% of the total floor area may be used commercially
- No more than 10% of the units may be owned by any single investor
- At least 10% of the annual budget must be allocated to reserves

Additionally, any pending litigation or special assessments may significantly decrease the likelihood—or [at the very least] slow the process—of obtaining FHA approval. Other additional requirements apply for proposed or under-construction projects, conversions, and manufactured housing projects. (The guidelines listed are a brief overview; please contact an experienced attorney for more explanation and details.)

What is involved in obtaining FHA approval?

Associations can become certified 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. Fees and approval processing time vary by lender and may depend upon the size of the association, as well as company policies.

The second method is for the association to apply directly to the U.S. Department of Housing and Urban Development, 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 process and the headache of dealing with government agencies, it is recommended that associations hire an experienced attorney to review their governing documents, assemble the necessary documentation, and submit the application to HUD.

Most associations will find themselves best-served by obtaining FHA approval, regardless of whether they currently have a potential buyer, in order to 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 obtain approval.

We can help!

This process involves many complex qualifications and steps, can be extremely arduous (especially due to the fact that the process and its details may depend on your condo’s current situation), and will become considerably more difficult if your application is incomplete and rejected. We are able to assist you with this process, to help make the transition stress-free on your community. Initially, we provide you with a questionnaire to help us gather preliminary information and evaluate the likelihood of your association’s eligibility for approval. We then coordinate and facilitate the gathering of the necessary documentation with the manager or board of directors, review the association’s governing documents for compliance with FHA guidelines, and prepare and submit the accurate, completed application to HUD. In most cases, we charge a flat fee of $2000 for preparing and submitting the application. If the association’s governing documents require amendments to comply with FHA guidelines, we can provide this service as well at an additional cost. Feel free to contact us with any questions!

Matt McMullin
msm@vf-law.com
503-684-4111, ext. 207

Governing Documents: A Lawyer's Perspective

2010-10-15T14:34:00.000-07:00

October 15, 2010

By: Kevin Harker

Most homeowner associations are governed by a declaration of restrictive covenants (also known as CC&Rs) and bylaws. Both of those documents typically require a vote of the membership in order to amend. Recently, many homeowner associations are contemplating amending their governing documents, due to the fact that they are outdated, don't address issues particular to the association, or they don't reflect the current state of homeowner association law.

The first step in amending governing documents is to do a thorough assessment of the existing documents. The assessment should include a reading of all governing documents (CC&Rs, Bylaws, Articles of Incorporation, rules and regulations, and the plat) to determine gaps, conflicts, or inconsistencies.

The association must then determine the reasons for any proposed amendments. The association must determine whether the amendment is consistent with governing law, what the voting requirements for the amendment are, the likelihood of the ownership voting in favor of the amendment, and—most importantly—why the amendment is necessary.

There are many reasons for amending the governing documents. Some reasons include: 1) the provisions do not comply with state or federal law; 2) some provisions are ambiguous or difficult to enforce; 3) the documents do not empower the association with authority to fulfill its obligations; 4) the nature of the community has changed and the documents are out of sync; and 5) the association wants to eliminate declarant provisions that are no longer relevant.

If an association embarks on the process of amending its governing documents, it may want to consider amending those documents to reflect changes in the law. Substantive changes in the law that an association may want to include in its governing documents are: 1) rule-making and enforcement procedures; 2) provisions to allow for mail-in ballots; 3) stronger assessment collection policies; and 4) provisions allowing for special assessments in unforeseen emergencies.

Amending governing documents is often a slow process. The association should do its best to solicit input from owners and keep the owners informed of the progress. In addition, the association should seek legal counsel to ensure the amendment is adopted and recorded correctly.

Going Green

2010-10-10T15:16:00.000-07:00

October 10, 2010

By: Greg Coxey

Going Green

Over the last number of years, we have seen policy trends in cities and developments in an attempt to become more “green” as a community. Homeowner associations and condominiums are a prime example, and are recently—as a whole--considering alternative energy sources. In some communities, boards of directors are even receiving requests from owners to install solar panels or use clotheslines instead of dryers. Now, numerous online resources, such as www.caigreen.org, aim to help associations incorporate more environmentally friendly practices in managing their communities. These websites include articles, discussion forums, reports, and programs that suggest new ways to conserve energy, as well as encouragement for associations to protect the environment.

That being said, there are currently plenty of examples from the past few years to show that some associations are still struggling to adopt the current trends, and others are prohibited from becoming more environmentally conscious because of their governing documents. For example, a homeowner association in Minnesota recently rejected an owner’s application to install solar panels on his property because “what was proposed wasn’t aesthetically pleasing in keeping with the standards of the community.” Similarly, a New Jersey homeowner association forced an owner to take down 28 solar panels he had installed only nine months prior. In California, an owner had to turn to suing his association when it would not allow him to install solar panels on top of his house. Also, in Dallas, an association sued an owner who installed solar panels in violation of the association’s restrictive covenants.

Generally, associations may restrict owners from installing solar panels and other green devices if the governing documents do not allow for them. However, some states, including California, Arizona, Florida and Colorado, currently have laws that do not allow associations to prohibit the use or installation of energy-conserving devices outright. Rather, such restrictions are only valid as long as they are reasonable. For example, Colorado’s “HOA Bill” provides that reasonable aesthetic restrictions are allowed if they do not significantly increase the cost of the device, or significantly decrease the device’s efficiency. As a result, even in those states with solar rights laws already in place, associations still retain some control over which devices may be installed or used.

If you are an owner who is considering an alternative energy device, or you are on the board and have received a request to install an alternative energy device, a thorough review of the association’s governing documents must be done in order to evaluate what the association can and cannot approve. If you are in an association with prohibitions on alternative energy sources, you may want to consider amending the documents to provide for such devices.

Last legislative session, a bill was introduced that provided for an override to prohibitions in governing documents of alternative energy sources. However, the bill was opposed because it was too broad. With that being said, because going “green” is gaining more and more popularity, it is likely that we will continue to see legislation introduced that will provide for alternative energy sources.

Fee or Tax?

2010-09-20T09:51:00.000-07:00

FEE OR TAX?
An Article Featured in CAI National's "Common Ground" in September 2010

Question:
A state statute in Oregon prohibits local jurisdictions from passing a real estate transfer tax, yet HOAs are passing real estate transfer “fees” that have grown to be substantial, often 1 percent of the sales price and certainly more than required to cover any administration costs that might be involved in a title change. When does a real estate transfer “fee” become a real estate transfer “tax”?

—Tigard, Oregon

Answer:
Community associations in Oregon are not considered governmental entities. Thus, any Oregon state statute prohibiting local jurisdictions from passing transfer fees or taxes would not apply to community associations.

Some association governing documents authorize the association to charge a transfer fee (sometimes called a “capital contribution fee”) when a new owner purchases property in the community. Often, these transfer fees pay for administrative costs incurred by the association, such as copying governing documents, providing keys to recreational facilities or adding the owner’s information to the association’s records.

A number of governing documents charge a fixed transfer fee, while others charge a percentage of the closing price of the property. In any case, transfer fees can provide a valuable source of revenue for associations to offset administrative costs. In recent years, many associations have relied on transfer fees to remain financially solvent, especially when their governing documents place a cap on assessment increases.

However, market slowdowns can quickly reduce income from transfer fees. It can be risky to count on that income when preparing annual budgets.

Transfer fees have attracted a lot of attention lately, especially from Realtors who argue that transfer fees hurt associations by scaring potential buyers away. Transfer fees that beyond the cost of reasonable administrative costs may be viewed as disingenuous.

There are some states that have passed, or are considering, prohibitions on transfer fees in community associations. However, in jurisdictions such as Oregon where there is no legislative prohibition on transfer fees, community associations are legally authorized to collect transfer fees as long as that authority is granted in the governing documents.

—Richard Vial and Kevin Harker, Vial Fotheringham

The Other Foreclosure Threat

2010-08-15T15:30:00.000-07:00

By: Michael Montag

August 15, 2010

When an HOA levies assessments, it counts on being able to collect the money from every owner. It’s a reasonable assumption – both condominiums and planned communities have the power to collect both assessments and any costs incurred while chasing an owner who does not pay. Associations also have a lien on a debtor-owner’s property and make the owner personally liable for the assessments, even after foreclosure. When an owner becomes delinquent in their assessments, associations need only invoke their collections procedures to pursue collection.
But what if the owner just doesn’t have any money? With the poor economy and the tumble in the real estate market, more and more HOAs are facing situations where an owner owes a large sum to the association, is on the verge of bankruptcy or is bankrupt, and owes more on their home than the home is worth. Many of these owners’ mortgages are in foreclosure, so they simply stop paying their HOA dues while the bank goes through the motions. Unfortunately, the foreclosure process can take months and a large debt can accrue. If the owner didn’t have equity in their home, even the foreclosure sale won’t make the association whole. Even though the owner is still personally liable to the association for their debt, often times the now-former owner just doesn’t have any money for the association to collect.
When the board determines that a debt is uncollectible, it has the power to write it off. Naturally, though, this creates a shortfall in the association’s income. When an association has a financial shortfall, it has one place to turn to raise the money it needs – the owners. For that reason, when some owners fail to pay their assessments, the remaining owners bear the burden. With the ongoing foreclosure “epidemic,” many HOAs are finding themselves writing off more unpaid assessments than ever before, and the owners who are paying are starting the notice the additional burden falling to them.
There are a few things a board can do to minimize the impact foreclosures and other delinquencies have on the HOA’s bottom line and to reduce the risk the board will have to pass the hat to the other owners to make up for shortages. First, make sure you have a collections resolution and are actively pursuing owners who are delinquent. Then, carefully go through your budget and eliminate unnecessary items. Although you shouldn’t forgo necessary maintenance and repairs, now may not be the time to install a new swimming pool. Next, evaluate your accounts receivable. If you already have a number of delinquent owners, or know of several homes in foreclosure, it’s likely you will have a shortfall in assessments. Third, go back to your budget, and adjust your expected income. If after scrutinizing both your expenses and your income you still have a shortfall, budget an amount to close the gap, and increase assessments if necessary. If you foresee an ongoing shortfall, you can even create a reserve account for that specific purpose. In an emergency, you can borrow from reserves to make up for a shortfall, or levy a special assessment.
Raising assessments is never popular, especially when the need arises because not everyone is paying their share. Though times are tough for many, with careful planning you can keep your Association afloat and avoid painful special assessments and sharp dues increases.

HOAs in the Digital Era

2010-07-28T12:25:00.001-07:00

Date: July 20, 2010

Written By: Mike J. Vial

Boards and managers frequently ask me whether [and to what extent] they can use email other electronic methods to communicate with owners. My typical response to any question involving process or procedure is, "look at your governing documents first." However, the bylaws in place for many of the communities I represent have notice requirements that are more appropriate for the 1950's than today. Fortunately, the Oregon Legislature has provided Associations with some relief on this issue.

In a 2007 statutory update, the Planned Community Act (ORS Chapter 94) and Condominium Act (ORS Chapter 100) were amended to allow associations to use electronic methods such as email or websites in order to provide certain notices to owners and conduct elections. However, the statutes do contain a number of conditions and limitations that boards and managers must be aware of before plowing ahead. The language of both statutes relating to electronic notice and voting is nearly identical, so you can assume that the rules are the same for condominium associations and homeowners associations unless otherwise noted.

Notices. As a general matter, any notice that an association is required to provided to an owner or director may be sent by email or fax. The law authorizes associations to use electronic methods such as email or fax despite requirements in the documents or other parts of the statute that notices be mailed or posted. For this reason, there is no need to amend an association's governing documents in order to use electronic methods, unless the declaration or bylaws explicitly forbid notice by email or fax.

There are three main exceptions to this rule for all communities. Email or fax may not be used to notify an owner or director of: (a) Failure to pay an assessment; (b) Foreclosure of an association lien; (c) An action the association may take against an owner (such as a hearing notice). In addition, condominium associations may not use email or fax to provide notice of an offer to use a dispute resolution program.

Any owner may decline to receive notices by electronic means. Associations are required to mail or post notices for any owner who has declined to receive electronic notices. Likewise, associations must mail or post notices for any owner who has not provided a valid email address or fax number.

If you'd like to review the statutes governing electronic notice, you should review ORS 94.625 for planned communities and ORS 100.423 for condominiums.

Electronic Voting. ORS 94.661 and ORS 100.428 authorize planned community homeowners associations and condominium associations to provide and receive ballots through electronic means unless the association's governing documents specifically prohibit it. However, there are a number of exceptions, conditions, and limitations. Again, the laws governing electronic voting in planned community homeowners associations and condominium owners associations are virtually identical.

Methods. Associations may send and receive ballots by email, fax, website, or any "other means of electronic communication acceptable to the board of directors." Any ballots sent by electronic means must still comply with the statutory requirements for form and content set forth in the statute or the governing documents.

Notice. All notice requirements under the statute or governing documents still apply in the case of electronic voting. For example, the notice of written ballot requirements of ORS 94.647 (2)(b) for a vote to amended governing documents still applies when the vote is to be conducted via electronic means. However, the notice and the ballot may be distributed electronically.

Website Voting. If an electronic ballot is posted on a website, a notice of the posting with instructions on obtaining access to the website must be sent to each owner. Such notices may be sent by email or fax.

Secrecy. The statutory and governing document requirements for voting by secret written ballot also apply to electronic voting. If, after receiving notice of a vote by written ballot, at least 10% of owners request that the vote be conducted by secrecy ballot, then the association may not use electronic voting unless it has established procedures for voting by secret electronic ballot.

Where is the Civility?

2010-06-29T10:24:00.000-07:00

Chris Tingey

June 27, 2010

Recently I dealt with an issue in a condominium association where the tenant of a unit owner was out of control. The boorish and, in some cases, criminal behavior of this tenant made life miserable for many of the residents of an otherwise quiet condominium community. Despite the HOA board’s attempts to have the unit owner intervene and resolve the situation, nothing was done until the situation spiraled so far out of control that the judicial system had to become involved.

This experience led me to think about a greater concern in our society, of which HOAs are merely a microcosm: Where has our civility gone? What has happened to basic decorum? Has the proverbial common courtesy been thrown out with the bath water?

One might think it odd that a lawyer muse on such topics when the nature of my profession is built upon debate and dispute, and my paychecks frequently come from owner-board disputes. Nevertheless, I cannot view the acerbic interaction in many associations without wondering if the problems could not be resolved by taking a step back and a deep breath.

The law, in its imperfect and rudimentary way, attempts to foster some level of civility and courtesy in HOAs. Some examples of “legal civility” include requirements that notice be given of meetings, opportunities for hearings before a fine may be levied, and the mandate of parliamentary rules of procedure.

In moments of frustration, often weeks and months in the making, HOA board members (and owners) all too frequently say and do things that are regretted during quiet reflection later on. Sometimes reverting to “the law” is not the best solution. Rather, civility, respect, and friendship go a long way toward soothing feelings, quieting anger, and solving the practical problems of noise, litter, parking, and pets. Pertinent examples include conducting open forums before board meetings that allow owners to speak (with time limits so that all may have an opportunity to be heard), board member visits to owners about a violation before any enforcement action is taken, and community activities that allow neighbors to greet and get to know one another.

Like the condominium association with the troublesome tenant, there are situations when the effectiveness of civility and courtesy has passed. In those moments, running to the courthouse for judicial intervention may be the only option. Hopefully, though, boards will use the twin swords of civility and courtesy to head off problems before a jog to the courthouse becomes necessary.

Effectively Run a Board Meeting

2010-06-29T09:57:00.000-07:00

How to Effectively Run a Board Meeting

Ashley Yorra

June 1, 2010

1. Use Parliamentary Procedure. There are many different choices, but I recommend Roberts Rules of Order. Another helpful book is A Dummy’s Guide to Robert’s Rules, which makes Robert’s Rules more digestible.
2. Have the Chair Run the Meeting. The chair doesn’t necessarily have to be the President of the Association, but someone appointed chair for the meeting. This person is the official chair presiding over the meeting.
3. Require the Chair to Recognize Someone Before He/She Can Speak. This can be tough to follow, but with this tool the Chair can keep the meeting on track and to the topic.
4. Make an Agenda Beforehand and Stick to It During the Meeting. During meetings people tend to go off on tangents. The chair should steer the meeting back to the agenda and get the meeting back on track! That doesn’t mean you can’t entertain new business during the meeting, just make sure it’s in the right place.
5. Know Your Governing Documents. This will help you be an effective leader. If you are unsure on a certain item, have a copy of the documents in front of you so you can refer to them.
6. Know Your Quorum Requirement. Make sure you have a quorum for any meeting; otherwise, you don’t have a meeting.
7. Know Who the Deliberative Body Is. A Board meeting means only the Board is the deliberative body. However, that doesn’t mean that anyone should be disrespectful to owners who attend board meetings.
8. Discuss Items only if there is a Motion and a Second. Otherwise there is not enough interest to warrant a discussion.
9. Keep All Discussion about the Open Motion. Keep the meetings moving forward by keeping on topic.
10. Respect those who have the floor. If need be, the chair can set out reasonable time frames for arguments and deliberation on a certain motion.

Reserve Study Requirements

2010-05-03T14:28:00.000-07:00

The Importance of Following Reserve Study Requirements

Written By: Ryan Harris

May 03, 2010

A well-maintained reserve fund is an important part of ensuring the financial health of an association. This is especially true as the association ages, and building components need to be replaced. Many association boards, unfortunately, discover that prior boards have not been vigilant in saving for future repairs, perhaps hoping that the day of reckoning would never come. As a result, the current board faces difficult choices about how to spend limited funds when extensive repairs are necessary. Often, when expensive maintenance or replacements is needed, the board has no choice but to levy a large, painful special assessment to make those repairs.

The best way around this problem is for the association to have adequate savings so that the association will not have to pick among pressing repairs, and will not be forced to levy a special assessment, potentially forcing owners into bankruptcy or foreclosure. Recognizing that too few associations were reserving for future expenses, the Oregon legislature passed a reserve fund requirement for both planned communities and condominiums. This article outlines some of the legal requirements those statutes place on associations.

Application of the Statute
Whether a condominium or a planned community, the statutory requirements for the reserve study are nearly identical. The first question an association must address is if the reserve study requirements actually apply to them. All associations created after October 23, 1999 must have a reserve study and a maintenance plan (ORS 94.595(5)(a); ORS 100.175(6)(a)). The difficult question of whether or not an association pre October 23, 1999 is required to have a reserve account is something an association should consult their lawyer about. However, all associations formed prior to October 23, 1999 that have a reserve fund can opt into the reserve study requirement. There are two ways to opt into the requirement: either the board of directors can pass a resolution opting-in or a majority of the owners can sign a petition requiring the association to opt-in (ORS 94.595(5)(a); ORS 100.175(6)(a)). The upshot of this analysis is that, while your association may not be required to have a reserve fund under the statute, the association should opt-in, or otherwise impose upon itself, the requirement. Running an association that maintains property without a maintenance plan is impractical and foolish.

Statutory Requirements.
The general idea behind the reserve study is to require an association to save a certain portion of the monthly assessment. This saving allows reserves to gradually accumulate over time in anticipation of big-ticket items the association must repair. To accomplish this goal, Oregon associations are required to establish a reserve account for association-maintained items that will require major maintenance, repair, or replacement in more than one, but less than thirty years (ORS 94.595; ORS 100.175). Unfortunately, the statute is vague as to the precise meaning of a “major maintenance, repair, or replacement” item. However, the statute does specifically say that the association must reserve for painting. A fair rule of thumb is that the association should reserve for any item that is more expensive than painting.

Actual Useful Life vs. Projected Useful Life
Oregon statutes require the association’s board to conduct or review and update the association’s reserve study yearly (ORS 94.595(3)(a); ORS 100.175(3)(a)). Again, the statute isn’t clear as to what constitutes a “review.” A review can probably be as minimal as pulling the reserve study off the shelf and reading it, or having a board member read it and report about it at a board meeting. What is clear, however, is that board needs to, once a year, consider whether the reserve study is being followed and whether it is accurate or needs updating. For example, suppose something has happened during the past year that has clearly shortened the useful life of building elements. The reserve study should reflect that event.

Just as clear is that the statute does not require the association to have a professional inspection of the commonly maintained property every year. Having a construction professional come to the building and assess the remaining useful life of all the building elements is a relatively involved, expensive process. While the association is not required to do this annually, it should still do it fairly frequently. A good rule of thumb would be to have an actual inspection every 3 to 5 years. If your association has just turned over, your association should do an inspection within the first several months. While your developer may have provided you with a reserve study, developers frequently underestimate repair costs and overestimate the useful lives of building components in order to keep assessment levels low. The board should not rely on a reserve study that was created by its developer, but should do its own due diligence.

Conclusion
In summary, far too many associations that do not have a reserve study (or simply do not follow it) soon discover that they must levy large special assessments in order to fulfill their repair and maintenance obligations. Your association does not have to be one of the unfortunate. Reserve studies are an important tool to associations that have maintenance responsibility for common elements, and should be taken seriously and followed for the future wellbeing of the association.

Making the Difficult Decisions

2010-05-03T14:24:00.000-07:00

Board Members: Making the Difficult Decisions

Written By: Michael Montag

March 15, 2010

As an HOA board member, you’re constantly between a rock and a hard place. No matter what you do, one contingent of owners hounds you for not doing enough, another congratulates you for doing a great job, and yet a third scolds you for doing too much. This predicament arises over and over, whether the board is dealing with rules enforcement, assessment collection, or simply deciding how often to mow a common lawn; you can’t seem to please everyone. While there’s no secret fix to this ongoing dilemma, there are several things you can do as a board member, especially when just “doing your best” isn’t keeping your blood pressure down.

First: work together. When you hear negative feedback from homeowners, look around. If you’re the only board member involved with the problematic situation, step back and include the rest of the board. Your decisions and actions will hold more credibility if homeowners can see that they are the result of a collaborative process. At the very least, you will alleviate the pressure of feeling like you are in it alone and ensure that you aren’t exposing yourself to personal liability on account of going rogue.

Second: avoid making decisions. (“Wait…what?”) I admit that it is often your responsibility as a board to be the folks who make the tough decisions. However, if you allow the homeowners to vote on major issues whenever possible or practical, and your governing documents either require or allow it, you avoid being the “bad guy” to those who don’t like the outcome. I find there is significantly less griping about bad decisions when homeowners are able to make the informed decisions for themselves, and—as a boar—you can rest assured you didn’t force something down the throats of your unwitting members.

Third: establish (and follow) procedures. Enforcement resolutions, collections resolutions, detailed maintenance plans, etc; these are the tools that effective boards use to maintain harmony in their associations, and—in reality—are merely another way to avoid making decisions. To some, these procedures seem like overkill, and many board members can’t stomach the idea of telling their neighbors about how the association is going to sue them if they don’t pay their dues. But having (and following!) established procedures is actually the best way to keep the peace, because everyone knows what’s coming. Nothing raises an owner’s hackles like the feeling that the board is singling them out or doing something out of their own self interest. Having clear procedures ensures fairness and consistency. So, if your rules aren’t clear, amend them. If a bylaw provision has been interpreted differently over the years, adopt an interpretive resolution and set the record straight. You get the drift…

Fourth, and finally: rely on experts. The Nonprofit Corporations Act gives this one to you. In fulfilling your duties as a director, you are entitled to rely on attorneys, accountants, and others whose expert opinions may become relevant. It does cost more to have an accountant figure out the discrepancy in your budget or to have a building consultant provide a maintenance schedule for your siding, but it beats being on the hook when it turns out your degree in underwater basket-weaving didn’t adequately prepare you for providing legal advice to your association. So, when you can, let someone else’s expertise, and insurance policy, be the support for your decisions.

Like I mentioned, these tips won’t solve all your problems. You will still have to make difficult decisions, and many of them will be unpopular. However, as an HOA board member, you can’t let a fear of conflict prevent you from doing what needs to be done. So, when you feel stuck, think back to these tips and consider the best way to keep things moving forward.

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2010-04-27T09:34:00.000-07:00

Keeping Your Association Afloat

2010-04-07T15:42:00.000-07:00

Keeping Your Association Afloat: Implementing Hardline Collections Tactics

Written By: Sarah Lappin
We have all watched as the economy has taken a massive downturn. As individuals suffer, so do the communities that they live in, specifically homeowner associations. Bankruptcies, foreclosures, short sales and abandoned properties are all too common. Individuals who are unable to meet their financial obligations are forced to decide if they should make their car payment, mortgage payment, or homeowner assessment payment. With so many people facing financial strain, it is important that homeowner associations let their owners know their bill must be paid first and, if it is not, there will be serious consequences. It is no surprise that when people have a hard time meeting their financial obligations, they are forced to play this juggling game, and—if they believe their association will not take aggressive action for months or even for years—they will opt to pay their homeowner dues last.
In order to aggressively collect, associations need a plan-of-attack. First, the association should have a clear and concise collection resolution that outlines the steps that will be taken if an owner is delinquent. The resolution should set out the late fee that will be charged, as well as the interest rate. Once an owner is sixty days past due, a lien should be immediately placed on their property. The lien will provide recorded notice that the owner has an outstanding debt to the association to anyone searching the county records; this will also ensure that, if the property sells, the association will be paid. Second, once the owner is six months delinquent, a lawsuit should be filed so that a personal judgment may be obtained against the debtor. The judgment will appear on the debtor’s credit and can be enforced for ten years. Once a judgment is obtained, the best means for collecting is to garnish any bank accounts that the debtor may have, garnish wages, and garnish the rent if it is a rental unit.
An association can also get creative in collecting by denying delinquent owners access to commons areas such as the pool and workout room. Other creative means are deactivating key fobs, restricting the ability of delinquent owners to rent out their units, and cutting off electricity and water service (if the association provides these).  
In order to implement the above strategies, it is important that the board work closely with their manager and their attorney to accomplish swift collections. Owners within the community will talk, and—once they hear of the hard approach that the association is taking—they will think twice about choosing to not pay their dues. Finally, remember: when taking the hard line approach of aggressively collecting assessments, not only are you attempting to collect from the delinquent owners, but you are also sending a message loud and clear that the association must be paid on time from each and every owner.

Annual Assessments

2010-01-12T10:43:00.000-08:00

New Year's Resolution: Annual Assessments

Written By: Jeremy O. Evans

January 5th, 2010

As the New Year rolls through our neighborhoods, replacing sparkling lights with Broncos flags, with newly resolved joggers in the street and dead trees curbside, many people will also be facing another seasonal inevitability: the arrival of an annual assessment bill from their homeowners or condominium owners association. Assessments aren’t a mortgage payment, nor are they a tax or water bill, but--to the unprepared--they can bring the same sinking sensation and budget-busting problems.

This leaves many association members wondering what assessments are for. In a condominium, they are an obvious part of the deal. Assessments are needed by a condo association for things like repairing the roof, mowing the lawn, or shoveling the walks. In a single-family-home neighborhood with a homeowners association, the association’s role is similar, but less obvious.

Basically, an association will help protect individual home value. These days, this is more important than ever in Idaho. Homes in neighborhoods with nice amenities, such as pools and parks, have a better chance to sell. If an owner has an efficient, active association, it can be a great selling point and help keep their home value stable. However, these amenities and activities cost money to keep up.

Even in a neighborhood with minimal common areas and features, the association’s role is crucial. The association may be fighting to keep those newly bank-owned properties down the street from becoming weed-choked eyesores. It may be trying to keep a neighbor from using her property in a way that will drive down your home value and scare off potential purchasers. Without assessments, an association will wither up and die.

An owner in an association may think that the property value-enhancing reasons for paying assessments don’t add up this year. Maybe they ran up the Amex bill for Christmas, or perhaps they got off on the wrong foot with their board last year... Despite any of these situations, consider a few significant reasons this owner may need to review their title documents and re-evaluate where paying your assessments should fall on their budget priority list.

An association is obligated to collect assessments, along with doing its other duties; even in a tough economic climate, an association must keep doing its job. The bottom line is, if an owner doesn't pay their assessments, his neighbor will have to pay more in order for the association to continue functioning. Also, there are legal enforcement mechanisms written into most declarations of covenants, conditions, and restrictions. Not all of these are simple fines or loss of privileges like a pool key. Most associations have the right to take a delinquent owner to court to collect their assessments, adding all court costs and lawyer fees to their total bill. Under Idaho law, a board also has the right to lien the property and even foreclose on it. While this is very rare, the law underscores how important assessments are.

So, whether an owner keeps up on association requirements and knows their CC&Rs like the back of their hand, or they have never attended a neighborhood meeting or even read the documents recorded on their home's title, they must pay attention to assessment bills and pay them promptly. If an owner owes a large sum and is unable to write a check for the amount in full, it is highly beneficial for both parties to at least set up a payment plan with their association. Once done, the owner will have a healthier community and a happier new year! For more information on assessments or to speak with a lawyer knowledgeable in all aspects of HOA legal issues, visit idahohoalaw.com.

HOAs Bolster Property Values

2009-11-01T09:00:00.000-08:00

HOAs Bolster Property Values By Enforcing Quality And Building Community

Written By: Jeremy Evans

November 2009

A June 11, 2009 Associated Press article about homeowner and condo associations was picked up by newspapers all over the country. The article played on popular fears of rising foreclosure rates and bankruptcies around the country. Instead of reporting the important and growing role that associations play in maintaining property values, building community, and otherwise holding back the tide of the failing real estate market, the article links associations with the U.S’s rising foreclosure rate. It ran under lurid headlines like “Neighbors are Forcing Neighbors Into Foreclosure” and “Foreclosure Surprises Lurking.”

Of course, these days, foreclosures are about as popular as a snapping turtle in a swimming pool. In light of the recent bad press, and the fact that state and federal governments are taking a “shoot first ask questions later” approach to legislating perceived problems, it may be a good time to summarize the good associations do. The truth is that we need associations now, in a failing real estate economy, more than ever.

Associations are created by developers prior to any private sales to owners, and the obligations that run between the individual owners and the associations are covenants that run with the land. If some owners do not pay their share of these necessary costs, the association either fails to perform its responsibilities properly, or the other owners are forced to pay higher dues. If the Association does not perform its responsibilities properly, all the owners may face the costs of later repairs or liabilities.

The link between association duties and value was highlighted in the 2008 lawsuit brought by two homeowners in Colorado against their HOA for failing to properly maintain the neighborhood common areas and enforce restrictions. The plaintiffs asserted that the association’s failure directly resulted to decreases in their property value.

In fact, home and property values are dropping across the country. Foreclosure and bankruptcy rates are up. In June 2009, Reality Trac released a U.S. Foreclosure Market Report that garnered immediate media attention. The report illustrated the increasing rate of foreclosures around the country. Reality Trac’s data show that the Western States as a region have been the worst hit by foreclosures. Oregon and Washington bucked this trend, and have foreclosure rates lower than the national average. The West and sunbelt states grew a lot during the last building boom, which is one reason they have been hit hard by the bust. The same boom in building in the West coincided with a growing popularity of HOAs and condo associations. HOAs also grew in the Northwest.

It is no surprise that the growth in new homes was accompanied by a growth in associations. Developers marketed HOAs as a benefit and a selling point for buyers, and buyers seemed to agree, snapping up homes in planned neighborhoods with associations. Associations are marketed both as a means to maintain neighborhood quality and property values; and as a means to create community. Community Associations Institute, the nation’s largest group for associations, now estimates that nearly 60 million Americans live in associations.

Associations foster community by facilitating communication between owners, providing meeting places like club houses and common area parks, and even planning events. They also can help avoid direct neighbor conflicts by enforcing regulations. Some associations dilute the contention caused by disagreements even further by hiring managers and outside counsel to collect assessments and enforce regulations.

In theory, it is also easy to see how associations protect home values. Condominium and neighborhood associations perform important functions in their communities. Associations maintain landscaping, pools, insurance, and even roofs and other common elements in some communities. Most people will pay more for a home that is not next to a home with a glaring pink paint job and a jungle of a yard. Most people enjoy having access to clubhouses and pools.

Even though the link between associations and home values is easy to understand, and is supported by anecdotal evidence, little statistical research has been done in this area. A 2005 study by economist Alexander Tabarrok concluded that houses in HOAs were worth on average 5 percent more than similar houses in the same neighborhood but outside of HOAs in the area studied. Admittedly, however, no research reflects the current market. For instance, no one has compared how the value of homes in associations have fared versus homes not in associations. Likewise, there is still no data about the relative foreclosure rates in and out of associations.

One thing is for sure. Associations have to be run effectively and efficiently to have a positive effect. This always involves balancing the association’s obligations to the majority of owners with the association’s desire to build community. While the underlying causes of owner delinquencies and covenant violations may be sympathetic, associations must use all tools available to them to collect dues and to protect the property values of all of their members. Hopefully we can recognize the valuable role played by associations and they will not continue to be wrongly associated with the causes of our current economic troubles.

HOA Boards Often Approach Me

2009-10-16T15:52:00.000-07:00

HOA Boards Often Approach Me with a Plan and a Question

Written By: Michael Montag

The plan typically involves a prospective course of action that is…questionable. The question is some form of “can we do that?” All too often the answer is “no!” and that’s when I find out the plan was actually something the board did last month. Apparently the operating theory here is that it is easier to repent than to get permission!

In all seriousness, though, HOA directors often find themselves asking “can we do that?” when the answer is not actually clear, or what seems to be a clear answer legally doesn’t make much sense from a practical standpoint. Here are typical examples: Can we accept less than full payment from a homeowner who is delinquent on their assessments? Can we grant an owner an exception to a rule right after we fined his neighbor for violating that same rule? Do we really have to give proper notice of our board meetings, since nobody ever shows up anyway?

Sometimes the board’s decisions are mandated by law or the association’s governing documents, but not always. How can a board know when it must follow a particular course of action and when it has some discretion? As always, the answers to many questions depend on the specific situation, but there are some fundamental principles that can help you figure out what to do if you are wondering whether you are on shaky ground. With any board action, the issue lurking in the shadows is fiduciary duty. Both the Oregon Planned Community Act and the Oregon Condominium Act refer to the Oregon Non-Profit Corporation Act to define the relevant duties. Association directors owe fiduciary duties of good faith, fair dealing, and loyalty to the association, and must discharge those duties in the manner the director reasonably believes to be in the best interest of the association. So, it is never permissible to take any action you do not reasonably believe to be in the best interest of the association – and doing something that is prohibited by law or by the association’s governing documents is never in the best interest of the association.

With fiduciary duty in mind, to answer “can we do that?” boards must look to the Association’s governing documents and the relevant statutes (in general, this means either the Planned Community Act or the Condominium Act). If your documents or a statute dictate that the association or the board “shall” take a particular action, then you have no choice but to do it. On the other hand, if the governing documents or a statute indicate that the association or board “may” do something, it is optional. When a course of action is optional, or it is not addressed at all by the association’s governing documents or a statute, the board must resort to making its decision with its fiduciary duties as a guide.

An association’s maintenance responsibility is a good example of something the association, through the board, “shall” do. A typical maintenance provision in an association’s documents will state that the association “shall” maintain the common property or common elements to a certain standard, and that such maintenance “shall” be a common expense of the association. Because the documents use the word “shall,” the board can’t decide to skip all maintenance this year to save money, and if funds are short a special assessment may be in order to ensure the required maintenance gets done.

Trickier examples arise in the enforcement context. An association’s governing documents might state that the board “shall” enforce the rules and regulations, but what does “enforce” mean exactly? Boards occasionally want to grant an exception to an owner for rule violation, or might want to turn a blind eye to infractions they deem unimportant. Although there are certain situations when a board can, and sometimes must, grant an exception to a covenant or rule (when an owner requests an accommodation for a disability, for example), association rules should always be enforced fairly and consistently. Even if the board thinks it is best to sometimes ignore a rule, that decision is likely to be deemed unreasonable because of potential consequences such as providing future violators with defenses to enforcement based on inconsistent enforcement. In such situations, adherence to a well-drafted enforcement resolution and schedule of fines is critical.

Also in the enforcement realm, boards often look for wiggle room during the collections process. A collections resolution might state that the association “shall” file suit against an owner whose dues are sufficiently delinquent. Sometimes, though, the board may feel that a particular owner is more likely to pay their debt if approached with a more sympathetic attitude. At other times, an owner may be on the brink of foreclosure or bankruptcy, and the board may want to accept an amount less than the total debt rather than push a lawsuit and risk coming out empty-handed. In these situations, the board does typically have some discretion. When it comes to dollars and cents, it is easier to determine what course of action is in fact best for the association. While consultation with legal counsel to determine the risks of any course of action is always needed, if the board has grounds to believe that forgoing a lawsuit, or settling for a particular amount, is the best way to recover the most money, it has the authority to make that decision.

There are countless other situations in which HOA boards find themselves wondering where the bounds of their authority lie. Sometimes, remembering your fiduciary duty is enough to resolve a question. More often, however, legal advice is necessary and boards should proceed with caution anytime they steer into uncharted waters.

Not All Assessments Are Created Equal

2009-09-15T10:50:00.000-07:00

September 15, 2009

Written By: Michael D. Montag

“Assessments” may be the most commonly used word in homeowners association vernacular, but what does it mean? Both the Oregon Planned Community Act and the Oregon Condominium Act define the term to include any charge levied against an owner by an association. Annual or monthly dues? Assessment. Fine for parking your R.V. out front? Assessment. Late charges, interest, and attorney fees for the Association having to sue you to get you to pay your fine? Assessments. All of these assessments, when past-due, automatically become a lien on the delinquent owner’s property. However, while all these types of charges may ultimately bear the same name, associations must be sure they know exactly what type of assessment they’re dealing with and act accordingly.

Annual or monthly dues to cover the operating costs and reserves of the association are the most common and straightforward type of assessment. Dues are based on an annually adopted budget and, once levied, owners have few defenses available to absolve them if they fail to pay. Associations forced to pursue legal action to collect delinquent dues have a high success rate and generally have no difficulty recovering attorney fees and other costs associated with the collection.

Fines present a slightly more complicated scenario. In general, an association may levy a fine against an owner for violating the governing documents. Although it seems straightforward enough, fines are not as bullet-proof as dues. In order to fine an owner, the association must give the owner notice and an opportunity to be heard. To ensure the enforceability of its fines, the board should adopt an enforcement resolution setting out the procedures for levying a fine, as well as a schedule of fines setting forth specific violations and the amount fined for each. Before levying a fine, boards should ensure they can prove that the violation occurred. If the violation is a recurring violation (such as a daily fine for an illegally parked car), proof will be necessary for each day the fine is imposed. Covering your bases on fines cases is particularly important because, if the matter ends up in court, the prevailing party can collect its attorney fees and costs from the loser. This means if the association fails to prove its case, it not only doesn’t collect the fine, it also loses the right to receive payment for its costs and must pay the owner's costs.

Another type of assessment occurs when the association charges an owner for a repair it had to perform on the owner’s behalf. Examples of this scenario include cases where an owner’s failure to maintain the plumbing in their unit causes damage to a common element of a condominium, or where an owner fails to maintain their yard in a reasonable condition so the association must go in and clean it up. In these situations, the board needs to be particularly careful to proceed according to the governing documents. Most documents spell out precisely which expenses are common expenses, and which can be assessed against an owner. In addition, association and owner insurance policies often come into play, requiring careful attention to the provisions in your documents regarding insurance proceeds and responsibility for paying deductibles. Again, it is crucial for the board to make sure that it dots its I’s and crosses its T’s in order to ensure it can collect the assessment and recover its collection costs if necessary.

There are plenty of other types of assessments, but the common theme is that boards must always be mindful of which type they are dealing with. If you lose track and fail to follow all the necessary procedures before levying the assessment, you risk forfeiting the right to collect the assessment; in addition, there will also be the possibility of having to pay an owner’s costs of defending against you.

Meeting Minutes

2009-08-14T12:32:00.000-07:00

Written by: Ashley Yorra - Partner

The topic of meeting minutes is one that often brings up groans in the office. This is typically for two reasons: (1) the association has never taken minutes; or (2) the minutes are overly detailed and thorough. Both problems are detrimental to associations.

In the first instance, the association with no minutes has not been complying with Oregon law. This association would also have no record of actions taken by the board. In the second instance, the association with overly detailed minutes can open itself up to liability because the minutes are discoverable in litigation, even when information about litigation strategies, fee arrangements, and other very important case information may be in them. In fact, if an association is in litigation, too much information regarding the litigation strategy in the minutes may waive the attorney/client privilege.

Often during presentations, board members will ask me: “What needs to be in the meeting minutes?” A great resource, and the procedure most associations should use when running a meeting, is Robert’s Rules of Order. One section outlines the content to be included in meeting minutes. Generally the following information should be included:

The date, time, place, and kind of the meeting (board, annual, special or adjourned); the date, time, and place of the next scheduled meeting; and the name of the Association;

Which board members (or association members, for an owners meeting) were present;

Whether a quorum was present;

Whether previous minutes were approved;

Any motions made and seconded;

Votes taken;

How board members voted (remember to include abstentions from voting); and

General meeting procedures (including points of order, appeals and when the meeting was adjourned).

For more specifics, please see Roberts Rules of Order. Also, here is a link to a template to meeting minutes. One note of use from Roberts Rules of Order is that while the name of a guest speaker may be noted, his or her remarks should not be noted.

I also hear the question: “what about recording meetings.” It is never recommended to record a meeting. This is because the record would also be discoverable in litigation. If a board member needs a recording to accurately re-create meeting minutes, the tape should be immediately erased or discarded once the minutes are drafted.

Finally, meeting minutes should be brief because they are only meant to be a brief record of the actions taken a meeting. An owner may complain that the meeting minutes do not give enough information, but as an owner, it is important that they attend the meetings if they wish to know what occurred outside the actions. Remember, minutes should be brief, and as our firm always says, “they’re called minutes, not hours, for a reason.”

Turnover and Beyond

2009-07-07T09:53:00.000-07:00

Turnover and Beyond: Association Rights Related to Turnover

June 30, 2009

Written by: Ryan Harris

After a Declarant creates an Association, he is charged with running the Association until the requisite number of homes or units are sold requiring the Declarant to relinquish control to the owners. This relinquishment of control is referred to as “turnover.” Turnover, although a simple enough process, rarely occurs without a few problems. Oregon law places a number of important responsibilities on Declarants, which they sometimes fail to execute. An Association may be able to enforce some of its turnover related rights months or even years after turnover has occurred.

One right the homeowners have related to turnover is to force turnover of Association control to the owners. An Association’s declaration usually specifies when the Developer should turn over control of the Association. For example, a typical declaration might state that the Declarant must call a turnover meeting within 60 days of selling 75% of the homes or units. If your Association’s documents do not specify when turnover should occur, the Oregon Planned Community Act and Condominium Act provide default turnover provisions.

Owners need not wait for the Declarant to turnover control if the time for turnover has passed. If the Developer fails to call the turnover meeting, the Association’s transitional advisory committee (“TAC”) or even an individual owner can call the turnover meeting and start running the Association.

Another right the Association has related to turnover is the right to control Association assessment accounts. Oregon law requires the Declarant to fund the monthly assessments for all the units it owns from the time the first unit is sold until turnover, and turn those monies over to the association at turnover. While the law allows the Declarant to defer payment of the reserve portion of those assessments, at turnover, the Declarant must provide the association with a fully funded reserve account. If the Declarant fails to fully fund the reserves, the Association has a claim upon the Developer for that unfunded amount.

Associations also have the right to limit or cancel contracts entered into on behalf of the Association before turnover. As mentioned, the Declarant is responsibly for running the day-to-day operations of the pre-turnover Association, and will frequently enter into contracts on behalf of the Association, such as contracts to hire management and vendors. Board members should be aware, however, that Oregon statutes provide that contracts entered into by the pre-turnover Association cannot last longer than three years. Oregon law also gives the post-turnover association 60 days to cancel any pre-turnover contract. The Board can use these provisions to cancel or limit unfavorable pre-turnover contracts.

Finally, Associations charged with a maintenance obligation have rights against the Declarant related to construction defects. The Declarant/developer is responsible for overseeing the construction of the property and ensuring that the construction is completed in a workman-like manner. If the building elements the Association maintains suffer from construction defects, the Association likely has a claim against the Declarant. Unfortunately, Associations frequently overlook these claims because they do not know that their property suffers from latent, concealed construction defects. For this reason, we recommend that Associations hire an independent building envelope consultant to do a thorough building envelope inspection shortly after turnover.

Once the Association discovers it has a problem, it needs to act promptly to protect its rights. On one hand, without knowledge of the construction defects, the Association may have a valid claim against the Declarant for up to ten years. On the other hand, as soon as the Association knows that its property suffers from construction defects, the Association is limited to a much shorter timeframe. Thus, the Association should diligently inspect the property it maintains and should promptly enforce its legal rights arising from the defects. For more information on this and other HOA issues, please email rdh@vf-law.com.

SHORT SALES SURVIVAL

2009-06-15T09:33:00.000-07:00

SHORT SALES TOOLS FOR SURVIVAL

Prepared by:
Timothy J. Zimmerman

HOAs are no strangers to foreclosures. The loss of HOA assessment income due to foreclosures is substantial. More and more owners are “underwater” in their lot or condominium unit: the amount they owe far exceeds the value. Lenders are taking longer to foreclose and HOAs are experiencing increased losses as a result. One tool to reduce foreclosures is the short sale. Simply put, a short sale is a sale of the property for less than what is owed.

So, you have an owner who is past due on his assessments. His property has been on the
market for months, and he finally found a buyer, but at a price substantially below what he was
asking. In the midst of trying to close on the sale, he has learned that the proceeds are not
sufficient to payoff all of the liens: the first mortgage, the second mortgage, and the assessments.
So, he comes to you and says he wants the HOA to approve a short sale.

A short sale is a way for an owner to avoid a foreclosure, for lenders to recover more
from the sale of the property than if a foreclosure took place, and for the HOA to get a new
owner who will pay assessments in the future. This kind of situation is facing hundreds of HOAs
nationwide. If you or your HOA have not been involved in a short sale yet, chances are you will
be within the next year or so and you should have an idea of how to deal with it.

As an example, assume the owner has a potential buyer who is willing to pay $150,000,
but when the owner bought the unit two years earlier, he paid $180,000 . When he (or she)
bought the property, he got a first mortgage, the balance of which is now $135,000. In addition
to the first mortgage, the owner has a second mortgage of $15,000, and owes the HOA $4,000
for assessments. If the property is sold for $150,000, there is not enough money to pay all of the
secured parties. In addition to that, there are closing costs and real estate broker fees. So, the
owner cannot sell the property for $150,000 unless somebody agrees to take less than he is
owed.. The owner now comes to you as a representative of the HOA. What should you do?

Well, if he already has a title or escrow company involved with the sale, the first thing
you want to see is a preliminary settlement statement. That is a statement prepared by the escrow or title company listing the income and expenses of the sale. It will list the sales price, closing costs, real estate broker commission, and payoff balances to all lien holders. This is important for the HOA. You want to confirm the sales price (yes, I have had owners misrepresent the sales price, although it really is rare). You want to know the payoff amounts to each of the lenders and the real estate commission to the realtor. Lastly, you want to know how short is the owner; that is, how much are the proceeds short from paying everyone in full.

Naturally, owners and real estate agents come first to the HOA, thinking since the HOA is
last in line, it should reduce its lien so that the deal can get done. What they usually do not
realize is that the HOA’s lien is usually senior to the second mortgage. So, the HOA’s response
to the owner or his agent is that the owner needs to be talking to the second mortgage holder, not to the HOA. The HOA certainly is not going to reduce its balance so the second mortgage can
get paid; there is little reason to do so.

Let’s assume for a moment that there is no second mortgage, but the proceeds are not
sufficient to pay the first mortgage, the expenses of the sale, and the HOA. Look to see how
much the real estate agent is being paid. Often, yes often, there will be enough to pay the HOA
but for the real estate commission. It is time to tell the real estate agent to take the hit, at least a
substantial part, along with the HOA. The HOA is not in the business of subsidizing home
sales. If the HOA does not approve the sale, the real estate agent will not get a commission. So,
try to strike a balance so the agent gets a reasonable amount and the HOA gets as much as it can.

What else can you do as an HOA? Remember, if the deal closes, you get a new owner
who presumably will start paying the new assessments, so closing the deal helps cut off an
ongoing problem and continual shortage in assessment payments. You really do want a new
owner in there. Consider allowing the owner to close by paying the HOA less than the amount
owed from the sale, but have the owner sign a promissory note for the difference and let him
make payments. Make sure the note has a provision for attorney fees. If he balks at that, remind
him that if the first mortgage is foreclosed and the property sold, he will still be liable for the full
amount of assessments and attorney fees, and repayment terms will not be as attractive. Taking a promissory note for the difference is not fool-proof, however, since the note is unsecured. The
owner could always file bankruptcy later, resulting in little on no payment on the note.

Negotiating a short sale is not easy. Often the owner does not approach the HOA until
late in the sales process or with a foreclosure sale set to take place soon, creating time pressure.
Sometimes the HOA will need to play chicken and be willing to risk a failed sale to get what it
wants. A short sale may fall through because the HOA and the owner (or the agent) cannot come
to terms, but do not let that discourage you. Remember, if the first mortgage holder forecloses,
the owner will still usually be personally liable for the unpaid assessments as well as any second
mortgage. Thus, the owner will want to do his best to get the short sale done if it likely will
bring more money than a foreclosure. The HOA will need to decide when to hold tough to make
sure it gets its fair share, but it will need to be reasonable to get a deal done.

A short sale can be a useful tool for HOAs to recover assessments which may otherwise
be lost. You may win some, you may lose some. But, in our current economic environment,
boards should be willing to consider short sales as an opportunity to reduce losses and improve
future cash flow.

Board Member Fiduciary Duties

2009-06-04T12:48:00.000-07:00

June 4, 2009

Written by: Peter Harrison

One of the biggest concerns that we see with our clients is the fulfillment of fiduciary duties. What are they? Are they being met? What liability is associated with them?

In order to fully understand these “duties,” it is important to know what a fiduciary is. Encyclopedia Britannica states that a fiduciary is: “a person who occupies a position of such power and confidence with regard to the property of another that the law requires him to act solely in the interest of the person whom he represents. Examples of fiduciaries are agents, executors and administrators, trustees, guardians, and officers of corporations. They may be contrasted with persons in an ordinary business relationship, in which each party is free to seek purely personal benefits from his transactions with the other.”

Once the meaning of fiduciary is understood, it is important for board members to understand where that fiduciary duty comes from. Board members have broad statutory authority to fulfill their fiduciary duties. UCA § 57-8-3(20) states that the board shall be charged with and having the responsibility and authority to make and to enforce all of the reasonable rules covering the operation and maintenance of the property. UCA § 57-8a-102(3) states that the board has the primary authority to manage the affairs of the association. The Utah Revised Non-Profit Corporation Act also delegates fiduciary duties to board members in UCA §16-6a-801 through 817.

A board member of an HOA has multiple fiduciary duties that need to be met. The first of these duties is the Duty of Care. Fulfilling the Duty of Care means to act with the care of a reasonable prudent person. It also means that a board member needs to act in the best interest of the HOA, and to do so in good faith. A board member who meets this duty will regularly attend board meetings. In considering options that are presented to the board they will exercise independent judgment. In exercising independent judgment they will ensure that they are informed, and relying on expert advice in making decisions concerning the HOA.

The next duty is the Duty of Undivided Loyalty. This duty highlights the fact that board members need to avoid conflicts of interest. If the board is presented with a matter that presents a conflict of interest to an individual board member, that board member should be recused from voting on the issue. A classic example of a conflict of interest is when a board member is presented with an opportunity to enter a self-serving transaction. A self-serving or self-dealing transaction consists of a fiduciary taking advantage of his or her position in a transaction and acting for his or her own interests rather than for the interests of the homeowners. When a fiduciary engages in self-dealing, she breaches the Duty of Undivided Loyalty by acting in her own interests instead of the interests of the represented party.

Finally, board members are faced with the Duty to Act Within the Scope of Authority. Essentially, what this means is that board members have an obligation to know and understand their duties as outlined in the declaration, bylaws, and Utah (or any state) code. Additionally, board members who exceed their authority and cause damage, may be personally liable for their unauthorized actions. This duty also contains a requirement of confidentiality.

The business judgment rule protects from liability board members who act in good faith, without fraud, self-dealing, or unconscionability, provided their actions are authorized by law. A board member who decides to disclose confidential information contrary to the determination of the majority of the board generally cannot claim the protection of the business judgment rule because such board member’s action is not authorized by law. A single board member has no authority to act on behalf of the HOA and cannot lawfully take action contrary to the decision of the majority.

A board member has a fiduciary duty to the HOA to maintain confidentiality of materials determined by the board as a whole to be confidential. A single board member has no right to unilaterally reject that determination.

By utilizing standard business management practices, board members can substantially reduce the risk of litigation for breach of fiduciary duties. Forward thinking, team work, and solid leadership are the correct elements for a successful HOA. Board members need to ensure that applicable law and governing documents are properly followed. Professional advisors, including attorneys, accountants, reserve study consultants, engineers, architects, insurance brokers and community association management consultants are among the paid advisors who may be engaged to either advise on a narrow issue or more broadly help board members understand and comply with their legal standard of care. For more information on fiduciary duties or other HOA concerns, please contact Peter at phh@vf-law.com.

Satellite Restrictions

2009-06-02T09:46:00.000-07:00

May 26, 2009

Written by: Peter H. Harrison

Lawyers are often asked about an HOA’s ability to restrict or prevent the installation of satellite dishes. An HOA generally has the authority to restrict or prohibit all sorts of things; shouldn’t a satellite dish be included? Given that some believe a satellite dish to be a cumbersome eyesore, it would only seem logical that the HOA could preserve the look and feel of the neighborhood by having such a restriction. However, federal law has a different interpretation.

In October 1996, the Federal Communications Commission (FCC) adopted the Over-the-Air Reception Devices Rule (OTARD rule or rule) concerning governmental and non-governmental restrictions on viewers' ability to receive video programming signals from direct broadcast satellites ("DBS"), multi-channel multi-point distribution (wireless cable) providers ("MMDS"), and television broadcast stations ("TVBS").

The OTARD rule prohibits entities, such as community associations, from creating restrictions that impair the installation, maintenance or use of antennas used to receive video programming. The OTARD rule prohibits restrictions that: (1) unreasonably delay or prevent installation, maintenance or use; (2) unreasonably increase the cost of installation, maintenance or use; or (3) preclude reception of an acceptable quality signal. The rule does not prohibit restrictions that merely affect a viewer's ability to receive signals as long as the restrictions do not impair. Therefore, architectural restrictions that affect but do not impair a viewer's ability to receive signals are permissible.

Despite this, there are some allowable restrictions against satellite dishes and antennas. If there are legitimate safety concerns, restrictions will be permitted, even if they impair reception, or delay/increase the cost of installation, maintenance, or use of the antenna. An HOA can enforce a safety restriction while the FCC reviews the validity of the restriction. Valid safety restrictions include preventing people from installing antennas on fire escapes, requiring that a person not place an antenna within a certain distance from a power line, following electrical code requirements to properly ground the antenna, prohibiting installation at a location that will obstruct a driver's view of an intersection or street, and creating installation specifications and requirements that describe proper methods to secure an antenna.

The safety reason for the restriction must be written in a document that is readily available to antenna users prior to installation, so that a person wanting to install an antenna knows what restrictions may apply. The restriction cannot impose a more burdensome requirement than is needed to ensure safety. In addition, the restriction must explain the reason for the safety concern. A safety restriction will not be valid without a specific explanation of its necessity.

HOAs need to be careful when dealing with the use of satellite dishes and should consult with counsel prior to prohibiting or restricting the use of a satellite dish. For more information on this and other HOA information, please email phh@vf-law.com.

Assessments and Collections

2009-04-23T10:56:00.000-07:00

April 23, 2009

Written by: Peter Harrison

GOOD COLLECTION PRACTICES IN HARD TIMES

Our country's recession has affected all aspects of life in our country, and homeowner associations have taken the brunt of some of the worst of it. The majority of associations throughout the country, Utah being no exception, are now having to deal with increases in past-due assessments, foreclosures, bankruptcies, and short sales. Homes are losing equity, banks are afraid to lend, and owners find themselves having to pick and choose which bills they will pay, as the threat of losing their houses looms over them. The refinancing options-once homeowners saving grace-are no longer available to these struggling home owners. These factors all lead up to the obvious result of nonpayment of assessments, leading to foreclosures and bankruptcies; this contributes to suffering association budgets. On top of these difficulties, many associations are dealing with costs for construction defect litigation and repairs on thirty-some year-old buildings, which often equal large special assessments.

Everyone in the industry is sharing in the pain of the associations. Managers and association relationships are being strained as managers scramble to come up with quick solutions to enduring problems. Boards get easily upset with managers as they are now paying more attention to accounts receivable and budgets. Both the board and managers want their attorneys to be able to collect faster than they are doing. Meanwhile, attorneys are trying to satisfy all of their clients, while seeing a dramatic increase in collection activity.

We are all, essentially, trying to milk a dry cow. There are situations where there is no money to be collected. However, if associations act quickly and creatively, they place themselves in a situation where there is the hope that money will be collected at some point, allowing associations to get their accounts receivables current.

It is important for attorneys to explain the collection process to both the board and managers. Managers need to realize that, with this economy, boards cannot count on all the debt to be collected. Managers need to set realistic timelines and help boards come up with manageable budgets, while factoring in bad debt. It is time to start thinking creatively. The proven method of demand letters and liens are not as effective as they used to be. There are things that both boards and managers can do to help prevent a bad situation from turning worse.

The following suggestions will help both associations and managers avoid the pitfalls that are becoming all-too-common in the collection process:

· MAKE YOUR COMMUNITY AN ATTRACTIVE PLACE TO LIVE
· NOW IS THE TIME FOR FRUGALITY
· FACTOR INTO YOUR BUDGET BAD DEBT
· ACT QUICKLY AND PRUDENTLY
· BE CONSISTENT AND FAIR
· ASSIST IN NEGOTIATING SHORT SALES
· USE SPECIAL ASSESSMENTS WISELY
· OBSERVE THE LAW IN COLLECTING ASSESSMENTS (FDCPA)
· PAY ATTENTION TO BANK FORECLOSURE NOTICES
· GET SOMETHING OUT OF BANKRUPTCIES

Vial Fotheringham hopes that putting some of these ideas into practice will be beneficial for your associations. Please let us know if you need help with any of your collection needs. For more information on this or other HOA issues, please email at phh@vf-law.com.

*The information provided above should not be considered a substitute for legal advice. It only highlights areas that can become complicated. Please seek the assistance of qualified legal counsel to help with your specific collection concerns.

Rules and Assessments

2009-04-21T15:56:00.000-07:00

April 15, 2009

Rules and Assessments, Creating Balance in an Association

Written by: Michael Montag

If asked, many would say that the most important things a homeowners association takes care of are collecting assessments and enforcing the rules and regulations. In economically prosperous times, it’s a virtual no brainer–get a reserve study, create a budget, and assess accordingly. Associations need to design a concrete set of rules, an enforcement resolution, and a schedule of fines, and then stick it to the few who don’t voluntarily fall in line. Also in prosperity, the vast majority of owners follow rules accordingly, paying what they owe and allowing the association to have the cash it needs to take care of priorities.

What happens, however, when the economy takes a nose dive? In times such as these, owners start “forgetting” to pay assessments, foreclosed homes sit empty, and people have bigger worries than the proper placement of their garbage can or the condition of their lawn. The association’s cash flow dwindles, while weeds grow and paint peels. What is the board of directors to do?

Facing increased numbers of unpaid accounts, boards have several competing concerns. On the one hand, the board must meet the association’s financial obligations, with a duty to enforce the governing documents. On the other hand, pursuing delinquent owners can be expensive and, sometimes, fruitless. In addition, many boards question the morality of hounding owners over amounts that sometimes seem trivial. Unfortunately, there is no clear-cut solution that will work for all associations, but there are several options.

Perhaps the most obvious answer is the idea that the board should simply prevent the problem before it starts. This could mean revisiting the budget to make sure it is free of wasteful spending, or checking the schedule of fines to make sure it provides the needed disincentives without being unreasonably high. More importantly, it means addressing issues as soon as possible. If an owner hasn’t paid their assessments, waiting until several months [or years] go unpaid encourages further delinquency, increases the costs of pursuing payment, and lowers the amount the association is likely to collect. Likewise, if the association is fining an owner for a minor violation of the declaration, allowing the violation to continue and fines to compound doesn’t accomplish much. If the board addresses problems as soon as they appear, however, the association is much more likely to get what it needs with fewer feathers ruffled in the process.

This, of course, is the easy scenario; there are often much more difficult cases. Whether it is because of financial hardship, personal grudges, or a genuine factual disagreement, some owners will simply not cooperate. Several associations choose to ignore such offenders, rather than take on the expense and stress of collecting money owed. This alternative only creates a host of new problems: the association loses out on money it needs, and the board risks breaching its fiduciary duties by short-changing the association and unevenly enforcing the governing documents. Avoiding difficulties now will only create a much bigger mess later.

At the other end of the spectrum are those associations who draw a hard line; as soon as their documents allow it, they will sue an owner to collect any past-due amount. While this approach has the benefit of consistency, it can also be a real mess. If the association has not dotted every “i” and crossed every “t,” it risks failing to collect at all, meaning that the HOA not only loses out on the amount owed, it is also unable to charge to the owner its costs for collecting the debt. This is a major issue in fines cases, in which the association’s case is often harder to prove, especially if they have let the fine grow to an unreasonable size. Furthermore, the board--in this situation--risks an owner mutiny if it jumps into litigation against owners for the slightest offense.

Naturally--and more successfully--most associations find a balance somewhere in the middle. When assessments go unpaid, they pursue that money to the greatest extent they can, including filing suit and ending up in court if need be. The legal case is typically straightforward and so boards, with good reason, consider chasing assessments a key part of their fiduciary duty to the association. Things are a bit trickier with fines, because of their greater uncertainty of collection. Boards must determine which cases are worth pursuing, as well as keeping in mind which cases that could get the board in trouble for selective enforcement. Consistency would be key here, but is virtually impossible. Similarly, the board must always comply with its governing documents, but the prescribed procedures typically leave little room for flexibility when practical considerations dictate a certain course of action. Clearly, consulting with the association’s attorney is a must.

In today’s economically challenging times, homeowners associations face unique challenges. When dealing with unpaid fines and assessments, it can be difficult to determine what course of action fulfills a board’s duties. More often than not, legal counsel is critical, and all boards should remember that being prepared for a situation before it happens is always the best solution. For more information on this and other HOA information, please email mdm@vf-law.com.

Pets in Your Association

2009-04-21T15:08:00.000-07:00

April 12, 2009

Pets in Your Association, Furry Friend or Nuisance?

Written by: Jason Grosz

Pets are a very controversial subject in both Homeowners Associations and Condominiums. Many association documents place restrictions--including type of animal, specific breed, etc--on which pets an owner may have in their home. Often, these boundaries will limit even the number of dogs or cats an owner may have on their property. HOAs also frequently prohibit all "livestock, cattle, an fowl" on the property, while some forbid all types of reptiles. Additionally, many condominium restrictions even place limitations on the size or weight of dogs. (Time to put Rex on a diet!)
When evaluating pet restrictions in your Association, it's important to consider (1) the sort of behavior you're trying to regulate and (2) the clarity and consistency of your rules. For many owners, pets are considered family; rather than banning these furry family members, many Associations choose to establish policies regarding animal waste clean-up, off-leash areas, and noise control.
It is also important--when forming pet restrictions--to remember there are federal anti-discrimination laws that come into play when an Association regulates service animals for the disabled A pet restriction that interferes with a disabled person's use of a guide animal is often unenforceable.
Finally, for those that keep exotic pets, consider both your HOA's governing documents, as well as your city or county ordinances. Many municipal codes place limitations on keeping "exotic animals"--such as big cats, snakes, and other reptiles. For more or to speak with a lawyer knowledgeable in all aspects of this and other HOA legal issues, please email jlg@vf-law.com, or check out the following links:
For the Multnomah County Code on Animals: http://www2.co.multnomah.or.us/counsel/code/ch13.pdf
For the Portland City Code: http://www.portlandonline.com/auditor/index.cfm?c=28177
For the Washington County Code: http://www.co.washington.or.us/Code/index.htm

Renters, Bearing the Brunt

2009-04-21T15:06:00.000-07:00

March 15, 2009

Renters, Bearing the Brunt of Unpaid Assessments

Written by: Greg Coxey

In today's economic climate, many owners of condominium units, townhouses, and single-family homes are opting to rent their homes in lieu of trying to sell them in a down market. This scenario, however, has the potential to create many problems for homeowners associations. One such problem is what to do when an owner has a renter in the homes, but the owner is failing to pay assessments.
In issues regarding unpaid dues, an owner/association relationship often points blame to residents, rather than the owners themselves. In a recent case vis-à-vis unpaid assessments, an association brought suit against a renter of a townhome for failure to pay assessments. Though the resident was the wife of the owner and the owner himself did not reside in the unit, the trial court found in favor of the association. This decision was later appealed and overturned, as the appellate court agreed that the current renter was only a resident, and the association had no recourse when it came to renters. This case illustrates an important point: unless there is a provision in the governing documents that allows the association to collect assessments from the renter, there is nothing the association can do to collect past due assessments from the renter.
When it comes to renters, it's necessary for associations to understand that they are free to give the resident copies of the governing documents, rules, and regulations, as well as notify the them when the aforementioned are being violated. However, the association's recourse for violations lies with the owner of the property, and not the renter. The owner is legally responsible for anything that his or her renter does based upon signed governing documents upon purchase. This means that the owner is subject to fines and other legal remedies as a result of their renter's conduct, and it is the owner's responsibility to control said renter, even in cases of necessary eviction.
In the common problem where an owner is still violating their governing documents by refusing to pay assessments, the association cannot look to the renter for compensation. The resident is not obligated to the HOA, and they cannot force the renter to turn over payments to cover the owner's delinquent dues. For more information on this or other HOA legal issues, please email gbc@vf-law.com.

Sensitive Document Procedure

2009-04-21T15:05:00.000-07:00

March 2, 2009

Sensitive Association Document Procedure

Written by: Ryan Harris

Homeowners Association and Condominium Owner Association boards are constantly confronted with a complex question: what should the board do when a homeowner requests sensitive association documents? The law firm of Vial Fotheringham, LLP has seen this dilemma arise recurrently, often with the demanding homeowner seeking to sue the Association in order to view or obtain said documents. If these matters are not handled with both legality and sensitivity, neither party will be satisfied.
While HOA boards would usually prefer to refuse these document requests, Oregon law generally gives the homeowner the right to inspect and copy the Association’s records. Both the Oregon Planned Community Act and the Oregon Condominium Act require the Association to make its documents and records reasonably available for inspection, provided the request is made in good faith and for a legitimate purpose (See ORS 94.670: 8; ORS 100.480: 8). Similarly, if the Association is incorporated under the Oregon Nonprofit Corporation Act, it is required that the Association make its corporate documents available to the homeowners as well.
Another question that arises under this predicament pertains to which documents that the Association must have readily available to their homeowners. The Nonprofit Corporations Act requires that the Association keep the following: Articles of Incorporation, bylaws, resolutions, minutes, names and addresses of directors and officers, financial statements, accountant reports, and the most up-to-date annual report. The Oregon Condominium Act and Oregon Planned Community Act also require that all of the aforementioned "records of the association be made reasonably available" (ORS 94.670:8; ORS 100.480:8).
For the benefit of Association boards, however, there are a few boundaries that can be legally placed upon document requests. First, the Association can require that all requests be submitted in writing; the board can then also insist that the writing contain a short explanation as to the purpose of the request. This simple hurdle may dissuade owners from making frivolous requests, or then pursuing them extensively. Secondly, the board can charge owners a reasonable fee for copying said documents, as long as this charge is common knowledge. Experienced in situations such as these, Vial Fotheringham is competently able to sort out these tricky stipulations in detail for both parties.
Finally, while an Association should generally comply with a homeowner’s request for documents, there are some documents that should never be produced to owners, or other parties for that matter: documents regarding employment, contract negotiations, or collections should not be readily disclosed. Furthermore, communications between the Association and its attorney should never be open to the public; by disclosing attorney-client communications--even when the communications do not seem particularly sensitive--the Association may inadvertently waive attorney-client privilege. For more information on this or other HOA legal issues, please email rdh@vf-law.com.

Architectural Review

2009-04-02T21:47:00.000-07:00

April 2nd, 2009

Architectural Review: Protecting the Aesthetics of your Neighborhood

Architectural Review is a vital part of maintaining the aesthetics and property values in many Homeowners Associations. Many HOAs have architectural restrictions which protect ocean or mountain views, maintain a pleasing and uniform aesthetic, or prevent owners from allowing their homes to deteriorate. From a practical perspective, this process is often administered by an Architectural Review Committee or “ARC” which is appointed by the Homeowners Association Board of Directors.

Where do they get the authority to tell me what I can build?

The authority of an HOA Board or Architectural Review Committee to review plans prior to construction can typically be found in your HOA’s CCRs and Bylaws. A common provision might say the following:

“No building, addition, fence or other structure shall be built or altered on any lot within the Pleasantville Homeowners Association until plans have been submitted and been approved in writing as to the harmony and external design by the Architectural Review Committee composed of three or more representatives appointed by the Board.”

In addition to your CCRs and Bylaws, many HOAs adopt Architectural rules or restrictions designed to help streamline the process. These rules may provide specific guidelines about what sorts of structures will be approved. For example, there may be limitations on height, color or setback requirements. Other rules are procedural, outlining a process for submitting plans, obtaining a hearing in front of the committee, or appealing an adverse decision to the Association Board of Directors.

Why is it important to observe your Governing Documents and Rules carefully?

With the recent boom and bust in real estate, Architectural Review has become an increasingly contentious issue. Many aggrieved owners turn to the court system to resolve architectural review disputes. Lawsuits often arise in two contexts: either (1) an owner receives an adverse decision preventing him or her from building their dream home; or (2) A neighbor of the builder is unhappy with the structure going in next door and seeks to have construction halted. Occasionally, neighbors have sought to have an existing structure torn down for being in violation of the Association CCRs.

Architectural review litigation is highly unpleasant, costly and time consuming for HOAs.

What can my HOA do to prevent the disputes and resolve them quickly if they do come up?

1. Establish clear rules: Many CCR and Bylaw provisions relating to architectural review are ambiguous. For example: “No home built in the Pleasantville subdivision shall block the ocean view of any other home within Pleasantville.” This provision is inherently ambiguous. What does it mean to “block” the view? Does this mean entirely eclipse any view of the ocean? Or does it mean block the ocean view in even the slightest manner? Provisions like this one are problematic and can lead to lawsuits.

Many HOAs adopt rules or guidelines that clarify or interpret vague Architectural Review provisions. Carefully drafted rules will sometimes prevent these disputes.

2. Enforce your rules fairly and uniformly: Once your HOA has a clear set of rules in place, it is critical that the Board enforce them uniformly and fairly. Members are often more angry about “selective enforcement” than they are about having their plans denied. These owners may argue that the HOA denied their plans based on a set of rules that other neighbors violated without penalty. This is unfair to the members of the Association, and can undermine the Board’s ability to resolve the dispute. Worse still, it can affect your HOA’s ability to enforce other important rules, such as payment of assessments.

3. Get some help: If you find yourself at a Committee or Board meeting where tempers flare, get some help. Contact an attorney or other specialist who has experience resolving architectural review disputes on behalf of HOAs. If you do find your association served with a lawsuit, contact your attorney and insurance carrier immediately so that you can protect your HOA’s rights.

Jason Grosz
Attorney at Law
jlg@vf-law.com

Online Collections Program

2009-04-01T20:11:00.000-07:00

We are extremely excited to announce the launch of our web-based assessment collection system – communitycollect

April 1st, 2009

Last year, the Vial Fotheringham Collections Department collected over $1.2 million with our aggressive CFE program, all without using the funds of the Homeowner Associations. We are proud to announce the entire system is now online and paperless! The new program is available online 24/7 and offers real-time information!

communitycollect is an online application that streamlines our services, and allows our clients, association board members, and managers, to check the status of delinquent accounts in collection. We know that the key to successful assessment collection is the timely exchange of reliable and accurate information between Vial Fotheringham, the board members, and managers regarding a turned over account. Traditional methods of communicating information are slow and cumbersome in a world where information is possible in real-time.

In the context of assessment collection, the traditional monthly hard copy status report is a relic of the past. Today's sub-prime mortgage crisis reminds us that it is imperative that our boards and managers have the very latest information available to them in order to make swift and intelligent business decisions regarding collections. Relying upon a month end status report that is outdated the minute it is printed is no longer a useful tool. You want to know where you are at this very moment, and where you are headed.

The Internet offers us the ability to communicate real-time information to our boards and managers whenever it is convenient for them to access the information. What could be better than a manager receiving reliable, up-to-date information just before a board meeting, or even while he or she is attending the meeting? Through communitycollect, real-time collection information is readily available whenever and wherever needed via the Internet. communitycollect forms an integral part of Vial Fotheringham’s philosophy of effective assessment collection: be persistent, timely, and aggressive in our collection efforts. In practice, telling the delinquent owner what we plan to do, when we plan to do it, and then carrying out that action is an extremely effective approach to assessment collection. With communitycollect, we have executed this approach to a new level of sophistication.

To learn more about communitycollect, please contact:

OREGON & WASHINGTON - Sarah Lappin, Attorney at Law:
P: 503. 684. 4111, Ext. 156 or e-mail her at csl@vf-law.com

IDAHO - Jeremy O. Evans, Attorney at Law:
P: 208.629.4567 or email: joe@vf-law.com

UTAH - Peter H. Harrison, Attorney at Law:
P: 801.355.9594 or email: phh@vf-law.com

The Northwest HOA Law Center

2009-03-31T21:46:00.000-07:00

To better support our lawyers in legislative and law development matters, Vial Fotheringham formed the Northwest HOA Law Center. As a subsidiary to the law firm, the Law Center publishes books and other materials on Homeowner Association Law, participates in legislative activities and holds educational seminars and forms. Check our Events page often for upcoming forums and seminars near you!

The Northwest HOA Law Center produces the Official HOA Handbook, a valuable resource currently available for Oregon, Washington, and Utah.