By Deborah Goonan, Independent American Communities
What can be done about dysfunctional association-governed, common interest communities?
A volunteer legal committee of the Washington Bar Association has been working to answer that question for more than a decade. They’ve arranged numerous meetings with stakeholders such as developers, home builders, and lenders to hammer out fundamental policy disagreements.
But, until now, state Legislators have not heard from actual consumers — homeowners and residents of condominium, cooperative, and homeowners’ associations.
Washington State Legislature is currently considering a 134-page bill, the Washington Uniform Common Interest Ownership Act (UCIOA), that would consolidate three separate acts currently governing condominium, cooperative, and homeowners’ associations.
Senate Bill 6175 is sponsored by Senator Jamie Pedersen [D], and cosponsored by Senator Anna Rivers [R] and Senator Mark Mullet [D]. The provisions of UCIOA, if enacted as currently written, would apply to newly formed governance associations. Existing associations could opt into UCIOA by a vote of membership, but will not be required to do so.
A public hearing was held on January 18, 2017, by the Senate Committee on Financial Institutions & Insurance. I’ve included a link to the 33-minute session below. Here are some of the highlights.
Real estate industry stakeholders testimony
Sen. Pedersen began the meeting by explaining that a group of volunteer attorneys have been working on SB 6175 since 2005. They saw the need to address delayed turnover of developer control and “dysfunctional” homeowner-controlled associations that have difficulty setting a workable annual budget.
Most of the half-hour hearing was monopolized by testimony from stakeholders for the industry, among them Community Associations Institute Legislative Action Committee (WSCAI) for Washington, attorneys representing developers, and representatives for the lending industry.
Not surprisingly, two representatives of WSCAI, Theresa Torgesen and Jeremy Stilwell, testified in support of the Uniform Act.
Industry leaders of CAI have played an active role in drafting several version of Uniform Acts, and promoting states to adopt their vision of how common interest communities should be governed.
Uniform laws have existed since the 1990s, a product of the Uniform Law Commission. Stakeholders begin with the national template and customize it to their state laws.
The process is complicated and controversial.
According to CAI, just 14 states — including Washington—have adopted a Uniform Act that applies to condominiums, only one state has enacted a Uniform Act applicable to planned communities (Pennsylvania) or cooperatives (Virginia).
In terms of a Uniform Act that applies to all types of common interest communities, only 8 states have adopted one of three versions of UCIOA.
One member of CAI’s Legislative Action Committee, Stillwell, expressed deep concern with some developer warranty provisions that had been added to SB 6175. As currently written, the bill does not protect homeowners against damage that results from intrusion of water and moisture, and resulting mold infestation. CAI would like to remove these glaring exceptions, as well as the portion of the bill that appears to limit homeowner access to the courts to resolve construction warranty claims.
Lance Olsen of McCarthy Holthus law firm, a representative for the lending industry, addressed the committee about the bill’s proposal to expand the super priority lien to include “reasonable” attorney fees. Olsen explained that, because attorney fees are not limited by statute, the borrower is often invoiced for high attorney fees that exceed the amount of delinquent assessments.
Although homeowner advocates have been well aware of this problem for years, several members of the legislative committee seemed surprised by that fact.
Stillwell of CAI reminded the committee that, as long as the lender pays 6 months of assessments prior to the association’s foreclosure, attorney fees are not payable by the bank.
However, neither CAI nor the financial lobbyist mentioned the fact that the association often fails to properly notify a mortgage lender or servicer of the lien and impending HOA foreclosure. In either case, the homeowner ultimately bears the burden of paying attorney fees that exceed the amount of past due assessments, or ends up declaring bankruptcy.
Interestingly, Jan Himebaugh, representing home builders, pointed out that buyers are not actively demanding condominiums and homeowners associations. The driving forces behind mandatory HOA development are local Land Use regulations and the practice of local governments passing on the responsibility for storm water management to developers and private homeowners.
Homeowner testimony
Two Washington State homeowners briefly testified on behalf of homeowners.
In her testimony, condominium owner Raelene Schifano objected to the fact that WA UCIOA, as currently written, fails to provide adequate due process for homeowners accused of violating the covenants of their association.
Schifano explains that a mere “right to be heard” by the association or one of its appointed committee is insufficient to protect homeowner rights, because, in her words, the board serves as “Jury, Judge, and Executioner.”
Schifano shared her personal story, explaining that she was erroneously fined by her condo association for smoking in the limited common area of her unit, even though she and her husband could prove they were out of state at the time. It cost Schifano $15,000 in attorney fees and court costs, to prove that the her condo board had made a mistake. In the process, her condo association spent another $20,000 fighting a senseless legal battle, generating unnecessary costs.
Although the association’s insurance company picked up legal defense costs, condo owners ultimately pay in the form of higher insurance premiums that are a component of monthly assessments and maintenance fees.
Joe Mendoza, a homeowner who twice served on his association’s board of directors, agreed with Schifano. He testified that, in SB 6175, “the homeowner has no recourse, but the board of directors has total recourse.” Mendoza stressed the fact that both current statute and proposed amendments unfairly place the legal burden on homeowners to prove their case in civil court.
Defending or asserting one’s rights in court costs thousands of dollars that few can afford.
Mendoza provided me with additional notes on his concerns about SB 6175, among them:
The definition of assessments includes monetary fines imposed by the association for violations to the Covenants and Restrictions, granting the association the legal power to place a lien on property for minor disputes over aesthetic rules.
The definition of Rules is broad and vague. The board is granted almost unlimited power to regulate not only common property, but also private property and behavior of residents in the community.
A majority of owners would have to vote to reject a budget or financial obligation, rather than voting to approve it, reducing the power of association members to keep costs under control.
What can concerned homeowners do?
SB 6175 can be monitored and tracked here:
http://app.leg.wa.gov/billsummary?BillNumber=6175&Year=2017
Homeowners and residents should contact their state representatives in the House and Senate to express their concerns and, if possible, to share stories of their personal difficulties with their associations.
There will likely be additional hearings on the bill if it progresses through the Legislature, providing the opportunity to witness stakeholder lobbyists in action, and to testify for more balanced legislation that protects the rights of individual housing consumers .
Reference:
Video of January 18, 2018 testimony on SB 6175 (33 min.):
https://www.tvw.org/watch/?eventID=2018011216
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