By Deborah Goonan, Independent American Communities
An annual summary of important U.S. housing policies and selected state laws enacted in 2019, pertaining to HOA-governed communities.
(Updated Jan. 4, 2020. Added updates on change to zoning laws in Minneapolis, MN.)
Planned Communities Act no longer applies to certain HOAs with recreation centers
Sun Cities Recreation Centers heavily promoted HB2374, and then SB1094. Their goal: to exempt themselves from compliance with Arizona Planned Communities Act.
The new legislation creates two exemptions to the Planned Communities Act:
- Any planned community or “association” incorporated or organized prior to 1974
- Any association organized for the “sole purpose of supporting recreational activities in a real estate development.”
Supporters of HB 2374 knew their bill wan’t going anywhere in the House, so they played a common political trick. Lobbyists convinced state Senate legislators to add entire text of HB2374 to SB 1094.
NOTE: As introduced, SB 1094 was a totally unrelated telecommunications bill. (Read it here)
On March 28, 2019, by way of a strike-everything amendment in the House, SB1094 morphed into the Senate version of HB 2374, a pure political play by its backers, to ensure its passage.
Amended state law affects HOA collections and application of fee payments
SB1531: was signed by Governor on May 8, 2019
This hotly contested bill was a battle between homeowner advocates (primarily Arizona Homeowners Coalition, AZHOC) and HOA-industry trade groups.
HOA attorneys sought to change priority of payment clauses in state law, adding the following language in one version of the bill:
Any unpaid amounts in the order debt was accrued if those charges, costs, fees, or other amounts are specifically authorized in the Declaration to be charged to the unit owner.
Thankfully, Senate committee members removed the above language, which would have allowed attorneys to get paid before the HOA-governed community.
In other words, no changes to current state law on priority of payments — each homeowner payment received by the HOA must still be applied first to current and past due assessments.
However, the new legislation also creates an obligation for all associations with more than 50 units to send monthly account statements to each member by postal mail, or electronic delivery, at the choice of the member-homeowner.
This creates new revenue streams and potential perverse incentives for HOA managers and collection agents. That doesn’t really benefit HOAs or homeowners.
For example, third-party collection agents are now responsible for providing regular statements of account to the homeowner. But attorneys can also collect their added fees and HOA assessments directly from the homeowner.
Additionally, for any payment that is not made by cash or check, management agents or third-party collection agents can add a “convenience fee.”
Consumer protection for condo owners terminating their association
Several amendments to the Condominium Act create additional responsibilities for the association, when at least 80% of voting interests favor of terminating the association.
First, the condo association is now required to conduct an open meeting and present written proof that is has gathered sufficient votes in favor of termination.
Second, a condo owner who disagrees with the association’s appraised value of a unit is entitled to pay for a second appraisal. If the two appraisal amounts differ by more than 5%, an Arbitrator will decide on fair market value for the unit. If the appraisal amounts differ by 5% or less, the unit owner would be compensated the higher amount.
The legislation also adds 5% of the sale price of the unit for relocation expenses.
These amendments won’t prevent condominium terminations. Likewise, they cannot stop 80% of voting interests from forcing the remaining 20% of voting interests to give up their ownership rights. However, they do better ensure that each condo unit owner receives fair market value and extra money toward relocation costs.
HOA-governed communities must now allow home based family daycare for up to 14 children
As of January 1, 2020, HOA covenants cannot prohibit the use of a residence as a large family daycare, providing child care for up to 14 children under age 10.
The law is quite clear and comprehensive. It states that no government jurisdiction, housing provider, or restrictive covenants may deny the use of a housing unit as a family daycare center operated by a licensed child care provider.
Family daycare operators will still be obligated to comply with all other restrictive covenants, such as rules that restrict noise or other nuisances that could interfere with neighbors’ enjoyment of their property.
SB 234 Signed! Keeping the Kids Close to Home Act
October 17, 2019|by Steven J. Tinnelly, Esq.
Housing providers must allow display of religious objects
As of January 1, 2020, no landlord or homeowners, condominium, or cooperative association can prohibit a resident from displaying a religious object on the entry door or doorframe to that resident’s unit.
Tenants and HOA residents may place one or more objects on the door or door frame of their dwelling, provided the size does not exceed 36 by 12 square inches.
Items placed on a door cannot include vulgarities, and cannot interfere with safe operation of the door. A landlord or HOA can require a resident to temporarily remove items if the door needs maintenance or replacement.
The law defines a “religious item” as “an item displayed because of sincerely held religious beliefs.”
The new civil code invalidates any conflicting restrictive covenants.
Read SB 652
Housing providers cannot discriminate due to Veteran, military status
SB 222 makes it a violation of civil rights to engage in housing discrimination based upon Veteran or military status. The new law offers California residents even greater protection than federal fair housing laws.
Specifically, landlords and association-governed communities must not deny an application for housing, simply because the resident’s source of income includes HUD Veterans Affairs Supportive Housing vouchers.
Senate Bill No. 222
CHAPTER 601 An act to amend Sections 12920, 12921, 12927, 12930, 12931, 12955, 12955.8, 12956.1, and 12956.2 of the Government Code, relating to discrimination.[ Approved by Governor October 08, 2019. Filed with Secretary of State October 08, 2019. ]
Read full text of SB 222
Balcony Safety Bill with removal of the ‘poison pill’
This year SB 326 addresses balcony safety responsibilities of condominium associations, as opposed to landlords of rental properties.
CAI-CLAC and the Executive Council for Homeowners (ECHO) took an active role in writing and endorsing SB 326.
California law now requires condominium and cooperative associations to inspect balconies and other suspended wood structures no later than 2025.
After January 1, 2020, new buildings have six years to complete an inspection.
After the initial inspection, associations must repeat the safety inspection once every 9 years.
CAI-CLAC and ECHO supported SB 326, because it includes provisions that outlaw a real estate developer’s, declarant’s, or home builder’s ‘poison pill’ provisions in governing documents of an association-governed community. (More details here.)
Now in effect: HOA election reforms
California homeowners will also notice significant HOA election reform, thanks to passage of SB 323.
This year Governor Newsom signed an important HOA Election Reform bill that will change the HOA election process “by ensuring that HOA members are not disenfranchised,” according to Senator Bob Wieckowski [D-Fremont].
The new law makes several changes to the Davis Stirling Act, and applies to all common interest communities in the state of California.
For starters, all association-governed communities must hold an election at least every four years. The law also prevents HOA boards from limiting the candidate pool by hand-picking their allies through a nominating committee.
California HOAs must also allow any member to run for election to the board, with just a few narrow exceptions. Those exceptions must be specified in the Association’s bylaws.
SB 323 was supported by the Center for California Homeowner Association Law (CCHAL), California Alliance for Retired Americans (CARA), American Civil Liberties Union, Greater Sacramento Urban League and the Nonprofit Housing Association of Northern California.
Supporters say the reform measures are necessary to ensure that homeowners with opposing views or different priorities have a chance to unseat incumbent boards that don’t serve the interests of all members of the community.
As usual, HOA-industry trade group Community Associations Institute, through their California Legislative Action Committee (CAI-CLAC) vehemently opposed SB 323. The group continues to criticize these HOA election reforms, and is already making efforts to reverse protections for homeowners. (Read more about SB 323.)
Condo associations regain power of non-judicial foreclosure, with conditions
Following a 2018 appeals court decision in Sakal v. Association of Apartment Owners of Hawaiian Monarch, 143 Haw. 219, 426 P.3d 443 a community association trade group lobbied for passage of SB551 to effectively reverse the court’s decision.
In Sakal, the court ruled that a condominium association could only use non-judicial foreclosure if the association’s governing document gave it explicit authority for “power of sale.”
SB 551 amends condominium statute to permit an association to proceed with non-judicial foreclosure, even if it’s not allowed by the community association’s governing documents.
However, before a condo association can conduct a non-judicial foreclosure, they must meet a few conditions:
- Within 30 days of notice of lien and intent to foreclose, a unit owner must have an opportunity to request mediation. The parties have 60 days to settle the dispute and/or come to an agreement on payment terms.
- The association can only foreclose on delinquent maintenance fees and assessments. Fines and legal fees cannot be included in the lien filed for foreclosure.
Importantly, in SB 551, a condo association’s power of non-judicial foreclosure is retroactive. That means the new law applies to thousands of past foreclosures, many of which have been challenged in court.
After SB551 was passed by both chambers of the Hawaii Legislature, Governor David Ige filed his intent to veto the bill. However, both houses of the legislature voted to override the veto, allowing the bill to become law without the Governor’s signature. (Read more about SB551.)
SB 220 add Condo Association due process requirement prior to imposing a fine on a unit owner
NOTE: this bill only applies to Condominium Associations, not planned communities with HOAs under the Common Interest Community Association Act.
The amended condominium statute now obligates the Association to provide a unit owner with a minimum of 20 days written notice and “opportunity to be heard,” prior to its levy of a fine, initiating collections, or filing a negative report to a credit bureau.
Important note: these conditions only apply to imposition of fines, and not other rights of the board. An HOA can still revoke voting rights or suspend access to common amenities.
The bill was sponsored by Sen. Laura Murphy (D), Rep. Kelly Burke(D), and gained bipartisan support.
Construction defects legislation provides contractors a “right to cure”
New legislation, effect April 15, 2019, requires a homeowners or condominium association to file a written claim with a general contractor or subcontractor at least 120 days prior to pursuing class action litigation involving defective construction.
The law gives contractors and subcontractors the right to inspect the property for alleged defects, as well as the right to conduct destructive testing.
Notably, the legislation adds the following provision with regard to Arbitration clauses:
To the extent that an arbitration clause in a contract for the sale, design, or construction of real property conflicts with this chapter, this chapter shall control.
It appears that this change prevents home builders from requiring mandatory arbitration of defect claims on their own terms. At the same time, the law provided an opportunity to fix problems and possibly prevent expensive and lengthy litigation.
Read Iowa SB 532 (Construction Defects, right to cure) As signed by Governor
Changes to Marketable Record Title Act (MRTA)
Due to recent amendments supported by the Michigan Land Title Association, HOAs have until March 2021 to preserve their 40-plus-year old restrictive covenants and easements.
New state law makes it easier to conduct title searches. But it also shifts the burden for preserving old restrictive covenants to the property owners, or the owners’ association.
Associations with CC&Rs less than 40 years old must file an official notice of preservation within two years of the expiration date.
If not preserved, restrictive covenants could expire after 40 years. That could be a good thing or a bad thing, depending on the nature of the restrictions, and whether they still serve a desirable purpose.
Read Public Act 572
Also interesting, read the Legislative Summary
HOAs must now allow children to set up lemonade stands
“When life gives you lemons, make lemonade.” It’s a familiar adage parents and grandparents use to teach children to make the best of a bad situation.
So why not whip up a batch of lemonade, and sell some to the neighbors?
No can do? You say your City government and your HOA won’t allow it?
Well, here’s a bit of good news.
Gov. Greg Abbott officially signed HB 234 on June 10, 2019. On his Twitter account, Abbott calls this new Act “relating to the local regulation of the sale of lemonade or other beverages by children” a “common sense law.”
Read HB 234.
Also, watch testimony of year-old Branson Burton of Austin, as he explains to lawmakers why he supports HB 234.
Shu Bartholomew and I also discussed this new law in this On the Commons podcast.
Questionable protection for home-based child care businesses in HOA-governed communities
This year, the Governor signed H1853, which says that your HOA cannot classify your child care activities as a “business,” if your local zoning classifies the activity as a “residential” or “ancillary” use.
That’s important, because many HOA-governed communities have restrictions that effectively prohibit operating a home-based business.
At first glance, it looks like H1853 will help child care providers, making it harder for HOAs to prohibit their home-based services. Keep in mind, this only applies if your local zoning classifies in-home day care as a “residential” use.
However, H1853 does not prevent HOAs from amending their Declarations (CC&Rs) to specifically restrict home-based child care, regardless of local zoning classification.
That kind of defeats the purpose, doesn’t it?
For more details about the new law, read my previous IAC post.
Read H 1853.
Two more states regulate short-term rentals
Arizona and Washington enacted new laws to address problems caused by short-term rentals.
Arizona’s HB-2672 allows counties and municipalities limited authority to regulate short term rentals. Rep. John Kavanaugh (R) introduced the legislation in response to constituent complaints of rentals used as “party houses,” creating public nuisances. The Governor signed the bill into law in May 2019.
Also in May, Washington Governor Inslee approved a new act (Sub HB 1718, Chapter 346) regulating short-term rentals/ The new law implements several provisions, among them:
Defines a short-term rental as lodging provided for less than thirty days. But it does not apply to “ A dwelling unit that is occupied by the owner for at least six months during the calendar year and in which fewer than three rooms are rented at any time”
Short-term rental operators must pay local, state, and federal taxes, inluding occupancy, sales, lodging, and other applicable payments, just as owners and operators of hotels or bed and breakfasts.
HOAs must now allow ADUs in these states
In 2019, Several ADU (Accessory Dwelling Unit) manufacturers joined affordable housing advocates in lobbying for new state legislation banning exclusive single family zoning by local governments.
Their efforts were successful in Oregon, which passed HB 2001. The new state laws gives any homeowner with property in a city of more than 10,000 residents the right to convert their home into a duplex.
The intent of the legislation is to allow property owners to create additional housing units on their existing property. According to the full text of the enrolled bill, any Covenants and Restrictions enacted or amended after the new law’s 2019 effective date cannot prohibit a homeowner from converting a single family home to a duplex.
And in California, Governor Newsom signed CA SB670, which states that Covenants and Restrictions, and HOAs that enforce them, cannot prohibit or unreasonably restrict the right of a homeowner to add an ADU to their property.
Local governments and HOAs will retain their rights to set reasonable restrictions and codes related to duplex conversions, ADUs, or other allowable land uses. These new laws are certain to shake up the status quo in HOA-governed communities.
Minneapolis ends single family zoning, too
Minneapolis is touted as the first large city to changes its zoning ordinances to allow property owners to build duplex or triplex homes on a single lot.
Supporters say this new ban on exclusive single family zoning will increase housing supply in the growing city, making housing more affordable.
But opponents of the single family zoning ban say that increasing density is more likely to result in developers tearing down single family homes and replacing them with triplexes. Most, if not all of the new units will become market-rate rentals. That won’t make housing more affordable, but instead drive rents and purchase prices even higher.
FHA eases condo financing
The Federal Housing Administration claims its revised condominium certification policies will boost homeownership.
Several policy changes became effective October 15, 2019.
- FHA is bringing back “spot loan approvals” for condominiums, allowing individual unit buyers to gain FHA mortgage approval. Loans can now be approved even when the housing project is still under construction, and does not yet qualify as an FHA-certified community. The catch is, the condo project must prove it is “financially stable,” and that’s a challenge for many so-called “affordable” housing associations.
- Currently, only 6.5% of condo projects in the U.S. are FHA certified. Critics of the current system complain that the certification and recertification process is costly and burdensome. In response, FHA says it will now require re-certification every three years, instead of every two years.
- The current administration will now allow for a higher percentage of commercial space in mixed-use condominium projects.
- Additionally, FHA will now seriously consider approval of financing for condo units in communities with only 35% owner-occupancy. Furthermore, up to 75% of units in a single condo association can be purchased using FHA mortgages.
HOA-industry trade groups and National Association of Realtors are celebrating these new guidelines. However, don’t count on these new FHA policies to make homeownership more affordable. ♦