HOA, condo & co-op legislation update (2020, Part 1)

By Deborah Goonan, Independent American Communities debgoonan@icloud.com

Highlights of new legislation in California, Colorado, Connecticut, and Florida.

California

HOAs can no longer stop homeowners from adding a rental units to their properties

In an effort to alleviate its housing affordability crisis, California Legislature passed, and Governor Newsom recently signed, amendments to state law that will make it easier to create Accessory Dwelling Units in HOA-governed common interest communities.

An Accessory Dwelling Unit (ADU) is housing industry jargon for any residential dwelling created within in a home or upon a lot. Think basement or garage apartments, splitting a single family home into a duplex. Or perhaps adding a “granny flat” or small manufactured home in the back yard.

ADUs are nothing new to the U.S. Prior generations of Americans commonly subdivided and expanded their homes in this way, for good reason. Some homeowners needed to accommodate aging parents and young adult children. Others were looking for practical ways to save money by sharing expenses with roommates.

Advantages of lifting prohibitions on ADUs

Supporters of the bill that has now become law (AB-3182) say that homeowners and condominium associations, which are not easy to avoid in California, have long prohibited owners from renting out a portion of their homes or adding rental units. That’s made it difficult or impossible for Californians to assist their cash-strapped adult children or aging family members. Many HOAs also frown on homeowners collecting rent from unrelated housemates.

With a shortage of housing options for people who aren’t in a position to buy a home, millions of California residents are forced to pay 30 to 50 percent of their monthly income to rent an apartment. Most of these housing units are small, and located in a complex owned by corporate landlords or investors.

The state Legislature previously increased the rights of some homeowners. A law enacted in 2011 made it illegal for HOAs to enforce rental prohibitions added to their governing documents after January 1, 2012.

But the newly amended statute, which becomes effective January 1, 2021, removes the clause which grandfathers in rental prohibitions enacted by HOAs prior to January 1, 2012. Starting next year, HOA prohibitions on rentals will no longer be valid, subject to some restrictions. (more on this below)

As of 2021, an owner will have the right to add an ADU plus a Junior ADU, if space allows. In other words, the owner of a single family home can now create a 1-bedroom apartment (ADU) in the back yard or above the garage, and also rent out a bedroom in the main home (Junior ADU).

HOAs can still enforced rental restrictions.

An HOA can still limit the total number of rental units in the community to no more than 25% of separate interests (homes/dwellings) that are members of the Association. This limitation is intended to preserve marketability of homes to buyers financing purchase with FHA and VA loans. Likewise, it preserves an owner‘s access to a reverse mortgage.

On the plus side, the new law also allows HOAs to prohibit short-term rentals (durations of less than 30 days), thus preventing neighborhoods from being overrun with troublesome AirBnb rentals and “party houses.”

A homeowner must still obtain local permits before adding an ADU, and must comply with building codes. The local government may still deny a permit, if the addition of an ADU would exceed capacity of local water supplies or sewage treatment facilities.

The “owner-occupancy” clause

Notably, this recently enacted statutory amendment will allow HOAs to require owner-occupancy of any property that includes an ADU.

But…the devil is in the details.

As currently written, the new law also contains a loophole that will allow owners who do not live on the property to buy homes or condos and add ADUs. Specifically, HOAs cannot enact an owner-occupancy requirement until January 1, 2025. Furthermore, the right to add ADUs also applies to proposed homes, not just existing homes.

Additionally, state law does not prevent HOAs from amending their governing documents to raise the limit on the percentage of rental properties to a threshold above 25%.

Could there be unintended consequences?

Thus, lifting restrictions on ADUs could have the effect of enticing speculative development and renovation of condo units or single family homes into income properties.

Indeed, some developers are already proposing new communities made up entirely of duplex homes. The home building industry trade group, National Association of Home Builders, refers to a need for “missing middle” housing.

Homeowners in HOA-governed housing communities need to be on guard against the entry of investors intent on fundamentally transforming their neighborhood. There’s a potential threat here, especially for financially-challenged HOAs.

A well-financed group of real estate investors or developers could acquire enough homes in the HOA to gain control of the board. With a shift in the balance of power, the HOA could then legally raise the threshold of allowable rental properties (well above 25%), and turn most of the single family homes into duplexes managed by corporate landlords.

Such speculation could also prevent ordinary homeowners from adding an ADU in the future, particularly if a few investors own most of the housing units that have already been permitted for ADUs.

Time will tell whether lifting prohibitions on ADUs in HOA-governed communities does more harm than good.

References:

AB-3182 Housing:governing documents: rental or leasing of separate interests: accessory dwelling units. See Legislative Analysis.

See also: California Legislature Further Limits a HOA’s Right to Restrict Rentals

California to license and regulate Debt Collectors and Debt Buyers, including HOA collection attorneys

As of January 1, 2022, California law will require debt collectors and buyers of debt to meet licensure requirements. The legislation is intended to add significant consumer protections, in order to prevent rogue collections activity.

HOA industry trade groups have long insisted that HOA fees and assessments are not “debt” and that HOA manager and attorneys are not debt collectors.

Notably, however, under newly clarified California statute, HOA-governed community associations and their agents are considered to be debt collectors. Therefore, HOAs can no longer claim immunity from fair debt collection acts.

As noted by an attorney of Tinnelly Law Group:

The adoption of SB 908 has several important implications for Homeowners Associations (“HOA”). Notably, the new licensing requirement applies to natural persons, partnerships, corporations, limited liability companies, trusts, estates, cooperatives, associations, and other similar entities. This includes law firms and management companies involved in the collection of debt, including the collection of delinquent assessments. Thus, this bill directly impacts which entities may manage the HOA’s assessment collections.

Considering the foregoing, and to avoid the various penalties provided for in SB 908  (i.e. refunds, restitution, disgorgement, and payment of damages, as appropriate, on behalf of a person injured by the improper conduct) all HOAs should ensure that their designated collection vendors are properly licensed by the DBO by January 1, 2022. 

Corey L. Todd, Esq.

Beginning January 1, 2021, homeowners may file complaints with the state Division of Business Oversight (DBO) regarding unfair HOA collections activity. The regulatory board will have the authority to issue court orders to end harassing debt collection behaviors, and to fine or revoke the license of any debt collector or debt buyer that fails to comply with fair debt collection practices as specified by state law.

Chapter 24 of California state law creates a seven-person Licensing board under California’s DBO. Members will be appointed by the Commissioner. However, state law also requires only one of the members of this regulatory board to be a consumer representative. As is usual in state regulatory agencies, the consumer’s interest tends to be underrepresented.

References:

SB-908

Signed! Debt Collection Licensing Act (Tinnelly Law Group)


Colorado

HOAs must allow family home child care in their communities

This summer, Governor Jared S. Polis signed into law SB20-126, which Allows Home Child Care in Homeowners’ Association Communities.

The law states that HOA-governing boards must allow a the presence of a duly licensed family child care home in the community, regardless of any restrictions to the contrary in its Covenants and Restrictions (CC&Rs).

As with most laws pertaining to HOAs, the owner of the home and child care business is still required to comply with all architectural, noise, nuisance, and other restrictions enforced by the Association. However, the HOA is required to accommodate the installation of a fence on the property, for the safety and security of children, as required by state law.

The law does not apply to officially designated “housing for older persons” commonly known as senior housing or active adult communities.

References:

SB20-126 (summary) and full text of law as enacted

HB20-1200 authorizes the continuation of the Homeowners’ Association Information and Resource Center that is maintained by Department of Regulatory Agencies (DORA).

All common interest communities in the state (to include condominiums as well as planned developments) must continue to register with DORA’s Homeowners’ Association Information and Resource Center. The Center, which also provides consumer information regarding HOAs in the state, will remain active until September 1, 2025.

However, Colorado’s legal requirement to license HOA managers has now officially expired, as of August 2020. (see previous post for details on licensing sunset.)

On an unrelated issue, Legislators added to the bill a religious freedom protection: giving residents the right to display a religious object on the door or doorframe of a condominium, subject to a “reasonable” size restrictions of 36-square inches.

References:

HB 20-1200 (summary) and full text of law as enacted


Connecticut

Beyond repairs to crumbling foundations, condo owners seek access to funds to restore interior, exterior components

Last year, condominium associations became eligible for financial help to repair their buildings’ crumbling foundations. (I provided details of crumbling foundation legislation affecting condominiums in a previous post.)

The Connecticut legislature also established a Supplemental Collapsing Foundation Loan program. The fund sets aside $20 million for owners of homes with crumbling foundations to make repairs to interior walls, decks, landscaping and pools.

Like owners of single family homes, condo owners seek cash to restore their homes and common areas, which were damaged both by a collapsing foundation and the process of jacking up the building to shore up or replace crumbling concrete. However, as currently written, state law does not allow condo associations to apply for funding on behalf of unit owners.

Condo owners are hopeful that will change, if a currently-sponsored House bill gets approval in the state Senate.

The House unanimously approved legislative amendments that will provide condominium associations access to much-needed supplemental loans.

References:

Condo owners would get additional help under House-approved concrete foundations bill By Eric Bedner, Journal Inquirer, Oct 1, 2020 Updated Oct 2, 2020

Connecticut crumbling foundations repair reaches milestone, with thousands still waiting for aid By JESSE LEAVENWORTH HARTFORD COURANT |SEP 28, 2020 AT 7:17 PM


Florida

Housing providers, including HOAs, can ask for proof of disability to support accommodation for Emotional Support Animal

In a years’-long effort to put an end to Emotional Support Animal (ESA) Fraud in the Sunshine State, Governor DeSantis officially enacted a new law that makes it a misdemeanor crime to fake an emotional disability.

HOA and condo associations, as well as rental property landlords, have been dealing with residents skirting no-pet rules in their communities, by claiming to have a medical need for an emotional support animal.

Unlike specially-trained service animals (either dogs or small ponies), an ESA is sometimes prescribed by a doctor to help the patient cope with emotional or psychological disorders such depression or post-traumatic stress disorder (PTSD).

While the ESA is allowable under federal and state Fair Housing laws, the Department of Housing and Urban Development (HUD) recently clarified that housing providers have the right to ensure that a resident’s request is valid, and not based on a fake prescription issued by a doctor who has no personal knowledge of the resident’s disability.

Florida statute is based on those HUD guidelines.

To qualify for a housing accommodation for an ESA, a resident must provide a valid letter from a health care provider with personal knowledge of the disability. The HOA can ask for written clarification of the reason the resident needs the emotional support of an animal, although a doctor is not permitted to reveal the medical diagnosis.

Anyone who fakes the certification or need for an ESA can be charged with a misdemeanor crime. Blatant cases of fraud could result in a fine up to $500 and up to 2 months in jail.

References:

Florida Statute 760.27

HUD notice FHEO-2020-01 (Emotional Support Animals/Fair Housing guidelines)

See also: Faking Your Emotional Support Chicken in Florida Can Now Land You In Jail!


Deborah Goonan

is the creator of Independent American Communities (IAC), a Housing Consumer Education blog focusing on HOA governed Common Interest Developments.
IAC documents legal, social, and economic challenges — and explores solutions to problems — in U.S. HOA-governed common interest communities.