Creating an HOA in Oregon

Creating a Homeowners Association in Oregon

Many older subdivisions have recorded CC&Rs but no homeowners association to govern the community. Who enforces the provisions of the CC&Rs?  Who maintains the common areas? Who ensures compliance with the architectural requirements? As a practical matter, it often makes sense to have an HOA handle these issues, rather than an individual owner or group of owners.

The Oregon Planned Community Act (ORS Chapter 94) contains a process for owners to use to form an HOA. The procedure applies to pre-2002 communities with shared maintenance responsibilities (private roads, perimeter fence, entrance monument) and with CC&Rs that require owners to pay assessments.

The process is started when at least 10% of the lot owners initiate the process. Once that happens, here are the following steps:

1. Notice of an organizational meeting is sent to all lot owners in the community.

2. The notice must include the names of the individuals initiating the process, a statement that the purpose of the meeting is to form an HOA, and a copy of the proposed articles of incorporation.

3. In addition, the notice must state the required number of votes necessary to form the HOA. If the existing CC&Rs are silent, then at least a majority of the lot owners must vote to create the HOA.

4. Lastly, the notice must state that the owners will vote to elect a board of directors to govern the new HOA.

5. At the organizational meeting, a new board of directors is elected. The new board is then required to file the articles of incorporation and record any required documents in the county recording office.

Assuming the owners vote to form the HOA, all of the organizational expenses are a common expense shared by all owners.  Now, this is a simplified version of the process. The statute governing the process (ORS 94.574) is a bit more complex, and you should consult a qualified attorney before embarking on the formation of a homeowners association.

But what if the subdivision has recorded CC&Rs but no shared maintenance obligations or payment of dues? In that case, the owners must amend the CC&Rs to form an HOA. The CC&R amendment would add provisions creating the HOA and authorizing the election of a board of directors. The required vote may be high. Some CC&Rs required the approval of at least 90% of all owners. In that case, it’s critical that owners understand the benefit and value of forming an HOA.

Once the amendment is approved and recorded, the owners should incorporate as a nonprofit and file articles of incorporation with the Oregon Secretary of State. In addition, the owners should adopt bylaws. The bylaws are the operational guidelines for the new HOA and the board of directors, and should be recorded in the county recording office.

The process to form an HOA can be complicated, and as always, you are encouraged to seek competent legal advice.

Understanding Executive Session

Most condominium and homeowner associations in Washington and Oregon are subject to open board meeting requirements.  The requirements are similar to the laws governing city councils and other governmental agencies. Conceptually, the policy behind open meeting requirements is that members of the community association are entitled to listen and witness the deliberation, discussion, and decision making of the board of directors.

Prior to any board of director meeting, notice must be given to all owners within the community. The notice must state the time and place of the meeting, and ideally, the meeting agenda. Owners are allowed to attend the board meeting, but because non-board members are not part of the “assembly”, owners do not have a right to vote or participate while the board is conducting its business.

There is an exception to the open meeting requirement: executive session. Executive sessions may be used so that the board can discuss private or sensitive topics behind closed doors. Keep in mind, no decisions are made in executive session—it’s only for discussion.

Here’s how the board should use executive session:

1. During a regularly noticed and scheduled board meeting, any member of the board may make a motion to adjourn to executive session.

2. The motion should indicate the general topic of discussion.

3. Once the motion passes, the board asks the audience to exit the meeting or the board moves to a different location.

4. The board then discussed the topic at issue.

5. Once the executive session is completed, the board moves back into the open meeting.

6. If there is an action item as a result of the executive session, a motion is made and a vote taken once back in the open meeting.

Remember, there are only certain topics which are appropriate for executive session. For Washington homeowner associations, those topics are:

1. Considering personnel matters;

2. Consulting with legal counsel or considering communications with legal counsel; and

3. Discussion of likely or pending litigation, matters involving possible violations of the governing documents of the association, and matters involving the possible liability of an owner to the association. (RCW 64.38.035)

For Oregon planned communities and condominium associations, the executive session topics are:

1. Consultation with legal counsel;

2. Personnel matters;

3. Negotiation of third party contracts; and

4. Discussion of delinquent assessments. (ORS 94.640, ORS 100.420)

Directors vs. Officers

There is often confusion about the difference between directors and officers in condominium and homeowner associations.  Much of the confusion stems from the corporate world. In large corporations, the board members of a corporation are often different individuals than the officers.  For example, IBM has 13 individuals on its board of directors and nearly 20 different individual officers. In other words, there is no overlap between the directors and the officers.

In community associations, however, the individual board members are usually the same individuals who serve as officers.  Members of the association vote for and elect individuals to the board of directors. This is done at the annual meeting of the membership.  Once the board members are elected, the board members (without a vote of the owners) appoint individuals to fill officer positions.  The officer positions consist of a president (or chairperson), secretary, and treasurer. Some association bylaws authorize the appointment of additional officers.

There are differences between the roles and obligations of directors vs. officers.  First, under Oregon law, directors must be owners or co-owners of a condominium unit or planned community lot. (ORS 100.416 & ORS 639). If the unit or lot is owned by a corporation, limited liability company, or similar form of ownership, then an employee, member, or manager of the entity may serve on the board.  There is no similar statutory requirement, however, that officers must be owners or co-owners.

Second, board members are almost always elected by a vote of the association's owners and (usually) may only be removed or recalled by a vote of the owners.  Officers, on the other hand, are commonly elected or appointed by the board members, without a vote and without the input of the ownership.  Most governing documents provide that officers may be removed by a majority vote of the board members-without a vote of the ownership.

Third, you may have heard that the president or chairperson of the association only votes in the event of a tie. This is true-especially in the corporate world.  However, at an association board meeting, the board members are voting in their capacity as board members, not in their capacity as officers.  Board members have a fiduciary duty to vote on association matters.  The owners elect directors because they trust and value the director's judgment. Assuming the president or chairperson of the association is also a board member, the chair has a duty to vote!

Lastly, many governing documents outline specific duties of board members and officers. In most cases, there are significant differences between the authority of directors and the authority of the officers. Review those provisions carefully and look for differences between the roles.

Cumulative Voting

Some community association bylaws or articles of incorporation authorize the use of cumulative voting for the election of directors.  Under this type of voting, owners may cast multiple votes for a single candidate. Under standard voting procedures, each owner is allocated one vote per lot or unit.  So, if there are 3 positions open on the board of directors, with 5 candidates running, the owner is entitled to cast votes for 3 of the 5 candidates.  The ballot would look something like this:

Jane Anderson	1
Jack Smith
Henry Talmage
Cindy Almberg	1
Kevin Harker	1

But under a cumulative voting arrangement, I may allocate all three of my votes to a single candidate, like this:

Jane Anderson
Jack Smith
Henry Talmage
Cindy Almberg
Kevin Harker	3

Oregon law authorizes cumulative voting only if provided for in the articles of incorporation or bylaws:

If the articles or bylaws provide for cumulative voting by members, members may so vote, by multiplying the number of votes the members are entitled to cast by the number of directors for whom they are entitled to vote, and cast the product for a single candidate or distribute the product among two or more candidates. (ORS 65.247).

The Washington Nonprofit Corporation Act contains a similar requirement:

The articles of incorporation or the bylaws may provide that in all elections for directors every member entitled to vote shall have the right to cumulate his [or her] vote and to give one candidate a number of votes equal to his [or her] vote multiplied by the number of directors to be elected, or by distributing such votes on the same principle among any number of such candidates. (RCW 24.03.085(4)).

Using cumulative voting, a small group of owners who coordinate their voting efforts may be able to secure the election of a candidate as a minority member of the board.  Robert's Rules of Order, however, advises against the use of cumulative voting since

it violates the fundamental principle of parliamentary law that each member is entitled to one and only one vote on a question. (RRO, 11th Ed., Section 46).

"Electing" Board Members

Each year community associations in Oregon and Washington hold annual meetings of the membership.  The primary purpose of the annual meeting is to elect individuals to the board of directors. Let's suppose that an association has a board of directors comprised of 7 individual members. At the annual meeting, 3 of the director positions will be open (the term of office for the remaining 4 directors is the following year). Now, let's suppose that only 3 individuals have been nominated prior to the annual meeting. In other words, there are 3 spots open and only 3 people have agreed to run for the positions. Is it necessary to go through the steps of "electing" these individuals? The short answer is, yes.  Here's why.

Most bylaws state that board members must be "elected."  Robert's Rules states:

If the bylaws require the election of officers to be by ballot and there is only one nominee for an office, the ballot must nevertheless be taken for that office[.] (RRO, 11th ed., Section 46)

But there's another reason.  Under Robert's Rules of Order members are entitled to nominate candidates from the floor.  Although only 3 individuals were nominated prior to the annual meeting, other owners may desire to nominate additional members at the actual annual meeting.  Once again, Robert's Rules states:

[M]embers still have the right, on the ballot, to cast "write-in votes" for other eligible persons.

In summary, going through the formal steps of balloting and electing when the outcome is obvious may seem tedious.  However, following the formalities lessens the likelihood of legal challenges down the road.

Board Member Resignations

Suppose that during the middle of a board meeting a director stands up and says "I quit!". Immediately, the director leaves the meeting.  Does this constitute a resignation from the board of directors? And what if the director returns to the meeting minutes later and explains that he or she didn't really intend to resign, and now wants to return to the board of directors? Most community association bylaws require that board member resignations be in writing.  Further, Robert's Rules of Order suggests that resignations must be "accepted" by the remaining directors:

The duties of a position must not be abandoned until a resignation has been accepted and becomes effective, or at least there has been a reasonable opportunity for it to be accepted.

The acceptance is usually accomplished by a motion to accept the resignation, but recording the resignation in the minutes, without a motion or vote, is likely sufficient to accept the resignation. The act of recording the resignation in the meeting minutes may satisfy the "in writing" requirement.

But what if the resignation is oral, like in the hypothetical above?  If the resignation is never memorialized in writing and it is obvious that the director resigned, i.e. they don't attend the next board meeting, they cease communications with the board, etc., then the board is entitled fill the vacancy regardless of whether the resignation is in writing.

Back to the hypothetical. Let's assume the director who proclaimed they quit and left the meeting returns minutes later, before the board could act or even discuss the resignation.  In that case, it's not obvious that the director desired to abandoned their duties and resign, and the board has not acted or relied on the resignation. The oral resignation should be considered ineffective.

If a director formally resigns in writing, can that resignation be revoked? Generally, written resignations may not be revoked. This is especially true if the board has already appointed a replacement to fill the vacancy.  Oregon law, however, suggests that the board of directors may allow revocation of a resignation:

Once delivered, a notice of resignation is irrevocable unless revocation is permitted by the board of directors. (ORS Chapter 65.321(3)).

In other words, the board may exercise discretion to accept a revocation after a director has formally resigned.

Let's skip ahead and assume a resignation is effective and has not been revoked. This creates a vacancy on the board. The general process to follow is: the remaining directors vote to appoint a replacement to fill the vacancy. This can be done even if the vacancy has left less than a quorum of directors. The individual appointed then serves the remainder of the term.

As always, be sure to carefully review your Bylaws to determine if there are provisions governing resignations or the filling of vacancies.

The Importance of Bids

Most homeowner and condominium associations engage the services of professionals to help with the operations of the community. These professionals include accountants, landscapers, contractors, and managers. As board members, you have a duty to ensure that association funds are spent carefully and responsibly.  Part of the process to ensure financial responsibility is soliciting and reviewing competitive bids prior to hiring professionals or vendors.

1.  Define the Scope of Work

Prior to seeking competitive bids the board or committee must develop a comprehensive scope of work. In other words, what services does the board want performed? Let's suppose the association wants to hire a landscaping company to maintain the common areas. The scope of work may look something like this:

SERVICE	FREQUENCY	COST
GRASS MOWING, FERTILIZING, AND MAINTENANCE	3X MONTH
TRASH COLLECTION IN COMMON AREAS	WEEKLY
TREE & SHRUB PRUNING & MAINTENANCE	MONTHLY
IRRIGATION SYSTEM MAINTENANCE	BI-ANNUALLY
APPLICATION OF HERBICIDES AND INSECTICIDES	AS NEEDED
TOTAL ESTIMATED COST:

Each potential contractor receives the same bid form and returns the form to the association with their total estimated costs and a break-down of each line item cost.  Otherwise, its easy to be misled. Perhaps one contractor's price appears significantly lower, but it's because they haven't included the costs associated with the maintenance of the irrigation system.

Ideally, three bids should be solicited and compared.  However, some associations develop strong and lengthy relationships with vendors. That's ideal, but it makes sense to occasionally compare services and prices of other vendors even if the board is intent on continuing its relationship with its preferred vendor or contractor.

2.  Do Your Homework

Once bids are received, ask around about the vendors who submitted bids. What's their reputation? In Oregon and Washington you can check on the status of a contractor's license, review their insurance, and see if anyone has submitted complaints against the company.

For Oregon contractors visit: http://search.ccb.state.or.us/search/

For Washington contractors visit: http://www.lni.wa.gov/TradesLicensing/Contractors/HireCon/verify/Default.asp 

3.  Hammer Out The Contract

Very few people enter into a contract with the expectation of future disputes or that the other party may breach the terms of the agreement.  At a minimum, service contracts should contain the following elements:

• Detailed statement of when and how work will be performed;
• Amount and terms of the contract price;
• Acts or omissions which entitle a party to terminate the contract;
• A warranty of any work or services performed;
• A statement by the contractor that it is licensed, insured and bonded;
• Indemnification language whereby the contractor will indemnify and hold harmless the association and the board members from legal claims arising out of the contractor's work; and
• Provisions governing how disputes will be resolved, i.e. mediation, arbitration.

As always, have an attorney prepare or review all contracts prior to signing.

4.  Review

Once the bidding and contracting are done, follow-up with contractors and vendors to ensure that the terms of the contract are fulfilled.  The board or a committee should review all association contracts on an annual basis to verify that services have been performed, if new bids should be solicited, and that payments have been made.

2015 Case Law Review

Lawyers depend on case law to provide advice to homeowner and condominium associations.  While cases in other states are not binding, they often provide guidance to lawyers and board members. The following is a short summary of cases from around the United States involving community associations.

Filmore LLLP v. Unit Owners Association of Centre Pointe Condominium - Washington

The association attempted to adopt a cap on the number of rentals in the community. While the governing documents stated that only a majority of owners were required to vote in favor of the amendment, the Court imposed a higher approval threshold of a supermajority of all owners.

Acorn Ponds Homeowners Association vs. DeBenedittis - New York

Pedestrian filed action against homeowners association and association's snow removal contractor to recover damages for personal injuries pedestrian allegedly sustained when he slipped and fell on a patch of ice on property owned by association. The court found that the snow removal contractor did not substantially contribute to the injuries.

Neufairfield Homeowners Association v. Wagner - Illinois

The court in this case determined that two daycare businesses did not create sufficient traffic to violate a use restriction prohibiting frequent commercial traffic in the subdivision.

100 Harborview Drive Condominium Council of Unit Owners v. Clark - Maryland

An owner sued the association after the board refused to provide copies of it’s legal invoices. Under the law, communications between an association and it’s legal counsel are considered privileged. The court denied the owner’s request for copies of those documents.

Bluff Point Townhouse Owners Ass'n, Inc. v. Kapsokefalos - New York

An owner within the community claimed that the association did not have the authority to levy assessments. The Court found that the governing documents provided the authority to levy assessments and that the board had followed the proper procedures to levy and collect monthly assessments.

Arbors at Sugar Creek HOA vs. Jefferson Bank - Missouri

Owners of five lots in 18-lot subdivision brought action against lender that acquired from developer, through foreclosure, the 13 unsold lots and against contractor that agreed to build on the unsold lots seeking, among other things, declaratory and injunctive relief relating to management of the subdivision. The court made the following rulings:

1 lender could establish a successor homeowners association for the subdivision;

2 lender did not violate its duty of good faith and fair dealing by amending subdivision's declaration of covenants so as to remove residency requirement for members of association's board;

3 sufficient evidence supported trial court's finding that board acted reasonably and in good faith in approving building plans for one of the unsold lots;

4 lender was not entitled to recover from the lot owners the expenses it incurred to maintain the subdivision; and

5 lot owners could not be held liable to lender for abuse of process or slander of title.

Belleville vs. Malvern Hunt Homeowners Association - Pennsylvania

The developer of the community recorded CC&Rs before starting construction of the homes. During construction, the developer decided that a portion of the community would receive certain services (snow removal, landscaping) and that other portions would not receive those services.  Shortly after that decision, an owner purchased a lot. The developer gave the owner an unrecorded and unsigned amendment to the CC&Rs. The Court held that without recording the amendment, it was not valid or binding on the owner.

Houston v. Wilson Mesa Ranch Homeowners Association, Inc - Colorado

An owner in the community began leasing his home using VRBO (a short-term vacation rental website). The association took the position that frequent short-term rentals violated the commercial use provision in the CC&Rs.  The Court found that even though the owner was making a profit, the rentals merely provided a place for others to eat and sleep—therefore the use was “residential” and not commercial.

Gonon v. Community Management Services, Inc. - Indiana

Law firms or agencies which handle the collection of assessments are subject to the Federal Fair Debt Collections Practices Act. In this case, an owner sued the association’s management company for violations of the Act. The Court found that because the owner was not delinquent at the time the association hired the management company, the management company was not subject to the Act.

Walker I Investments, LLC v. Sunpeak Association, Inc. - Utah

In this case the Court found under the state’s nonprofit corporation law, the homeowners association was not obligated to provide an owner with the email addresses or phone numbers of the other owners in the community.

Board Members and Proxies

Occasionally board members of homeowner or condominium associations may not be able to attend board meetings. In most cases it is appropriate for absent board members to participate by telephone. However, sometimes board members ask if they may grant a proxy to another board member in their absence. Can a director give a proxy to another director for a board meeting? The short answer is: NO.

Oregon law specifically prohibits directors from granting proxies for board meetings:

94.641 Assent of director to board action. (1) A director of a homeowners association who is present at a meeting of the board of directors at which action is taken on any association matter is presumed to have assented to the action unless the director votes against the action or abstains from voting on the action because the director claims a conflict of interest.

      (2) When action is taken on any matter at a meeting of the board of directors, the vote or abstention of each director present must be recorded in the minutes of the meeting.

      (3) Directors may not vote by proxy or by secret ballot at meetings of the board of directors.

A proxy allows another individual to act on your behalf.  But directors have been elected by the membership because they trust the director’s judgment. In other words, they elected the director to act on their behalf, exercise discretion, and make decisions that affect the entire membership. Granting a proxy to another director means you are not exercising the fiduciary duties which you were elected to fulfill.

In short, while the board may certainly delegate authority or tasks to managers or committees, directors may not delegate decision making to other directors through the use of a proxy.

Components of an Effective Board Meeting

Board meetings can easily turn into chaos. State law (in Oregon and Washington) and governing documents often provide guidance on running board meetings.  Parliamentary procedure, most importantly, should be used to keep order and allow the meeting to proceed efficiently. The following is a brief overview of the components which are necessary for an effective board meeting. 1. Starting the Meeting

Once quorum is present, the Chair should state “The meeting will come to order.”

2.  Parliamentary Procedures

The Board of Directors should use Robert’s Rules of Order to conduct its meetings.

3.  Order of Business

Sometimes called the "agenda", Robert's Rules uses the term "Order of Business."  Some association bylaws may dictate the agenda for board meetings.  Otherwise, use the following order of business:

A. Reading and Approval of Minutes (Following any corrections, the minutes should be approved, typically by unanimous consent)

B.  Reports of Officers, Boards and Standing Committees

C.  Unfinished Business

Sometimes incorrectly referred to as “Old Business”, this refers to questions that have been carried over from the previous meeting as a result of that meeting having been adjourned without completing its order of business.

D.  New Business

Following any unfinished business, the chair will ask “Is there any new business?”  Board members may introduce new items of business at this time.

4.  Quorum

Quorum is the number of individuals who must be present in order to conduct business.  Most bylaws require a majority of directors to be present in order to achieve quorum.  In the event there is not a quorum, the meeting cannot continue.

5.  Open Meetings Requirement

Washington and Oregon require homeowner association board meetings to be open to the membership. (ORS 94.640 / RCW 64.38.035)  All meetings of the board must be open to owners and properly noticed, except for emergency meetings.

6.  Motions

In formal settings, there should be no discussion without a motion. A motion is a formal proposal for the board to discuss and vote on a particular issue. Meetings should follow the same structure each time: motion, second, debate, vote. Here’s how it works:

A. Member makes the motion

B. Another member seconds the motion

C.  The presiding officer repeats the motion to ensure that everyone is discussing and voting on the same issue

D.  Member then debate or discuss the motion

E. The presiding officer “puts” the motion to a vote

F. The outcome of the vote is announced.

7. Executive Session

Executive session may be used to discuss sensitive or confidential topics.  During a normal, open board meeting, any board member may make a motion to convene in executive session. The minutes of the meeting should reflect the motion to convene in executive session. The board members then discuss the relevant issues in executive session.  Once the discussion is complete, the board reconvenes to the open meeting. If any motions or decisions need to be made, they are done so once the board has returned to the open meeting. There are no motions, and no voting, during the executive session.

A. Topics Allowed - Washington

1. Consideration of personnel matters;

2. Consultation with legal counsel or to consider communications with legal counsel, and discuss likely or pending litigation;

3. Matters involving possible violations of the governing documents of the association; and

4. Matters involving the possible liability of an owner to the association.

B. Topics Allowed - Oregon

1. Consultation with legal counsel;

2. Personnel matters, including salary negotiations and employee discipline;

3. Negotiation of contracts with third parties; and

4. Collection of unpaid assessments.

8. Meeting Minutes

The meeting minutes should include the following:

1. Type of Meeting (Special, Regular, Adjourned)
2. Name of the Association
3. Date and Time of the Meeting
4. Place of Meeting
5. Whether previous meeting minutes were approved
6. Separate paragraphs with name of person who makes motions and:
   1. All main motions and any amendments
   2. Whether the motion passed
   3. Names of those who voted in favor of the motion and the names of those who voted against the motion
7. Do NOT include:
   1. Name of person who seconded motion
   2. Remarks of guest speakers
   3. Motions which are withdrawn
   4. Personal opinions
8. Hour of adjournment

As always, talk to a qualified HOA or condominium lawyer for legal advice.

Announcing a Special Assessment

It’s always difficult when a condominium or homeowners association must levy a special assessment against the owners. Sometimes there’s no choice.  If the association failed to reserve money for major repairs or an unexpected cost arises, a special assessment may be the only option. No owner wants to pay a special assessment.  This is why it’s important to explain to the owners why the special assessment is necessary and how it will help in the long run. Here are some tips when announcing a special assessment:

1. Send a letter to the owners explaining that the board has approved a special assessment.  (Some association governing documents may require a vote of the owners). Describe the reasons for the special assessment and be upfront about why the association doesn’t have the funds on hand.  Also cite to the authority of the board to adopt and levy the assessment.

2. Discuss the alternatives that the board considered.  Alternatives include taking out a loan from a bank, postponing repairs, or selling common assets.

3. If possible, explain that owners may have options in paying the special assessment.  The association may have an arrangement with its bank to offer financing to owners.  In some cases owners may have insurance coverage for special assessments.

4. Be sympathetic and if necessary, express regret.  Board members are also owners—it makes sense that board members may not be enthusiastic about the assessment, yet recognize it is in the best interests of the entire membership and association.

5. Give as many details on the total assessment amount, as well as each owner’s share of the assessment.  Be clear with deadlines for payment and payment options which may be available to the owners.

6. Ideally, divide the special assessment into 12 equal payments for owners, each with monthly due dates.  In the case of a foreclosure or bankruptcy, it may be possible to recover unpaid special assessments.

As always, seek qualified legal counsel before levying or collecting a special assessment.

Security Cameras in Community Associations

Much of the case law involving an association’s duty to provide security relies on long standing landlord-tenant laws and cases.  In general, an association has a duty to provide safety and security against foreseeable risks.  There are many cases involving security cameras and community associations.  In one case the court held that an association had a duty to install cameras because of frequent and repeated car break-ins and other criminal behavior in the common area parking lot. Keep in mind that placing security cameras on common property may very well impose or create a duty on the association that may not otherwise exist.  Of course, cameras don’t prevent crimes, they merely record crimes.  But the understanding of the average person assumes that cameras provide some form of actual security.

If the association is aware of repeated criminal acts on common property, it may make sense for the board to install security cameras.  But, there should be actual knowledge—and thus foreseeability—of future acts which a security camera may curtail.

What about signs that say there is surveillance, but there are no actual cameras? The major concern is that owners or guests at the community will see those signs and have a false expectation of safety or security.  In the event a crime occurs on the property, the Association may be exposed to liability if the victim asserts: “I thought there were cameras and video footage may have prevented the incident or allowed the assailant to be identified.”  Generally, it is not prudent to use signage suggesting there are cameras when there are not.

Before making a decision to install security cameras or other security measures, talk with a qualified attorney.

Tips for Collections Policies

The authority to levy and collect assessments is found in the Declaration/CC&Rs of community associations.  However, there aren’t typically specific procedures to follow if an owner is delinquent in the payment of assessments.  Most condominium and homeowner associations adopt a separate resolution or policy which governs how the association will handle collecting from delinquent owners.  Here are a few things to consider when adopting a collections policy:

1. State the authority for collecting assessments

The policy should begin by citing to the appropriate authority to file liens, charge late fees and interest, and turn the account over to an attorney for collections.  The governing documents will contain the obligation for all owners to pay regular assessments.  The authority to charge late fees or interest (sometimes the amount is left open for the board to decide) will also be in the association’s governing documents.  In addition, cite to the appropriate state law which grants community associations the power to collect assessments, fines, late fees or interest.

2. Define the process

Most collections policies include the following steps:

a. Initial letter indicating delinquency and the amount of any late fees or interest

After 30 days from the due date, the Association will provide notice to the delinquent owner stating that a late fee and interest have accrued. The notice shall state that if the balance is not paid, the account will be turned over to a law firm for collections.

Any assessment which becomes delinquent will be charged a late fee in an amount equal to 5% of the unpaid assessment. In addition, the assessment will accrue interest at the rate of 9%.

b. Lien filed on lot or unit

c. Second demand letter stating that the file will be turned over for collections

Any assessment including late fees unpaid and past due for more than 60 days will be referred by the Board of Directors to its law firm  for collection.

d. Provisions to comply with the Federal Fair Debt Collections Practices Act

e. The type of garnishment tools which will be used once a judgment is entered against the owner.

After CALAW obtains a judgment, it will begin collection of the judgment by:

garnishing the owner's bank account; or

garnishing the owner's wages; or

executing a writ against the owner's real or personal property; or

any additional methods authorized by law.

3. Publicize the policy

The association will have a difficult time enforcing its policies if those policies aren’t publicized and distributed to owners. This puts owners on notice of the steps that will be followed for the collection of delinquent assessments.  Keep in mind that when new owners move to the community, copies of all resolutions, policies or other unrecorded documents need to be provided.

4. Enforce the policy consistently

Once the board of director adopts a collections policy it must follow the steps outlined in each and every circumstances.  Special arrangements or exceptions are not appropriate. The exact same procedures must be followed in each case.  If not, owners may challenge the application and enforcement as selective or unfair.

Robert's Rules & Small Boards

Robert’s Rules of Order is designed to keep control of large groups or assemblies.  Members must stand and be recognized by the chair, motions must be seconded,  and members may not speak out of turn.  However, sometimes that level of formality isn’t needed, especially when the assembly is a small number of board members. RRO contains special procedures that small boards may utilize. (Robert’s Rules of Order, Newly Revised, 11th Edition, Section 49)  A “small” board is 12 or fewer members.  Here are some of the informal procedures for small boards:

- Board members do not have to stand or be recognized by the chair in order to speak or make motions;

-Motions need not be seconded;

-A board member may speak any number of times on a question (not just two) and motions to close or limit debate are generally not permitted;

-A motion does not have to be pending in order to discuss a subject informally;

-Votes can be taken by a show of hands;

-If a proposal is perfectly clear to everyone it may be voted on even though no formal motion has been made;

-In putting a question to a vote, the chairman need not stand.

An additional exception to the formal rules is that “the chairman can participate and vote.”  However, in most community associations, the chairperson (an officer position) is also a member of the board of directors.  When a vote is taken all board members in a community association should vote—in fact, there is a fiduciary obligation to vote.  Thus, when the chairperson votes on an issue, he or she is voting in their capacity as a board member, not as an officer.

If your board desires to use the procedures for small boards, adopt a policy stating that board meetings will be conducted in accordance with Robert's Rules for small boards.

Board Member Conflicts of Interest

Suppose the board of directors is considering hiring a new landscape company.  The owner of the landscape company happens to be the cousin of one of the board members. May the board consider hiring the landscape company? And does the board member who is related have to abstain from voting on the matter? Conflicts of interest often arise in community associations.  In general, a conflict of interest arises when a board member has a self-interest (or will receive a financial benefit) from the outcome of the decision.  Another way to describe a conflict of interest is: putting your own interests ahead of the best interests of the association and members.

There are two types of conflicts of interest—actual and potential.  A potential conflict is one in which a board member has duties or interests that conceivably could be at odds at some point in the future. For example, a potential conflict exists every time the board establishes the association's budget. Board members generally have an obligation to propose and establish budgets that meet the financial needs for operating the community. However, the personal interest of most homeowners--including board members--is to pay less, rather than more. While this potential conflict exists, it rises to the level of an actual conflict of interest only when board members choose to disregard the actual needs of their community to minimize their personal expenses.

In contrast, an actual conflict of interest would occur if the board votes to hire a maintenance company which is owned by a member of the board.  By hiring the maintenance company, the board member/owner is receiving a direct financial benefit from the hiring of the maintenance company.

In most cases a board may approve decisions, even if there is a conflict of interest with a board member, if:

 - the board member discloses their interest or the benefit which will be received; and

 - the board member with the conflict of interest abstains from the vote.

In some cases, the best company or vendor in town may have a relationship with a board member.  That doesn’t mean the board must dismiss consideration of hiring the company or vendor.  Here are some steps to follow when conflicts of interest may be present:

1) Disclose - Always disclose to the other board members and the owners any conflicts of interest.  Explain exactly what the relationships are and whether a direct or indirect benefit will be received by a board member.

2) Document - Hiring any contractor or vendor should be documented in the board meeting minutes.  Include the factors which the board relied upon in making its decision.

3) Bid - It’s always the best practice to solicit bids anytime a board begins the process of hiring or engaging professional services.  The bids should be in response to a well-drafted request for bids so that the board may compare costs, services, and terms.

4) Vote - Once all the information has been considered, each board member should exercise their business judgment and vote in a manner which is in the best interests of the association.  A board member with a direct or indirect interest in the outcome should abstain. The vote and abstention should be noted in the meeting minutes.

The board of directors should be sensitive to the potential for conflicts of interest to develop, the duty owed to the membership, and the steps required when a conflict arises. Liability is created not by facing a conflict of interest, but by failing to handle one properly.

Telephones and Board Meetings

[Oregon] There is often confusion about the use of telephones in board meetings.  Let’s start with some preliminary issues.  First, board meetings must be open to the owners for observation.  While there is no right for owners to participate or vote in a board meeting, many boards have an open forum or Q&A session for owners at the end of each board meeting.

The only exception to the open meeting requirement is executive session.  The board may convene in executive session (and exclude owners) to: 1) consult with legal counsel; 2) discuss personnel matters; 3) discuss unpaid assessments; and 4) negotiate 3rd party contracts.

Second, notice of board meetings must be provided to the owners at least 3 days in advance.  Notice must be through a means “reasonably calculated” to inform the owners of board meetings.

Now let’s look at the use of telephones in board meetings.  Oregon law addresses the use of telephones in two different scenarios:

Scenario 1:  There is no physical meeting and all of the directors are using a telephone to communicate and hold a board meeting; and

Scenario 2:  There is a physical board meeting which owners have notice of and may observe, and a single board member calls in to the meeting to participate by phone.

Under Scenario 1, this type of meeting may only occur in cases of emergency.  For example, a pipe bursts on common property and it’s impossible to provide advance notice of the meeting or to convene in person. In such an emergency, the entire board may hold a conference call to make decisions regarding the emergency.

The statute addressing Scenario 1 states:

Only emergency meetings of the board of directors may be conducted by telephonic communication or by the use of a means of communication that allows all members of the board of directors participating to hear each other simultaneously or otherwise to be able to communicate during the meeting. A member of the board of directors participating in a meeting by this means is deemed to be present in person at the meeting. (ORS 94.640(10)(c))

The statute above does not address or prohibit a single board member from participating by phone at a normal board meeting, as described in Scenario 2. In fact, the Oregon Nonprofit Corporation Act provides:

Unless the articles or bylaws provide otherwise, the board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through, use of any means of communication[.] (ORS 65.337(3))

It is possible (but not likely) that an association’s governing documents prohibit board member participation via telephone. If that’s the case, follow the provisions of your governing documents.  If there is no such prohibition, there is nothing improper with a board member phoning in to a regularly noticed and open board meeting.  The board member may participate and vote as if they were present in person.

[Washington]

Washington associations, unless prohibited by the governing documents, may also allow board member participation in board meetings by telephone.  The Washington Nonprofit Corporation Act states:

Except as may be otherwise restricted by the articles of incorporation or bylaws, members of the board of directors or any committee designated by the board of directors may participate in a meeting of such board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. (RCW 24.03.120)

Exercising an Association's Right of Entry

Suppose you’re on the board of directors of a condominium.  In the middle of the night you receive a call that Unit 201 has a broken gas line.  The gas line poses significant health, life and safety issues for the other owners.  Can the manager or a board member enter the unit to turn off the gas or fix the line? It’s not always a clear-cut answer. Owners have an expectation of privacy on their lots, in their units, and in their homes.  However, many governing documents contain a right of entry provision.  This provision allows agents of the association or board members to enter property or condominium units to prevent damage to other areas of the property or to ensure compliance with the governing documents. For example,  planned community associations (if authorized by the governing documents) often exercise the right of entry to remedy landscaping violations. Typically, the association’s governing documents allow all related expenses to be charged to the owner.

Here is an example of a right of entry provision in a planned community Declaration of Covenants, Conditions and Restrictions, which allows the association to:

Enter the Lot or Living Unit in which or as to which such violation exists and to summarily abate and remove, at the expense of the Owner, any thing or condition that may exist therein contrary to the intent and meaning of said provisions, and the Board shall not thereby be deemed in any manner of trespass[.]

In the condominium context, issues which require immediate attention to prevent damage to property or injury to other owners may give rise to an easement of necessity. This is similar to the legal right granted by a right of entry provision in the governing documents. However, the circumstances must be severe and immediate.  In an Ohio Court of Appeals case involving an association’s right of entry, the court stated:

In reviewing a decision by a board of managers to enter a residential unit in a condominium to spray insecticides, the trial court…applies the test of reasonableness, that is, whether under all the facts and circumstances in evidence, the decision to enter was reasonable. This test subsumes three major questions: (1) whether the decision was arbitrary or capricious; (2) whether it was nondiscriminatory and even-handed; and (3) whether it was made in good faith for the common welfare of the owners and occupants of the condominium. River Terrace Condo Ass’n v. Lewis, 514 NE 2d 732 (1986).

In deciding whether to exercise the association’s right of entry, ALWAYS, ALWAYS, consult with legal counsel. Significant liability could result if the circumstances do not warrant using the right of entry or if the process is not followed correctly.

Fines in Community Associations

An association’s authority to fine owners for violations is perhaps the biggest tool in the enforcement toolbox.  Fines are treated like assessments if not paid. The association may file a lawsuit to collect the fines or foreclose on the lien created by the fines. Let’s look at the statutory authority to levy and collect fines.  In Oregon, the law states that the board of directors of a community association may:

(n) Impose charges for late payment of assessments and attorney fees related to the collection of assessments and, after giving written notice and an opportunity to be heard, levy reasonable fines for violations of the declaration, bylaws, rules and regulations of the association, provided that the charge imposed or the fine levied by the association is based:

(A) On a schedule contained in the declaration or bylaws, or an amendment to either that is delivered to each lot, mailed to the mailing address of each lot or mailed to the mailing addresses designated in writing by the owners; or

(B) On a resolution of the association or its board of directors that is delivered to each lot, mailed to the mailing address of each lot or mailed to the mailing addresses designated in writing by the owners[.]

See ORS 94.630 / ORS 100.405

Washington law is very similar, and states that a board of directors may:

(11) Impose and collect charges for late payments of assessments and, after notice and an opportunity to be heard by the board of directors or by the representative designated by the board of directors and in accordance with the procedures as provided in the bylaws or rules and regulations adopted by the board of directors, levy reasonable fines in accordance with a previously established schedule adopted by the board of directors and furnished to the owners for violation of the bylaws, rules, and regulations of the association;

See RCW 64.38.020 / RCW 64.34.304(k)

You may have noticed a critical word in both statutes: “reasonable”.  What’s reasonable in one community may not be reasonable in another. Much of the reasonableness depends on the nature of the violation and whether the amount of the fine is too punitive.  If the violation poses a health, life or safety issue, a large fine is likely warranted.

A Georgia Court of Appeals case provides some guidance on whether a fine is reasonable.  In that case an owner leased her unit in violation of the association’s rental cap.  The association levied a fine of $25 dollars per day.  The Court found that the fine was reasonable for three reasons: 1) the owner’s actions were a clear violation of the associations governing documents; 2) the association provided an opportunity for the owner to cure the violation before levying fines; and 3) the same amount of fines had been applied to other owners who violated the same rental restriction.

Assuming the amount of the fine is reasonable, the association may not actually levy or impose the fine until after notice and an opportunity for a hearing with the board of directors.  When notice of the violation is sent to the owner the association must include a statement that the owner has the right to request a hearing before the fine is imposed.  If the owner fails to request the hearing after the stated deadline, the board may then impose the fine.

If the owner does request a hearing, then the board should allow the owner to present evidence or testimony concerning the violation.  If after the presentation of evidence or testimony the board still determines that a violation exists, fines may be levied at that point.

Lastly, the amount of the fine must be contained in a  "schedule of fines" provided to all owners.  The schedule of fines should list the various types of violations with a corresponding fine.  It's wise to add language to the schedule of fines stating that the fine may be levied daily, weekly, month, or per occurrence.

Understanding Proxies

Oregon and Washington law authorize the use of proxies unless prohibited by the governing documents. (RCW 24.03.085, ORS 65.231) Many condominium and homeowner associations find it impossible to achieve quorum at annual meetings without the use of proxies.

A proxy is a power of attorney between the “proxy giver” and the “proxy holder”. The proxy holder attends the ownership meeting and can act on behalf of the proxy giver, including making motions, voting, and engaging in debate.

When to Use Proxies

Proxies are typically exclusive to membership meetings, and in most cases should not be used for board meetings. Board members are elected specifically because owners trust the board member’s judgment, expertise, or knowledge.  If a board member cedes their responsibilities to another individual, then they are not fulfilling their fiduciary duties. Oregon explicitly prohibits the use of proxies in board meetings. (ORS 100.419 & 94.641)

Types of Proxies

There are many types of proxies:

1. General proxies;

2. Directed proxies;

3. Proxies for the purpose of establishing quorum; and

4. Combinations of general and directed proxies.

General proxies are ideal unless circumstances require otherwise.

The Proxy Holder

Unless prohibited by the governing documents, the proxy holder may be any individual, including individuals who may not even live in the same community. For example, I could give my proxy to my grandmother who lives in another town. What’s important is that I give my proxy to someone I trust, and who will exercise good judgment.

Proxies and Voting

Keep in mind that giving a proxy to the proxy holder does not cast a vote. It merely authorizes the proxy holder to attend the meeting and then cast votes on behalf of the proxy giver. Proxies are not absentee ballots, and there is no such thing as a “proxy ballot”.

If the proxy giver wants the proxy holder to vote a certain way, then a “directed” proxy may be used. But there are downsides to directed proxies. Suppose I give my neighbor a directed proxy which instructs my neighbor to vote for Jill for the board. However, as the meeting begins Jill decides not to run for the board, and Jane steps into Jill’s place. Now, my directed proxy is useless (not quite useless, it still counts toward the quorum requirement).

Proxy Requirements

A proxy should contain the following information:

1. Name of association

2. Name of proxy giver

3. Proxy giver’s unit, lot or address

4. Name of proxy holder

5. Date when proxy giver signs

6. Expiration date

7. Signature

Click here for a sample proxy: Sample Proxy

10 Tips for Using Committees

Effective boards utilize committees to help shoulder the burden of association operations.  Oregon law allows the board of directors to create committees for any proper purpose:

(1) Unless the articles or bylaws provide otherwise, a board of directors may create one or more committees of the board of directors which exercise the authority of the board of directors and appoint members of the board to serve on them or designate the method of selecting committee members. (ORS 65.354)

Washington law contains a similar statute authorizing the use of committees. (RCW 24.03.115)

Here are 10 tips for putting committees to use:

1. Write and adopt a policy or resolution describing the purpose and duties of the committee.

2. State the committee’s objectives in clear, measurable terms.

3. Remember that committees make recommendations.  The board of directors makes decisions based on the recommendations.

4. Communicate!  Typically, the head of the committee offers a report at regularly scheduled board meetings.  Between meetings, check in on progress.

5. If board members serve on the same committee, makes sure it’s not a majority of the board.  Otherwise, you may violate open meeting requirements.

6. If there are no board members on the committee, consider appointing a board liaison.

7. If members of the association have particular skills, seek them out.  If a member has expertise in newsletters or marketing, appoint that member to a communications committee.  If a member has experience with landscaping, put the member on the landscape committee.

8. Always be grateful toward committee members and make sure they feel appreciated.

9. Be certain committee members are aware of governing document provisions or other association policies which may impact the committee’s work and objectives.

10. Provide resources to committees when needed.  This includes records, previous committee reports, space to hold meetings, and access to 3rd party professionals.