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.

Applying the Oregon Planned Community Act

The Oregon Planned Community Act (ORS Chapter 94) was adopted in the early 1980s. The Act applies to any subdivision where the owners have collective obligations. Collective obligations include maintaining common property or paying assessments that are used for association operations. A community may be subject to ORS Chapter 94 even if created prior to the adoption of the Act and even if the governing documents make no mention of the statute.

The applicability of the Act depends on the year the community was created, the number of lots, and the total amount of annual assessments. The number of lots and the total amount of annual assessments determine the "class" of the planned community. Class 1 planned communities contain at least 13 lots with at least $10,000 in total annual assessments. Communities with 5-12 lots and at least $1,000 in total annual assessments are Class 2 planned communities. All other subdivisions with collective obligations are considered Class 3 planned communities.

For Class 1 and Class 2 planned communities created prior to 2002, certain provisions of the Act apply to the extend the statute is consistent with the governing documents. Here is a quick way to determine which portions of ORS Chapter 94 apply to your community (if created before 2002): https://calaw.attorney/ors94applicability

Amending Governing Documents

Amending your condominium or homeowners association governing documents is no easy chore. It can be a long and costly process, and even then, you may not receive enough votes to approve the amendments. The process of amending goes like this:

1. Identify the reasons for amendments 2. Determine any statutory requirements 3. Determine voting requirements 4. Decide on the method of voting 5. Solicit owner feedback on proposed amendments 6. Conduct the vote 7. Prepare the amendments for recording 8. Sign and notarize 9. Secure any governmental approvals 10. Record the amendments with the county recorder

Here are some things to consider before embarking on an amendment project:

Identify the Reasons for the Amendments

There are many reasons to amend governing documents. Common reasons include:

1. Legislative changes 2. Ambiguous provisions 3. Outdated provisions 4. Community demographic has changed 5. Removal of “declarant” language 6. Adding or removing restrictions

It’s critical that the reasons for each amendment are conveyed to the owners. After all, most amendments require owner approval. Making a convincing case to the ownership will result in higher voter turnout and more “yes” votes.

Find out What’s Required

Most CC&R amendments require a vote of between 65%-75% of the entire ownership. Bylaw amendments typically require a majority vote of the owners. However, sometimes state law will require different approval requirements. For example, in Oregon condominiums the approval of 75% of all owners is required for any amendment related to pet restrictions or the rental or leasing of units. (ORS 100.410(4)). In Washington, a homeowners association may amend its governing documents to remove discriminatory provisions by a majority vote of just the board of directors (RCW 64.38.028)

Method of Voting

Most associations will find it impossible to approve a governing document amendment at a physical meeting of the owners. For a CC&R amendment requiring 75% approval, the chances of that many owners attending a physical meeting in person or proxy is slim. The most common method is to conduct the vote by written ballot. Better yet, some communities may conduct the vote via online ballot. This often generates the most voter turn out. For an example of an online ballot, click here.

Finalize and Record

Once the required number of votes have been received, the amendment must be prepared for signature and recording. In some cases, approval by the state or a governmental authority must be received and reflected on the amendment. The amendment should contain references to the original documents which are subject to the amendments, and must be signed and notarized. The amendments do not become effective until recorded with the county recorders office.

To learn more, check out our document amendment timeline.

Understanding Governing Document Restatements

The process of amending governing documents is no easy task. Changes to the CC&Rs typically require between 66%-75% of the owners to approve.  Bylaw amendments, on the other hand, are a little easier to modify, usually requiring a majority vote of the owners.

But suppose over the years your governing documents have been amended several times. Numerous amendments can make things complicated. When reading the CC&Rs or Bylaws, the reader must frequently refer to the amendments to confirm which sections have been modified.

“Restating” a governing document means combining the original document with all subsequent amendments. The association prepares a document incorporating all amendments and records a single “restated” version. Now, members can use and refer to a single document instead of an original and multiple separate amendments.   

For example, let’s suppose your original Bylaws were adopted in 1995. In 1998 the association (via an amendment) increased the number of directors. Then, in 2000, the members voted to change the date of the annual meeting. Two years later, another amendment was adopted increasing the quorum requirement. Lastly, a recent amendment mandated that the board of directors carry liability insurance. Reading the Bylaws now requires the reader to review each of the amendments to ensure whichever section they are reading hasn’t been modified.

Oregon and Washington both provide procedures for restating. Washington, however, only addresses the process to restate the articles of incorporation. (RCW 24.03.183).

The procedure for Oregon planned communities and condominiums is the same. The board of directors adopts a resolution to prepare, codify, and record individual amendments. This does not require a vote of the owners. At the beginning of the restated document, the board must:

1. Include a statement that the board has adopted a resolution authorizing a restatement;

2. Not include any other changes which have not been properly adopted by the membership (except for scriveners’ error or to conform with format or style);

3. Include a certification by the president and secretary that the restated document includes all previously adopted amendments;

4. Cite to the document recording numbers of the previous amendments; and

5. Record the restatement in the county records where the community is located.

If your association has adopted multiple amendments over the years, talk with a qualified attorney and consider codifying and restating your documents.

Governing Document Review

If your governing documents are old, drafted by the developer, or merely unintelligible, one of our lawyers will perform a thorough review of the association's Declaration/CC&Rs and Bylaws. The review lists each of the substantive provisions in your Declaration and Bylaws, as well as provisions which should be in the governing documents. Next to the provision is a recommendation or comment addressing whether the provision is out-dated, should be amended, or should be left as-is. Example:

For associations considering amending the governing documents, this is a great starting point to determine which sections need to be addressed.

Fill out the form below to get started:

[gravityform id="32" title="false" description="false"]

Recording Documents in Community Associations

Oregon and Washington are both “record notice” states. This means that owners are deemed to be on notice of any recorded documents—whether or not the owner actually received or reviewed the documents. The act of recording the document "constitutes notice".

Recording is important for other reasons, too.  For example, a lot in an Oregon planned community may not be sold or conveyed until the declaration or CC&Rs are recorded in the county records. (ORS 94.565). Similarly, a condominium in Washington is created only when the developer records the declaration or CC&Rs. (RCW 64.34.200)

Keep in mind, improperly recording a document may have legal consequences.  If a homeowner or condominium association mistakenly records a lien against a lot or unit, the Association could be liable for damages.  The claim against the Association is called "slander of title."  In most cases, recorded documents should be prepared and recorded by qualified legal counsel.

By statute, Declarations or CC&Rs must be recorded in the county records where the community is located. This is also true for plat maps, which depict the lot or unit boundaries, easements, streets, and other ownership interests within the subdivision or condominium. In many cases, the association’s bylaws must also be recorded. If an association amends any of the recorded documents, the amendment is not effective until recorded. Oregon law requires amendments to be recorded within one year from the time of owner approval.  If the amendment is not recorded in that time frame, the process must be repeated.    

Each county has recording requirements which specific font size, margins, and information to included on the first page of the documents.  In Oregon, the requirements for recorded documents are found in ORS 205.  The requirements include 8 point or larger fonts, 4" on the top margin of the first page, and letter or legal sized paper. The first page of the document must state the title of the document, names of the parties, any consideration (amount paid), and the name and address where the document should be returned.

The requirements for recording documents in Washington are found in RCW 36.18 and RCW 64.04.  The requirements include at least a 3" margin on the top of the first page, names of parties involved, an abbreviated legal description, and the tax parcel identification or account number.

County	First Page	Additional Pages
Clark County, WA	$73	$1
Multnomah, OR	$46 (deeds); $36 (liens)	$5
Washington County, OR	$41	$5
Clackamas, OR	$53 (deeds); $43 (liens)	$5
Deschutes County	$54 (deeds); $37 (liens)	$5

Here are some of the county recording requirements:

https://multco.us/recording/recording-requirements

http://www.clackamas.us/recording/standards.html

http://www.co.washington.or.us/AssessmentTaxation/Recording/requirements-for-standard-recording.cfm

http://www.co.marion.or.us/CO/records/Documents/firstpagerequirements3512.pdf

http://www.deschutes.org/clerk/page/first-page-requirements

https://www.clark.wa.gov/sites/all/files/auditor/documents/Document_Standardization_Guide.pdf

Fractions and Votes Under Robert's Rules

Condominium and homeowner association documents contain many different voting requirements.  For example, the required number of votes to elect a director is usually different than the number of votes required to adopt an annual budget.

The math involved in determining voting requirements doesn’t usually have whole round numbers. Suppose a planned community has 173 lots.  The Bylaws require a quorum of 20% of the owners at the annual meeting.  The quorum requirement, then, is 34.6. But does 34.6 mean that 34 or 35 owners must be present in person or proxy?

The use of the term “majority” is often misunderstood.  Under Robert’s Rules, a majority means “more than half.”  (Occasionally, I hear people say that a majority is 50% plus 1.  This is an incorrect interpretation and results in a wrong voting threshold.) Let’s assume quorum is achieved and an issue arises requiring a majority vote. Blank ballots or abstentions aren’t counted. With that in mind:

If 19 votes are cast, a majority (more than 9.5) is 10

If 20 votes are cast, a majority (more than 10) is 11

If 21 votes are cast, a majority (more than 10.5) is 11

The term “majority” must be read in context. And with slightly different verbiage, “majority” may mean very different things.  Let’s assume there are 150 lot owners.  The Bylaws contain a 10% quorum requirement.  Out of the 150 lot owners, only 30 show up and only 25 of the 30 actually vote on the issue.  If the Bylaws simply require “a majority vote”, then only 13 votes are required.  But what if the Bylaws require “a majority of the members present”? In that case, 16 votes are required.  Here are some other examples commonly found in community association Bylaws:

“a majority of the entire membership” (76 votes required)

“2/3 of the members present” (20 votes required)

“2/3 of the entire membership” (100 votes required)

Many actions at owner meetings require a 2/3 vote.  Suppose the governing documents require the approval of a motion by a 2/3 vote of the members present in person or by proxy.  Under Robert’s Rules, you don’t round down:

If 30 votes are cast, a 2/3 vote is 20

If 31 votes are cast, a 2/3 vote is 21

If 32 votes are cast, a 2/3 vote is 22

If 33 votes are cast, a 2/3 vote is 22

In community associations where voting rights are tied to the square footage of a dwelling, matters are even more complicated. In short, read your documents carefully and do the math before the meeting!

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).

Online Voting for Community Associations

We recently concluded a membership vote to adopt an entirely new set of CC&Rs and Bylaws.  The CC&Rs require 75% of all owners to approve, and the Bylaws require 51%. With nearly 300 lots in the community, it was a high number of "yes" votes to receive.  Surprisingly, within a matter of weeks the necessary votes were received and the documents approved. The Association appointed a committee to oversee and coordinate the "governing document project." After an initial meeting to review the challenges with the original governing documents, CALAW created a first draft of the CC&Rs and Bylaws.  Those drafts were reviewed, comments were solicited, and revisions were made.  After one more round of meetings and revisions, we were ready to present the proposed documents to the owners.

First, we posted drafts of the proposed documents on the internet for owners to review and download. Shortly after the documents were provided to the owners, the first of two townhall-style meetings were held.  At the first meeting, attorney Kevin Harker reviewed each section of the CC&Rs and Bylaws, explaining the meaning of each provision and reasons for inclusion.

For the next several days after the meeting, we collected feedback from the owners. Once the owners' concerns and comments were incorporated into a new draft, a second townhall meeting was held to ensure that owners understood the importance and significance of adopting new CC&Rs and Bylaws.

Then came the voting. Owners voted through an online ballot:

As soon as owners clicked "submit", the vote was recorded in an online spreadsheet:

The spreadsheet contained a separate area which kept a live tally of the votes:

With the required number of votes received, the next step was to sign and record.  Community Association Law Group uses Simplifile to upload and record documents to the county recorder's office:

Thirty minutes later the documents were recorded with the county recorder's office:

Once recorded, the documents were official!

Common Legal Terms in Governing Documents

Community association CC&Rs and Bylaws contain numerous legal terms.  Some of those terms have common meanings, others have very specific and legal meaning.  Here is a list of common legal terms, along with plain English definitions: Abate - To stop or diminish.

Alienation - To transfer ownership or possession of land from one person to another.  Governing documents may have a provision against “any restraints on alienation.” This can mean that the Association may not impose rental restrictions or impose criteria for buyers of lots or units.

Declarant - The individual or entity who creates a condominium or planned community.

Casualty - A disastrous occurrence due to a sudden, unexpected, or unusual cause. A “casualty” event is what triggers many insurance policies.

Condemnation - The process of taking private property for public use by a governmental body.

Common Property - Property owned or leased by the association. Usually designated on the plat and described in the Declaration.

Contribution - The right of one person who has discharged a liability to recover from another who was also liable.

Common Elements - The portions of a condominium which are jointly owned.

Cumulative Voting - The ability to cast multiple votes for the same director. Typically prohibited.

Easement - The right of use upon the property of another.

Encroachment - When land is conveyed and it is then discovered that improvements on the property are partially located on an adjacent owner’s property.

Encumbrance - Any right or interest in land, like a mortgage or lien.

Enjoin - To require someone to do something.

Enjoyment - The exercise of the right to use your property. Owners have the right to “quiet enjoyment” of their property.

Enumeration - To list or describe.

E&O - Errors and Omissions insurance. Typically called D&O—Directors and Officers.

Estoppel - When someone is prevented, by their own actions, from claiming a right to the determent of another who was entitled to rely on such conduct.  For example, if the association is aware of a violation and does not act to enforce for a significant amount of time, the association may be “estopped” from enforcement.

Fidelity Bond - An insurance policy for the theft of association funds or money.

Fiduciary - Derived from Roman law, meaning a person of trust and confidence.  Board members are fiduciaries. This means all decisions must be made in the best interests of Association and members.

Foreclosure - The process used by a mortgagor or holder of a lien to deprive an owner of property from their interests in the property.

Improvement - An addition made to property, including sheds, walkways, and utilities.

Indemnification - To restore the victim of a loss, in whole or part, by payment, repair or replacement. If a director is sued for acting in their capacity as a director, the Association typically must “indemnify” the director.  This means the association pays legal fees and the judgment.

Invitee - A person is an invitee on the land of another if they are there by invitation or authorization.

Joint and Several - The liability of two or more people who make the same promise. If a husband and wife purchase a lot in an association, both are liable for the full amount of any delinquent assessments.

Legal Description - A unique description of property that allows the property to be found and identified.

Lien - A claim on property for the payment of debt.

Metes and Bounds - The boundary lines of a piece of property, including the starting and end point.

Mortgage - An interest in property created by a written document providing security in the land in exchange for the payment of debt.

Mortgagee - Person who takes or receives a mortgage.

Nuisance - Any activity on land which is unreasonable, unwarranted or unlawful and is an annoyance or inconvenience to others.

Offset - A deduction. State law prohibits owners from claiming any offset relating to payment of assessments.

Quorum - The percentage or number of members who must be present in person or by proxy in order to hold a valid meeting and conduct business.

Right of Entry - The association’s right to enter an owner’s lot or home to remedy a violation.

Severability - Capable of being divided.

Subrogation - To substitute one person in the place of another.

Successor Unincorporated Association - If an association fails to renew its corporate status, an unincorporated association automatically exists.

Turnover - The process of transferring control of the association from the developer to the owners.

Preparing For Annual Meetings

Every homeowner and condominium association is required to have an annual meeting of the members. The primary purposes of the annual meeting are:

-Present annual budget to members -Elect Directors -Deliver Committee Reports -Strengthen the Community

1. Determine Notice Requirements

There are three types of meetings in community associations: annual, special, and board. Each type of meeting will have different notice requirements. Make sure you comply with the annual meeting notice requirements contained in your Bylaws.

For Oregon associations, notice of the annual meeting must be sent no less than 10 days and no more than 50 days prior to the meeting date. (ORS 100.407 / 94.650) Washington homeowners associations must send notice not less than 14 days and not more than 60 days. (RCW 64.38.035)  Annual meeting notices must be sent to all members at the last address provided to the association.

2. (Oregon) Include Reduced Quorum Language

Oregon has a unique statute which allows for a reduced quorum for ownership meetings. For condominiums, the statute is ORS 100.408, for planned communities, the statue is ORS 94.655.

If the membership meeting cannot proceed because of a lack of quorum, you may adjourn the meeting. The meeting may then immediately re-start with a reduced quorum. The reduced quorum is 1/2 of the quorum requirement or 20%, whichever is greater.

So, if your quorum requirement is 50%, the reduced quorum would be 25%. If your quorum requirement is 30%, the reduced quorum is 20% (remember, 1/2 or 20%, whichever is greater). If your quorum requirement is 20%, it stays at 20%. Keep in mind that the notice of the meeting must contain a statement that the quorum will be reduced and what the percentage will be if reduced. The language should also state that the meeting will be immediately recalled with the reduced quorum percentage (otherwise, you must wait 48 hours).

To take advantage of this statute, place a statement in the notice indicating that if quorum is not met, the meeting will be adjourned and immediately restarted with the reduced quorum. Indicate the percentage of the reduced quorum.

3. Prepare Proxies

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: https://calaw.attorney/wp-content/uploads/2015/01/Sample-Proxy.doc

4. Use A Nominating Committee

Some association documents require the use of nominating committees prior to the annual meeting. In most cases, nominating committees make nominations and the election a much more efficient process. A good nominating committee will solicit names, determine if those individuals are willing to serve, gather biographies of the candidates, and present the information to the board and owners prior to the meeting. Keep in mind, unless prohibited by your governing documents, members can always nominate individuals from the floor at the actual meeting.

5. Prepare Agenda

Oregon and Washington law require annual meeting notices to state the time and place of the meetings, items on the agenda, including the general nature of any proposed amendment to the governing documents, any budget changes, or any proposals to remove directors.

Based on the recommendations in Robert’s Rules of Order, community association annual meeting agendas should include the following:

Announcement of Quorum Reading and Approval of Minutes Reports of Officers, Boards and Committees Election of Directors Unfinished Business and General Orders Announcement of Election Results New Business Adjournment

6. Know Voting Requirements

If certain items on the agenda require a vote of the owners, make sure you know beforehand the required voting threshold. For example, if the agenda includes a vote on levying a special assessment, look at your governing documents to see how many owners must vote in the affirmative. Some votes require a majority, some require a “super-majority”, and others may only require a plurality.

If your governing documents allocate votes by square footage or allow for cumulative voting, have an electronic spreadsheet ready with pre-set formulas to quickly tally votes. Also, if your Declaration or Bylaws prohibit delinquent owners from voting, make sure the names or units of those owners are excluded from voting.

Governing Document Primer - Condominiums and HOAs

The term “governing documents” refers to a host of documents, some of which are recorded, some which are filed with the state, and others are merely distributed to owners. In general, governing documents include: the Declaration/CC&Rs, Bylaws, Plat, Articles of Incorporation, and Rules/Regulations/Resolutions. Understand that there is a hierarchy to these documents. For example, the board cannot adopt a rule or regulation that conflicts with provisions in the CC&Rs. See the attached charts to better understand the hierarchy:

Oregon

Washington

Let’s discuss each:

1. Plat

The plat map is the graphical depiction of the community. For planned community subdivisions, the plat is a birds-eye view of lot lines, easements, roads, and other property interests. Condominium plats are slightly different. Condo plats include the elevation drawings of the structures, and show the boundaries between the units, limited common elements, and general common elements. Often, plats will have notations regarding ownership of common areas, maintenance obligations, and references to the CC&Rs. Plats are recorded with the county recorders office.

2. Declaration/CC&Rs

Think of the CC&Rs as the constitution of the community. When you purchase property in a community association, you do so subject to the conditions in the CC&Rs and the other governing documents. The CC&Rs usually include: a description of the property, what you can and can’t do on your lot or on common property, the authority to assess regular dues, provisions related to insurance, and who is to maintain, repair and replace property throughout the community. Like the plat, CC&Rs are also recorded with the county recorder.

3. Articles of Incorporation

This document establishes the corporate structure for the community association. Typically, the association incorporates as a nonprofit corporation. Incorporation can provide protection against liability, allow the association to hold title to property, and simplify the process of securing insurance policies. Articles of incorporation are filed with the secretary of state.

4. Bylaws

The bylaws are the operating guidelines for the association and typically include: meeting requirements, quorum requirements, number of officers and directors, and provisions governing books and records. Usually, the bylaws are recorded in the county recorders office.

5. Rules/Regulations/Resolutions

This is a broad category, and refers to those documents that are typically adopted by the board of directors without a vote of the owners (note: some associations may have owner approval requirements). Examples include: architectural guidelines, collections resolutions, enforcement procedures, and house rules. These documents are not recorded, which is why it is critical that owners receive and are on notice of these documents. Keep resolutions simple, be sure to cite to the authority for adopting the rule or regulation, and make sure owners know the reasons for adoption.