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

Ventana Partners, LLC v. Lanoue Dev., LLC (Or. App., 2014)

For some interesting reading on a planned community association's authority or ability to convey common property, take a look at Ventana Partners, LLC v. Lanoue Dev., LLC (Or. App., 2014). Especially interesting is the section of the case which reads:

"Common property" includes property "designated in the declaration for transfer to the association." ORS 94.550(7) (2005). Accordingly, ORS 94.665(1) allowed the MOA to transfer common property, even if it had not yet been transferred from the declarant to the association.

Finally, plaintiffs contend that the amendment to the declaration was ineffective to convey title to Lot 1 to LaNoue because "the recorded [amendment to the declaration] was not fully executed" because the signature line for the City of Portland was not filled in. However, a signature from the city is not required on an instrument conveying title to common property under ORS 94.665(1). See ORS 94.665(6) (formal requirements for an instrument conveying common property do not include signature from the city). And, as noted above, the city gave the approval required by the declaration.

Thus, the trial court correctly construed ORS 94.665(1) in accordance with the plain meaning of its text. That provision allowed the MOA to convey the townhouse owners' interests in the common areas in Lot 1 to LaNoue after receiving consent from 80 percent of the townhouse owners.

Click here to read the full case: Ventana Partners, LLC v. Lanoue