How Covenants Are Created

Covenants are promises made by the purchaser of property to do (or not do) something upon the land. The most common form of covenants are CC&Rs: covenants, conditions and restrictions.  Almost always in writing, covenants may attach to the property in several different ways: 1. Deed

When the purchaser of property takes title, it is usually done so through a written and recorded deed.  The deed itself may contain covenants preventing the purchaser from certain activities, like mining for minerals or creating a nuisance affecting adjacent land owners.

2. Declaration

A declaration refers to a "declaration of covenants, conditions and restrictions"--the full title of CC&Rs. The declaration subjects multiple lots or parcels in a subdivision or community to the same set of covenants prior to the developer or "declarant" conveying the first lot in the community.  Often, the declaration is incorporated or referenced in the deeds to individual purchasers.  In most states, the recording of the declaration is sufficient without having to incorporate or reference the declaration in each individual deed.

3. Plat

Similar to a declaration, a developer may place covenants on the recorded plat of the community. The plat is a graphical depiction of the lot lines, roads, and common property.  For condominiums, the plat will also show the elevation profile of the units and common elements.  Covenants contained in plats are typically noted in the narrative portion of the plat or referenced on the affected parcels.

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.

Board Member Fiduciary Duties

When owners are elected or appointed to the board of directors, it’s critical to understand the importance of fiduciary duties.  A fiduciary is a person “to whom property or power is entrusted for the benefit of another.”  In homeowner and condominium associations, directors are fiduciaries who must act in the best interests of the association and the membership as a whole. Washington law states:

A director shall perform the duties of a director, including the duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. (RCW 24.03)

Oregon’s standard of conduct for directors is similar:

General standards for directors. (1) A director shall discharge the duties of a director, including the director’s duties as a member of a committee:

      (a) In good faith;

      (b) With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and

      (c) In a manner the director reasonably believes to be in the best interests of the corporation. (ORS 65.357)

There are four key elements to fiduciary duties:

1.  Act in the best interests of the association

Board members must act in the best interests of the entire membership. In other words, directors may not favor particular members because of personal interests, friendships, or financial gain.  This also implies that directors must put their own interests below the interests of the community, even if those interests conflict.

2. Act with care and seek advice

Courts generally review actions of board members and compare those actions with what a reasonably prudent person would have done in the same circumstances.  If directors must make decisions with legal implications, then an attorney should be consulted.  If issues arise involving tax or financial issues, the board should speak with an accountant.  Get expert advice when necessary in order to make informed decisions. Acting with care also requires acting within the scope of the board’s authority.  There must be authority for every action and decision of the board, whether it’s from state law, the CC&Rs, bylaws, or rules and regulations.

3. Act in good faith

Board members are generally protected from personal liability if they exercise sound judgment and fulfill their fiduciary duties.  However, if board members make decisions based on fraud, malice, or discrimination, personal liability may arise because of the failure to act in good faith.

4. Avoid conflicts of interest

Oregon law defines a conflict of interest as: 65.361 Director conflict of interest. (1) A conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest.

Conflicts of interest arise when board members make decisions in which they have a personal or financial interest.  If those situations arise, board members must disclose the conflict and (in most cases) recuse themselves from voting.

Recording Board Meetings

Audio or video recording of board meetings typically happens under two circumstances: 1) the secretary of the association records the meeting to assist with creating meeting minutes; and 2) an owner in the audience (without permission) records the meeting. Carefully consider any policy which allows the recording of board meetings. Directors are often less inclined to speak freely if the meeting is recorded. Recording for Meeting Minute Preparation

If the board records meetings for the purpose of creating meeting minutes, adopt a policy stating how long the recordings will be kept. At the expiration of that time period, destroy the recordings.

In most cases, however, there is no need to record board meetings for the purpose of creating minutes. Meeting minutes should contain the motions made, who seconded the motion, and whether the motion passed. Oregon law also requires to list which board members voted yes and which members voted no. Attempting to summarize the discussion or debate of the motion is not required, and generally not advised.

Owner Recording of Board Meetings

Oregon condominium and homeowner associations (and Washington homeowner associations) are required to allow owners to attend board meetings. Although many boards have an open forum for owners at the start or end of the board meeting, owners are not allowed to otherwise participate or vote at board meetings.

Under Robert’s Rules of Order, the board of directors is entitled to adopt rules of order or standing rules governing its meetings. If the board’s decision is to prohibit the recording of board meetings, simply adopt a policy stating that no audio or video recording is allowed.

In addition, ORS 165.540 prohibits the recording of any conversation unless all parties to the conversation are specifically informed. This statute can be used to prevent the secret or unauthorized recording of board meetings. If an owner continues to record a board meeting, the owner can be asked to leave the meeting once the board has adopted a policy.

Most Common HOA President Names - Oregon

Community Association Websites

Many condominium and homeowners associations use websites to distribute governing documents, announce meetings, and allow owners to interact with each other. Ideally, the association’s website should have a password-protected area for owners to access financial data or other information that you may not want available to the general public. Never post sensitive data such as the names of delinquent owners or correspondence from your attorney which contains attorney-client privilege information. Here are a few options to consider:

1. GoGladly

https://products.gogladly.com/free-hoa-website

GoGladly provides well-designed, easy to navigate websites for community associations. A basic website is free. You can add components to the website, like bulletin boards ($5/month), surveys (10 cents per door/per month), calendars and document management.

2. Weebly

http://www.weebly.com

With a drag-and-drop website builder, Weebly makes it easy to have an association website up and running in minutes. A basic website is free. For $8/month, you can create a “members only” section to post content or documents accessible only to owners.

3. Association Voice

http://www.associationvoice.com

Association Voice is tailored specifically for condominium and homeowners associations. There are association management tools and you can integrate the site with accounting software. Packages range from $20/month up at to $300/month.

4. Mosaik Web

http://mosaikweb.com

For a truly custom website, local web design firm Mosaik Web builds beautiful and easy to navigate websites. Contact Mosaik for individual price quotes.

Overview of Collections and Foreclosures

Every homeowners and condominium association relies on assessments in order to operate. Assessments pay for insurance, maintenance, management, and other services necessary for an association to run properly. When owners don’t pay their assessments, the board has a duty to pursue collection efforts. There are two separate avenues for collecting delinquent assessments: 1) foreclosure of the association’s lien; and 2) a personal judgment against the owner for the amount of the assessments.

Liens

Most governing documents provide for an automatic (by operation of law) lien placed on the owner’s property the moment the assessment is delinquent.  State law in some jurisdictions may also provide for an automatic lien.  For planned communities in Oregon the statute reads:

(1) Whenever a homeowners association levies any assessment against a lot, the association shall have a lien upon the individual lot for any unpaid assessments. The lien includes interest, late charges, attorney fees, costs or other amounts imposed under the declaration or bylaws or other recorded governing document. (ORS 94.709)

Oregon condominiums have a similar statute:

(1) Whenever an association of unit owners levies any assessment against a unit, the association of unit owners shall have a lien upon the individual unit and the undivided interest in the common elements appertaining to such unit for any unpaid assessments. (ORS 100.450)

And lastly, Washington’s automatic lien statute for condominiums states:

(1) The association has a lien on a unit for any unpaid assessments levied against a unit from the time the assessment is due. (RCW 64.34.364)

However, it’s a good policy to always record a formal paper lien. The lien is always filed in the recorder’s office of the county where the property is located.

Typically, association liens are superior to all other liens except for first mortgages and deeds of trust, and tax liens. This means that if the association decides to foreclose its assessment lien, it does so subject to any first mortgages or tax liens.  If there is little equity in the owner’s property, then foreclosing the association’s lien may not be the best choice.

Personal Judgments

Aside from the association’s lien rights, the delinquent owner remains personally liable for the assessments.  (ORS 100.475, 64.34.364( 8)) Even if the owner sells the property in your community and moves elsewhere, their personal obligation to pay the balance remains.  This is true even if the property was foreclosed.

To secure a personal judgment, a lawsuit must be filed.  The lawsuit must be personally served on the owner, and the owner has an opportunity to file a written response.  The written response is called an “Answer.”  For a timeline of the collections process, click here.

If the owner fails to file an Answer, the association can ask the court for a default judgment.  Once the judgment is received the association may begin collecting on the judgment through garnishment of wages or bank accounts, filing a writ for the owner’s personal property to be sold at a sheriff's auction, or other legal procedures until the judgment is paid in full.

Dealing with Renters in Community Associations

Most individuals in community associations fall into one of three categories:

- Owner/Occupants: motivated to maintain value and foster relationships

- Investor Owners: motivated by financial benefit; less regard for the quality of the community

- Renters: Often view community associations as apartment living

In many homeowner and condominium associations, there exists a stigma against renters.  Often this stigma is unwarranted.  If rental issues arise in your community, ask a few preliminary questions:

1. Do tenants receive governing documents?

2. What communications (if any) do tenants receive from the association?

3. What steps are taken to involve tenants?

4. Is there a record to support the idea that tenants cause more problems in the community?

Communicating and involving renters in the community may resolve rental issues facing the association and the membership.

What Constitutes a “Rental”

Under Oregon law, “rent” means “any payment to be made to the landlord under the rental agreement, periodic or otherwise, in exchange for the right of a tenant and any permitted pet to occupy a dwelling unit to the exclusion of others and to use the premises.”

If the association has a rental restriction and there is a question of whether an owner is in violation, it may be difficult to determine if an owner is actually “renting.” For example, if the owner’s child lives in the home and is not paying any rent, then that arrangement does not likely constitute a “rental.”

But what if someone other than the owner is residing in the property and it is difficult to determine whether the arrangement is a rental? One thing an association can do is have the owner sign a rental affidavit.  The affidavit is a signed and notarized document stating that the owner is not renting their unit.  This satisfies the board’s obligation to inquire whether the property is in violation of any rental restriction. Click here for: Sample Rental Affidavit

Adopting a Rental Restriction

Restricting an owner’s right to rent or lease their lot or unit requires an amendment to the governing documents. There are several things to consider before embarking on a rental amendment.  First, will the association get enough owners to vote “yes” to approve the amendment? Should the rental amendment be retroactive, or should existing owners currently renting be exempt?  Lastly, consider adding a “hardship” clause which gives the board discretion to allow a rental which exceeds the rental cap in the case of extenuating circumstances (military service, overseas job transfer, etc.)

Other Options

There are other options in addition to a blanket rental restriction.  First, the association could adopt an amendment regulating leases or rentals. Requiring, for example, all rentals must be at least 30 or 60 days, all lease agreements must include a provision that the tenants will receive and follow the governing documents (including rules and regulations), and owners who rent their property must provide the association with the tenant’s contact information.

In most cases, the association is better off focusing on the fair and equitable enforcement of the association’s governing documents.  If renters are causing parking issues, enforce the parking restrictions.  If tenants are creating noise complaints, enforce the nuisance or noise provisions.  In other words, deal with the effects of renters rather than attempting to restrict or limit rentals.

Conflict Resolution In Community Associations

At some point, board members and owners within condominium or homeowner associations will face conflict. Knowing how to effectively resolve conflict will maintain civility and harmony in the community. Generally, there are four steps to resolving conflict: 1) negotiation, 2) mediation, 3) arbitration and 4) litigation. 1. Negotiation

Prior to more formal alternative dispute resolution, the parties engage in negotiation. Each party attempts to educate the other about the position they are taking, their needs and their interests. The most important part of negotiation is the ability to listen to the other side and attempt to come to a mutual understanding.

2. Mediation

Mediation involves the parties in dispute and a neutral, third-party mediator. Mediation does not require the parties to come to any formal agreement, but that’s the end goal. There are many community mediation services with trained mediators. However, if the dispute involves complicated legal issues, a mediator with a legal background is often preferable.

During mediation the parties get to explain their positions and tell their side of the story. The mediator’s job is to find common ground and see what (if anything) the parties can agree to.

Besides potentially resolving the conflict, mediation can expose your side’s weaknesses, which may influence your decision to arbitrate or litigate the dispute in the future. Keep in mind, Oregon law requires (in most circumstances) that the party initiating the claim offer mediation prior to filing an arbitration or litigation claim. (See ORS 100.405 and ORS 94.630)

3. Arbitration

Arbitration is much more formal than mediation. Some governing documents require the parties (association vs. owner or association vs. developer) to submit all disputes to binding arbitration. The arbitrator, or panel of arbitrators, conduct the arbitration similar to a court trial. If the arbitration is binding, the ruling of the arbitrator is the final ruling on the issue and the parties are bound to the decision.

Some state courts require arbitration of all cases less than a certain dollar amount. In court mandated arbitration, the losing party may appeal the decision of the arbitrator and continue to a judicial or jury trial.

4. Litigation

When all else fails, sometimes litigation is the only avenue to pursue. Litigation means filing a lawsuit in court and a trial in front of a judge or jury. Attorney fees for litigating an issue through trial can be very expensive. However, depending on the claim, an association may recover its attorneys fees if it’s the prevailing party.

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.

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The Importance of Reserves

Adequate reserves are important to maintain property values and avoiding large special assessments. Most importantly, reserves increase the marketability of homes or condo units. Savvy buyers will base much of their purchase decision on whether or not there are adequate reserves. Typically, the amount of reserves is based upon a reserve study. The reserve study identifies all of the common property or common elements which the association is obligated to maintain, repair or replace. For single family home communities, this often includes entrance gates or monuments, play structures, fences or roads. For condominium communities, reserves are used to maintain or replace roofs, siding, clubhouses, decks and other limited or general common elements.

There are two components to reserves: the financial and the physical. A qualified professional first identifies all of the physical components of the community. Next, a reserve study and financial analysis are prepared showing how much money must be reserved. For example, if the professional indicates that the condominium roof must be replaced in 18 years, the reserve analysis will indicate how much money the association must save on a regular basis so that in 18 years it will have the necessary funds to pay for a complete roof replacement.

When choosing a reserve study provider, make sure the company carries liability insurance. If the association has complicated reserve items, it’s usually best if an engineer or architect conducts the site visit and reserve study.

Here’s an overview of the legal requirements in Oregon and Washington:

Oregon

• Reserve account must be established for all improvements which require major maintenance, repair or replacement in more than 1 and less than 30 years.
• Amount of reserves must be based on reserve study or other reliable information.
• Must perform reserve study (or review) annually and update accordingly.
• Reserve study must include:

- All items for which reserves are established - Remaining useful life for those components - Estimated costs of repair, maintenance or replacement

• Association may borrow from reserves for unforeseen expenses, but must do so with a resolution stating how and when the money will be returned to reserves.

Washington

• Non-condominium associations are “encouraged” to have reserves.
• Reserve account must be in the name of the association and administered by the board of directors.
• Amount of reserves is based on reserve study, which must be updated by a visual site inspection every three years by a “reserve study professional.”
• Reserve study must include:

- Component list - Date and statement of compliance with RCW - Level of detail of the reserve study - Association’s reserve balance - Other financial information - Reserve disclosure

• Association may borrow from reserves to pay for unforeseen or unbudgeted costs, but must do so by resolution sent to owners which explains when and how the funds will be repaid into the reserve fund.
• Association may be exempt from reserve requirements if there are 10 or fewer homes or units.

5 Common Collections Mistakes

Assessments are critical for community associations. Regular assessments allow the association to purchase liability insurance, maintain common property, and hire professional management. When an owner in a community fails to pay their share of the assessments, the other owners make up the deficit. Every condominium and homeowners association should have a collections policy that identifies exactly how the association will handle delinquencies.

Here are five common collection mistakes that board members often make: 1. Giving Up After a Foreclosure

Each community association has two enforcement routes to collect delinquent assessments. The first is the association’s right to lien the property or unit of the delinquent owner. The second is to pursue a personal judgment against the individual. The lien right and the personal judgment right are independent of each other. So, if an owner’s home or unit is foreclosed, the association still has a legal right to pursue the delinquent owner for the entire balance due to the association.

2. Failing to Timely Pursue Debt

There is a significant psychological component to debt. The longer a creditor waits to pursue collection efforts, the less likely the creditor will get paid. Each association should have a collections policy in place that explains to each owner exactly when collection efforts will begin after an assessment becomes delinquent. For associations with monthly assessments, collection efforts should begin 15-30 days after due. Associations with quarterly assessments should begin collections prior to the next quarter’s assessment.

3. Communicating About the Debt to Third Parties

Federal law prohibits collections agencies or collections law firms from communicating about an owner’s debt to any third-party. Board members should follow that same policy and never discuss an owner’s delinquency with other owners or third-parties. Discussion of deliquencies should be done in executive session during a regular board meeting.

4. Playing Favorites

Each association has clear guidelines on the amount of assessments, the frequency, interest rate, and late charges. The board should follow those guidelines with every delinquent owner and never make special arrangements with certain owners if those same arrangements are not available to all owners. Granted, when circumstances warrant the board may compromise on the total amount of debt in order to secure a settlement agreement. Legal counsel should be consulted prior to entering into a settlement agreement with a delinquent owner.

5. Not Allocating Assessments Correctly

In most planned communities each lot owner pays an equal share of the total amount of levied assessments. Some condominium associations allocate assessments based on square footage of the unit. In any case, always read your governing documents carefully to ensure assessments are allocated in accordance with the provisions in your Declaration or Bylaws.

8 Considerations for Community Rules & Regulations

Rules and regulations are an important part of the association’s governing documents. When properly adopted, rules carry the same weight as provisions in the CC&Rs or Bylaws. Here are some important things to know when adopting rules and regulations:

1) Rules and regulations must be consistent with the association’s other governing documents. You may not adopt a rule which conflicts with the CC&Rs, Bylaws or state law. In addition, an association may not adopt a rule for which it has no authority to do so. For example, if the CC&Rs do not contain any provisions related to the renting of units or lots, the board may not adopt a rule restricting the number of rentals in the community.

2) Rules and regulations are not recorded with the county recorders office. Because they are not recorded, it’s important that the association ensure that new owners in the community receive copies of all previously adopted rules, regulations and resolutions. If an owner never received a copy of a rule or regulation, it will be impossible to enforce.

3) When drafting rules, always cite to the association’s authority for adopting the rule, and include a statement of why the board is adopting the rule. Avoid legalese and make the rule clear, concise and readable.

4) Consider circulating the proposed rules before the board votes to adopt. Sometimes the board may receive constructive feedback from the owners which may prompt modifications.

5) Be consistent with the enforcement of rules and regulations. Follow the same procedures with all owners. This means applying the same fines for similar violations, allowing owners the opportunity for a hearing prior to levying fines, and equal application of each rule and regulation.

6) In general, boards may rescind rules, regulations and resolutions adopted by previous boards. However, if owners have relied upon a particular rule, the board may not retroactively apply a new, inconsistent rule against those owners. For example, suppose a board adopts a rule allowing white fences in the community and some owners construct white fences in compliance with the rule. If a new board decides only wood colored fences are allowed, the board may not require those owners who constructed white fences to comply with the new rule.

7) Make sure that owners receive due process when enforcing rules and regulations. Washington and Oregon both require that owners receive the opportunity for a hearing in front of the board of directors prior to levying a fine. Notice and the opportunity for a hearing should be built into all rules and regulations which include a financial penalty.

8) Don’t adopt needless rules or regulations. Always ask “why are we adopting this?” Rules and regulations should be adopted to address specific issues that arise in the community or to resolve ambiguities in the CC&Rs or Bylaws.

6 Ways to Take a Vote

Nearly all condominium and homeowners associations use Robert's Rules of Order ("RRO").  RRO describes multiple methods of taking votes.  Depending on the type of motion which the assembly is voting on, some methods of voting are better than others. For example, any vote which may be subject to challenge should be done by written or electronic ballot. This method provides a paper trail of the votes and can be re-counted and audited. For motions which are obviously going to be uncontested, it may make sense to take a voice vote by calling for "Ayes" and "Nays."

Here is an overview of the different methods of voting found in RRO:

1. Voice Vote

For a voice vote, the chair (after debate is over) instructs the assembly to say "Aye" or "Nay".  The chair, using their discretion, then announces the outcome.

2. Roll Call Vote

This may take much longer, but it provides a record of who voted "yes" or "no".  The chair reads through the names on the roll of the assembly, including those present by proxy, and records a yes or no vote for each member.

3. Standing Vote / Raise of Hand Vote

Similar to a voice vote, the chair asks all those in favor of the motion to stand or raise their hands. Then again for those voting no.  This is useful if the vote is close and a voice vote is too difficult to determine the outcome.  Remember though, if some members are holding multiple proxies (i.e. the owner is casting one vote for themselves and 4 votes on behalf of proxy givers) it may be complicated to get an accurate count.

4. Written Ballot

For any issue which may be contested, a written ballot is always the best course of action.  A written ballot provides physical evidence of who voted which way and the total number of votes for and against the motion.  Written ballots should be kept with association records for at least one year from the date of the meeting.

5. Electronic Ballot

By statute or bylaw provisions, many associations may use electronic ballots.  Many communities have seen a dramatic increase in voter turnout when using electronic or online ballots.  Electronic ballots work similar to written ballots in lieu of a meeting.  Here's an example of an online ballot: https://calaw.attorney/online-voting/

6. Unanimous Consent

For a series of procedural or uncontested motions, the chair may announce each item or motion and then ask the assembly to approve the motions by unanimous consent.  The chair does this simply by asking the assembly if there is anyone opposed to the motions.  If there are no objections, all motions pass without debate or discussion.

Insurance Policies Every Community Association Should Carry

The right insurance policies with the right coverage amounts are critical for every community association. State law may mandate insurance policies, and your association’s governing documents likely require certain types of coverage. Each association should review (on an annual basis) its coverage and coverage limits. Here are the policies every association should carry:

1. Property Insurance

Property insurance covers real property and insurable improvements owned or controlled by the association. Common examples include: clubhouses, restrooms, play structures, entrance monuments and fences.

The policies limits should be sufficient to cover replacement of any of the buildings or structures. If the association’s clubhouse is valued at $500,000, the property policy covering the clubhouse should be at least that much.

2. General Liability

Liability insurance covers the association and board against claims arising out of bodily injury. When an owner’s guest slips and falls on the association’s sidewalk, it’s the liability policy which is triggered and will provide coverage.

3. Directors & Officers Insurance

Some older governing documents may refer to this policy as “Errors & Omissions.” This policy will provide legal defense and coverage for claims asserted against the board or the association related to mismanagement, breach of fiduciary duty, or errors in judgment. The policy should cover the association, past and present board members, committee members, and managers of the association.

4. Fidelity Insurance

Fidelity policies cover theft of association funds. This type of coverage is especially important in self-managed associations which may not have sophisticated financial safeguards in place. Your policy limits on fidelity insurance should be least as much as the association has in all of its bank accounts.

5. Other Insurance Policies

In some cases, it may be appropriate (or required) for the association to carry earthquake or flood insurance. These policies are often expensive, but shouldn’t be overlooked if the risk is present. Lastly, if the association has employees worker’s compensation insurance is absolutely necessary.

Avoiding Personal Liability as a Board Member

Board members in community associations owe fiduciary duties to the association and the membership.  Fiduciary duties are duties above and beyond the normal obligations which a person owes to the public and to fellow citizens. This means that board members must act and make decisions which are in the best interest of the community, even at the expense of the board member’s individual interests.  Just because you’re a volunteer, this duty is not diminished.

Under the scope of fiduciary duties, the law imposes two duties: the duty of loyalty and the duty of care.  The duty of loyalty requires board members to avoid self-dealing during the course of decision making.  The duty of care means that a board member must consider the best interests of the association when acting as a board member. 

Fortunately, courts have adopted the “business judgment rule”.  This rule states that the court will not second guess a decision of the board or hold a board member personally liable. The rule will apply so long as the board members fulfilled their duty of care and duty of loyalty.  Thus, if an owner sues the board over a decision the court will apply the business judgment rule and insulate individual board members from personal liability. 

A Washington State Court of Appeals Case applied the business judgment rule after an owner sued the board and association for alleged maintenance issues.  The board undertook an investigation and even hired different experts to determine the cause of a water leak into the owner’s unit.  Nevertheless, the owner sued the board.  The Court refused to hold the board members liable:

Because they are given this wide latitude, the law will not hold directors liable for honest errors, for mistakes of judgment, when they act without corrupt motive and in good faith, that is, for mistakes which may properly be classified under the head of honest mistakes. And that is true even though the errors may be so gross that they may demonstrate the unfitness of the directors to manage the corporate affairs. This rule is commonly referred to as the "business judgment rule."

Keep in mind that the business judgment rules requires that board members:

1. Are informed about association business and affairs;

2. Attend and participate in meetings;

3. Are knowledgable about the governing documents of the association; and

4. Seek outside help (accountants, lawyers, or other experts) when necessary.

With any major decision each board member should ask if they have done everything necessary in order for the business judgment rule to apply.