FHA Certified Condominiums

Many condominiums throughout the United States are Federal Housing Administration (“FHA”) certified.  This allows prospective buyers to receive FHA-insurance loans and mortgages. If a condominium is FHA certified, that means that the condominium meets all of the FHA legal, financial, operational, and property requirements.

FHA certified condominiums allow for a larger demographic of potential buyers.  This, in turn, makes the condominium more valuable and marketable.There are certain requirements which must be met.  The requirements include:

1. Property Use and Type

Under federal law, FHA mortgages may be used only to purchase a primary residence.  You may not secure an FHA loan for the purchase of a timeshare, condo-hotel, or resort property.  There are other types of properties which FHA loans may not be used: condominiums where more than 25% is designated for commercial use or condominiums located in coastal barrier zones.

2. Financial Stability

To become FHA certified, the association must prepare and fully fund an annual budget.  At least 10% of the budget must be allocated to reserves. The reserve fund is used to maintain, repair and replace common elements of the condominium, such as the siding and roofs.  Lastly, no more than 15% of the condominium units may be more than 60 days delinquent on the payment of regular assessments.

3. Operational Stability

The condominium association must show that at least 50% of the units are owner-occupied. This means that if your association has a high number of rentals, FHA approval may not be an option.  In addition, FHA certification requires that all of the condominium buildings and common element are in good repair.

4. Insurance Requirements

Every association should have certain insurance policies.  Click here for more on insurance. FHA approval requires that the association maintain the following policies:

A. Property/Hazard Insurance

B. Liability Insurance

C. Fidelity Insurance (if there are more than 20 units)

D. Flood Insurance (if required)

5. Legal Requirements

There are a handful of legal requirements to become FHA certified.  First, any rental restriction in the governing documents must comply with the FHA’s governing statutes.  Second, litigation (other than routine litigation for delinquent assessments) must be disclosed and explained.  Lastly, the association must certify that it is in full compliance with any applicable state or federal law.

To see if your condominium has been FHA approved, visit: https://entp.hud.gov/idapp/html/condlook.cfm

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.

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.

Reading and Understanding Title Reports

What is “Title”? The term “title” has been defined as that which is the foundation of ownership, of either real or personal property, and that which constitutes a just cause of exclusive possession. It has also been defined as ownership, equitable or legal.

Title Companies

Before a title insurer or its agent can insure a transaction, it must operate a title plant in the county where the real property is located or purchase title insurance from a company that does. ORS 731.438(1). All title services by a title insurer must be provided within Oregon, and the information used to produce the services “must be maintained and must be capable of reproduction within the state at all times.” ORS 731.438(2).

A title plant can be jointly owned and maintained in “any county with a population of 500,000 or more, or any county with a population of 200,000 or more that is contiguous to a county with a population of 500,000 or more.” ORS 731.438(4).

Preliminary Title Report vs. Title Commitment 

A PTR does not constitute title insurance. A PTR is also not a promise with respect to the state of the title of real property. It is simply an offer to issue title insurance in a particular form.

A title commitment is an agreement to issue a specified policy to a specified insured upon acquisition of the insurable interest, if accomplished within a limited time, and upon payment of the premium and charges.

Insurable Title

There is a difference between insurable title and marketable title. Title is insurable if the title company determines that, based on its examination of the public record, the company will deliver to the party to be insured a title insurance policy (i.e., a contract of indemnity) subject to the company’s usual printed exceptions and exclusions from coverage as well as subject to certain matters shown in the title report (e.g., a recorded easement).

Scope of Insurance

Title Vested

Any defect in or lien or encumbrance

Unmarketable Title

No Right of Access

Endorsements

Zoning - It provides assurance that the insured property is in a particular zoning designation and that certain specified uses are allowed in that designation. The endorsement does not insure, however, that any of the existing uses on the property are in compliance.

Access - The access endorsements provide additional assurances to the insured regarding access to the insured property, and can be used with owners’ and lenders’ policies. The endorsements specifically identify the physically opened street to which the insured property has access.

Environmental - The endorsements cover only loss sustained by reason of lack of priority of the lien of the insured mortgage over any environmental-protection lien recorded in the public records. The endorsements provide absolutely no protection to lenders regarding the numerous off-record issues raised by federal and state environmental laws.

Location of Improvements - the location-of-improvements endorsement assures that improvements having a specified street address or route or box number are located on the insured property.

Marketable Title

Marketable title is “title such as a prudent man, well advised as to the facts and their legal bearings, would be willing to accept.”

Abstract or Chain of Title

An abstract of title is also different from title insurance. An abstract is a summary of the chain of title to a particular parcel of property that shows how each owner acquired and disposed of the owner’s interest in the property. An abstract also discloses the nature and source of liens, encumbrances, and other matters appearing of public record in the chain of title.

Contents of a Title Report

Estate of Interest Covered

Fee Simple - The fee simple estate (also called “absolute estate” or “fee simple absolute”) is described as “full ownership.” A fee simple absolute is the most common estate in modern times; most people own their property in fee simple. The presumption is that a person conveys the fee estate unless the conveyance expressly states otherwise.  The fee simple absolute is considered the greatest estate because it is of unlimited duration. The estate ends only by the sale of the property or the death of the holder without heirs. It is freely alienable, devisable, and inheritable.

Current Owner of Estate or Interest

Shows the current owner of record and how title is vested, i.e. single man, window, husband and wife.

Parcel of Land Involved/Legal Description

Rectangular or Governmental System - Under the Rectangular System of survey, the surveyors first established a reference point from which a line ran due north and south. This north-south line was designated the principal meridian. The principal meridian for Oregon is the “Willamette Meridian.” After establishing the principal meridian, the surveyors located a point on the principal meridian from which they ran a line due east and west. This east-west line was designated the baseline. In Multnomah County, the baseline for Oregon runs east-west along Stark Street east of the Willamette River and Burnside Street west of the Willamette River.

Subdivision Plats - Subdivisions (but not partitions) are named on the plat. In either case, the locations and descriptions of all monuments found or set must be recorded on the plat, and the courses and distances of all boundary lines must be shown. ORS 92.050(5). Each lot or parcel must be numbered consecutively, and the lengths and courses of all boundaries of each lot or parcel must be shown. ORS 92.050(4). When the subdivision or partition plat is completed and approved, and all required fees are paid, the plat may be recorded in the county records of the county where the described land is situated. ORS 92.050(1).

Metes & Bounds - A metes and bounds description typically contains an introduction defining the general location of the property by reference to the governmental survey, the place of beginning, and the body that describes the various courses of the property boundary by distance and bearing.

Liens

A lien is a claim or charge on property as security for payment of a debt or the fulfillment of an obligation.

Covenants, Conditions and Restrictions

Covenants running with the land take different forms. When a single owner wishes to divide a parcel of land and create a scheme of contractual obligations binding on all future owners of the resulting parcels, the term declaration is an accurate description of what the owner does by recording a written statement of the covenants; hence the term declaration of covenants, conditions, and restrictions or CC&R declara­tion. Often, covenants are also included as a part of and literally on a recorded subdivision or partition plat.

Covenants and servitudes are important tools in private land use planning and regulation. Declarations of covenants, conditions, and restrictions (“CC&R declarations” or simply “CC&Rs”) for subdivisions often parallel public land use regulatory schemes and function as an overlay containing more restrictive requirements. In many instances, the CC&R declaration is coupled with an association, which is a quasi-municipal government for the project, providing services over and above the services provided by the local government.

Easements

An easement is a nonpossessory interest in the land of another that entitles the owner of the interest to a limited use or enjoyment of the other’s land and to protection from interference with this use. The inter­est, once created, may be irrevocable and generally is not subject to the will of the land owner.

Taxes

The first exception shown is a statement regarding the amount and status of the current year’s taxes (e.g., taxes now a lien, now due, or respective installment paid or unpaid).

Other Types of Title Insurance

Litigation Guarantee - The litigation guarantee is used by attorneys who are contemplating filing an action concerning the affected property, such as a quiet-title action, a partition action, or a suit to enforce an easement.

Foreclosure Guarantee - Judicial-foreclosure guarantees are issued to attorneys to indicate the status of the title and the parties to be named as defendants in a mortgage, trust deed, contract, or lien foreclosure suit. In addition to showing the status of title and the necessary defendants, a foreclosure guarantee shows all title exceptions that may or may not be pertinent to the contemplated foreclosure.

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.

Marijuana in Community Associations

For some condominium and homeowner associations, marijuana (smoking and growing) is becoming a concern. There are a handful of tools the board of directors may consider to handle these issues.

1. Nuisance

A nuisance claim is most frequently used in banning smoking in multi-family residential units.  A “nuisance” is defined as conduct that causes a substantial and unreasonable interference with the use and enjoyment of the premises. 

In Christiansen v. Heritage Hills 1 Condominium Owners Association, a Colorado District Court held that second-hand cigarette smoke qualifies as a nuisance.  The Court also noted that smoking is not a right protected by the Constitution.

Although the courts in Oregon and Washington are not required to follow the holding in this case, the courts do still have discretion to follow the holding.  Both the smoking of cigarettes and the smoking of marijuana emit harmful chemicals that can cause serious health complications.  In fact, marijuana smoke has joined tobacco smoke on a list of substances that, in California, regulators say cause cancer. It is harmful to anyone’s use and enjoyment of their property to be involuntarily exposed to dangerous chemicals that can seriously damage their health.  The Board can point to the fact that marijuana can be ingested instead of smoked, which eliminates the dangerous exposure to other people. 

In banning the growing and cultivation of marijuana the Board may rely on a nuisance claim.  The growing of marijuana often emits a noxious odor that can travel from unit to unit.  Additionally, the use of chemicals and lighting for growing could be a fire hazard. The water and lighting required for growing could also constitute extra use of “common utilities.”  That kind of use could be costly and unfair to the other residents.  A community would likely be within its rights to ban growing and cultivation of marijuana.

2. Insurance Issues

In addition to the issues presented above, there is the issue of insurance liabilities.  Fires caused by smoking marijuana or growing it may not be covered by the insurance company.

3. Amendments and Rules

There are a couple different options a Board can use to control smoking and growing.  The first is to amend the CC&Rs.  The other option is to implement a new Rule and Regulation.

The advantage of amending the CC&Rs is that this method provides constructive or record notice to prospective purchasers—i.e. because the amendment is recorded in the county records, owners and perspective buyers are presumed to have notice. 

Additionally, CC&R amendments generally have stronger enforceability.  However, the disadvantage is that it requires membership vote which means it could take longer and it is more expensive.  Some state courts have actually held that the only way a board can implement a no smoking ban is to amend the CC&Rs.  Although there are disadvantages, this is the most reliable method of implementing the ban.

In the alternative, the Board may add a new Rule and Regulation.  The advantage is that these are easier to adopt because they require only board approval and not membership vote.  This also means it is less expensive.  However, prospective purchasers will not have constructive notice of the ban and the enforceability will not be as strong as an amendment to the CC&Rs.

Bend Seminar Recap

Last night's board member seminar was a full house.  The topic was "How to Read and Understand Your Governing Documents."  To view and RSVP for future education events, visit www.calaw.attorney/events Slideshow may be downloaded here: Reading and Understanding Governing Documents Keynote OR 9-23-2015

Collecting on Judgments

Sometimes owners in a community don’t pay their assessments. Often, the Board of Directors must file a lawsuit to collect the delinquent assessments. The lawsuit is filed in small claims court or the civil court in the county where the property is located. Typically, owners do not respond to the lawsuit and the Association receives a “default judgment.” But a judgment is only as good as the Association’s ability to collect the judgment.  For a more detailed overview of collections, click here. Once a judgment is secured, there are several avenues the Association may pursue. Here are some of those options:

1. Garnish Wages or Bank Accounts

At anytime after the judgment is entered in the court records, the Association’s attorney may issue garnishments. Items that are subject to garnishment include: bank accounts, wages, certain personal property, rental income or income tax returns.

The “writ of garnishment” is sent to the individual or entity that holds an interest in the owner’s assets or property.  For example, writs are sent to banks where the owner has an account or to the owner’s employer.

There are some assets or income that are exempt from garnishment, such as social security or disability income.  In those cases, the owner may challenge the garnishment and a judge will then determine what is exempt and what is subject to the garnishment.

2. Debtor Examinations

Once the judgment has been entered in the court records, the Association may obtain an order requiring the owner to appear at the court house.  On the stated day and time, the Association’s attorney may ask questions of the owner related to their finances, bank accounts, assets, or any other information relevant to collecting the judgment.  The information gathered from the debtor exam is then used to issue garnishments or take other collection action to pay off the judgment.

3. Execution on Vehicles

In some cases, a delinquent owner may own cars, boats or other vehicles that are owned free and clear.  In those circumstances, the property may be taken by the sheriff, sold at auction, and the amount received is credited toward the Association’s judgment amount. The Association’s attorney can determine if such assets are available.

4. Settlement

The threat of garnishment may be enough to cause the owner to voluntarily pay the amount of the judgment or make regular payments until the judgment is satisfied.  In those cases, the Association may want to enter into a formal settlement agreement which includes all of the costs and fees that were incurred after the judgment was entered.  This avoids having to file a “supplemental” judgment to collect those fees and costs.

Association Record Inspection

Community associations often have voluminous records.  Owners, who are members of the association, have a right to inspect and review those records. Financial records, meeting minutes, and governing documents are some of the items which constitute official “association records.”  For a more detailed list of association records, visit here. There are some records, however, which owners are not entitled to review or inspect.  Some of those records include:

1. Contracts, leases or business transactions currently under negotiation;

2. Documents or correspondence protected by attorney-client privilege;

3. Records created for consideration in executive session; and

4. Documents or records subject to confidentiality agreements.

Most other records, however, must be available for owner review and inspection.  Under state statute the association is authorized to charge reasonable copy costs or administrative costs.  For Washington homeowner associations, the law provides:

All records of the association, including the names and addresses of owners and other occupants of the lots, shall be available for examination by all owners, holders of mortgages on the lots, and their respective authorized agents on reasonable advance notice during normal working hours at the offices of the association or its managing agent. The association shall not release the unlisted telephone number of any owner. The association may impose and collect a reasonable charge for copies and any reasonable costs incurred by the association in providing access to records. (64.38.045)

Oregon homeowner associations are governed by a similar statute, which also imposes a 10 day timeline:

(11) The association, within 10 business days after receipt of a written request by an owner, shall furnish the requested information required to be maintained under subsection (10) of this section.

(12) The board of directors, by resolution, may adopt reasonable rules governing the frequency, time, location, notice and manner of examination and duplication of association records and the imposition of a reasonable fee for furnishing copies of any documents, information or records described in this section. The fee may include reasonable personnel costs for furnishing the documents, information or records. (ORS 94.670)

Associations should timely respond to all reasonable records requests from owners (and in some cases mortgagees).  The board should adopt a record inspection policy or resolution explaining when and how records may be requested, a list of any records which are not subject to inspection, and a schedule of costs or fees for inspection or duplication of records.  Here is a sample records inspection form that may be used and tailored for your association: Sample Records Request Form

September Board Training: How to Read and Understand Your Governing Documents

Portland - September 15, 7pm Vancouver, September 17, 7pm

Bend, September 23, 7pm

Visit www.calaw.attorney/events for more info and to RSVP.

Deschutes County Subdivision Map

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.

Deschutes County Woman Sues Neighbors Over Felled Trees

Interesting case with creative legal theories.  Click here to read: http://www.bendbulletin.com/localstate/3449691-151/woman-sues-neighbors-for-damages-over-felled-juniper?referrer=bullet2#

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)

Legalese in Governing Documents

Consider the following disclaimer on a law firm’s website:

Material contained herein is not offered as legal or any other advice on any particular matter. Material included here is for informational purposes only and is not necessarily an indication of future results. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship between a lawyer and the user or browser. No client or other reader should act, or refrain from acting, on the basis of any matter contain in the Law Firm Home Page without seeking the appropriate legal or other professional advice on the particular facts at circumstances at issue.

Huh? It’s difficult to read and understand.  The following disclaimer, in plain English, accomplishes the same result:

Our website is for information only. We can’t give you legal advice through our website, and we can’t guarantee you a certain result. So don’t rely on anything on this website as legal advice.

Visiting our website does not make you our client. If you have a legal problem, see a lawyer and get legal advice for your specific problem.

Lawyers are known for being verbose, using legalese, and not explaining legal concepts in a way that most clients can understand.  There are many reasons for this. One reason is tradition.  Lawyers read legalese throughout law school and believe they are obligated to follow the same style. Another reason is that some lawyers believe that if they use lots of complicated words, they will sound smart. But at the end of the day, using complicated jargon doesn’t help the reader.

Governing documents in community associations are laced with legalese. Many resolutions start with “Whereas”. What does “Whereas” mean? How does it help? And why is it necessary?  The short answer is that “Whereas” is an archaic term that many drafters believe gives a sense of authority.  It doesn’t. The use of that term is unnecessary and mucks up the document.

Here’s a paragraph taken from a community association’s enforcement resolution:

BE IT FURTHER RESOLVED, if proof of insurance is not provided within thirty (30) days as required above, the Association shall notify the Unit Owners they are in violation of this Resolution and, after a, hearing and an opportunity to be heard, will be subject to a fine in the amount of Fifty Dollars ($50.00) per month which will increase to $75.00 for sixty (60) days and $100.00 for ninety (90) days and continuing to increase an additional $25.00 thereafter for each additional thirty (30) days proof of insurance has not been provided to the Association pursuant to Article 8(f) of the Code of Regulations and Section 3302(a)(l 1) of the Act[.]

There are several problems with this section.  First, why is “BE IT FURTHER RESOLVED” necessary?  It’s not.  Second, how many times do you have to read the language relating to fines to actually understand the amount of the fines? Lastly, the authority cited in the final portion of the paragraph is cited twice in the resolution prior to this paragraph.  Is it necessary to cite the association’s authority to do something three separate times?

Here’s the same paragraph re-written in plain English:

1. Owners must provide proof of insurance within 30 days.  After notice of the violation and an opportunity for a hearing, the Association may fine Owners who do not provide proof of insurance. The initial fine is $50. After every 30 day period the fine will increase by $25 until proof of insurance is provided.

Much easier to read, isn’t it?

Granted, there are some legal concepts or words that have no plain English equivalent.  However, when drafting rules, regulations, and policies, consider the reader’s ability to easily comprehend and understand what you are attempting to convey.  And as always, have a qualified attorney review any governing documents prior to adoption.

Most Common First Names

This is a graph of the most common first names for presidents of homeowner and condominium associations in Oregon.

Enforcement Problems

All owners within homeowner and condominium associations must comply with the governing documents.  The governing documents include the Declaration (CC&Rs), Bylaws, Articles of Incorporation, and Rules and Regulations.  It’s the obligation of the community association to enforce the governing documents when violations occur. However, there are instances when an association may lose the right to enforce provisions of the governing documents.  Court cases and statutes have evolved over the years to identify circumstances in which an association is prevented from enforcement.  Here are a few ways which  may create enforcement problems:

1. Arbitrary or Selective Enforcement

The association has an obligation to enforce all of the provisions in the governing documents equally, fairly, and consistently.  A restriction in the governing documents is arbitrarily enforced if it does not apply to all members of the association.  For example, an association in New Jersey adopted a policy of charging owners who rented their units a $225 security deposit.  The court held that such a policy was arbitrary because it created a separate class of owners who were subject to a fee above and beyond the normal monthly assessments.  Coventry Square Condo vs. Halpern.

Selective enforcement occurs when an association enforces a restriction against one owner, but not others.  Doing so may cause the association to lose its enforcement rights with respect to a particular restriction.  Each violation must be treated the same, and each owner must be subject to the same enforcement policies and procedures.

2. Waiver & Estoppel

Most states recognize the legal doctrines of waiver, estoppel and laches.  These doctrines are essentially the same, and are defenses to the enforcement of governing documents.  If an owner constructs or does something in violation of the CC&Rs, and the association fails to take enforcement action over a lengthy amount of time, the association “waives” the right to enforce and is “estopped” from taking any enforcement action.

An owner asserting any of these doctrines must show: (1) the association delayed asserting enforcement for an unreasonable length of time; (2) the association had full knowledge of all of the relevant facts; and (3) that the delay resulted in such substantial prejudice to the violating owner that it would be inequitable to allow the association to enforce.

Some guidance as to the length of time is found in a South Carolina case where a condominium association failed to enforce landscape restrictions for a period of 4 years. The court found that the Association was estopped from enforcement of the applicable provisions of the CC&Rs. Janasik v. Fairway Oaks Villas.

3. Changed Conditions or Abandonment

Over the course of decades, the aesthetics or architectural styles of the community may change.  An association in Utah (created in 1978) required all homes to be built with wood shingles.  During the next decade some owners installed roofs using materials other than wood shingles.  When the association attempted to enforce the wood shingle provision against an owner, the court found that 23 of the 81 homes in the community were not using wood shingles. As a result, that requirement had been “abandoned” and was no longer enforceable.  Fink v. Miller.

4. Statute of Limitations

Statutes of limitations are laws which prevent legal claims after a certain period of time.  There are multiple statutes of limitation for different legal claims that may arise in a community association.  Seek competent legal advice to ensure you do not lose an enforcement claim as a result of waiting too long.