Articles - Vial Fotheringham LLP Lawyers

Architectural Control Provisions

Wed, 16 May 2012 00:00:00 -0700

Stephen the newest member of the staff joined Forest Heights in Februaryof 2008

Whenresponding to an owner’s request for approval related to construction,maintenance, or repair of their lot or unit, it is best not to delay. A courtmay consider or view you as an “Ostrich,” with its head in the sand, and might deemthe owner’s request as approved – even if the request violates expressrestrictive covenants.� Many HOAs have architectural restrictions toprotect the value and desirability of a harmonious and attractive residentialcommunity.� Such restrictions range from limiting the type of shrub thatmay be planted within a subdivision, to restricting the type and color ofmaterial that may be used to construct a building.� These architecturalguidelines are generally enforced by an architectural control committee (“ACC”)that is established pursuant to the association’s governing documents.� Attimes, the ACC may consist of the association’s board of directors, or it maybe composed of persons that are not even members of the association who havebeen appointed by the association.� Either way, an ACC is often timescomposed of persons who are not paid to be on the committee, and are occupied withwork/other activities that leave them with very little time to spend reviewingrequests from owners.

TheACC is generally given the ongoing duty of ensuring that the association ismaintained in compliance with the overall vision of the community that was setforth when the community was developed.� As such, the ACC is typicallygiven the tasks of inspecting the community on a regular basis to ensure compliance,as well as review owners’ requests to construct, maintain, or alter certainimprovements within the community.� On this note, it is not uncommon tofind a “deemed approved” provision within the association’s governing documentssimilar to the following:

Decisions by the ACC shall be transmitted by theACC to the applicant at the address set forth in the application for approval,after receipt by the ACC of all materials required by the ACC and within thirty(30) days after receipt of the application by the ACC.� Any applicationsubmitted pursuant to this section shall be deemed approved unless writtendisapproval or a request for additional information or materials by the ACCshall have been transmitted to the applicant within the time herein set forth.

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Deemedapproved provisions such as the one above can create many problems if the ACCis not paying attention and fails to respond to the owner’s request.� Forinstance, say you live in a community where the governing documents include aprovision similar to this example and also require that all exterior buildingwalls shall only be painted with natural brown and tan earth tones.�Perhaps an owner needs to repaint the outside of their home and decides thatbright red matches the color of their favorite college football team and looksmuch better than the bland brown colors of other houses within the community.�The owner submits an application to the ACC to paint his house red on June 1^st but,as is often the case, the persons on the ACC are busy with work, summervacations, baseball, and other activities and are unable to meet and respond tothe owner’s request within thirty days.� On July 2^nd, theowner paints his house bright red, just in time for the Fourth of Julyfireworks.�

Theassociation has a dilemma on its hands, as the owner is stating his request isdeemed approved as a result of the ACC’s failure to disapprove hisapplication.� The red house may not only become the topic of conversationin the community, but may also subject members of the ACC to litigation byother owners that purchased their homes with the belief they would never have aneighbor whose house is red.

Courtshave gone many directions under similar situations where the ACC has failed totimely deny or disapprove an owner’s application.� Some courts have heldthat the association failed to timely respond, and the red house is deemedapproved (to remain red).� Other courts have veered from the strictreading and ruled that the ACC did not have any discretion to approve the redhouse, since it is expressly restricted by the governing documents (and,therefore, the application failed from the outset).� Then some courts mayfind that the application fails on its face for being incomplete or not incompliance with the governing documents and, thus, has excused the ACC’sfailure to timely issue a formal denial.

Thisbeing said, if you want to avoid being cooked by a court that thinks you buriedyour head in the sand when an owner applies for something that may be expresslyprohibited by the association’s governing documents, it’s advised you respondto the owner’s request in a timely fashion.� Although the “deemedapproved” provisions are intended to provide incentive for the board or ACC to respondquickly to owner’s requests, you may consider amending the governing documentsto ensure the ACC’s failure to respond does not result in a change to theharmonious and attractive residential community that was initially establishedor envisioned when you purchased your home.

I suggest the following tohelp avoid having a court treat you like the aforementioned ostrich: First, befamiliar with the provisions in your governing documents that set forth timelimits to respond to requests; Second, ensure that you timely respond to suchrequests; Third, when responding to a request, you may be required to expressly“deny” or “disapprove” the request, so a response seeking additionalinformation from the owner or informing the owner to make certain revisions—withoutexpressly denying the request—may not be construed as a denial, thus deemingthe application approved.� Finally, it is important to seek legal counselto guide you away from the many pitfalls that exist as you volunteer your timein serving on an ACC or association board.��

Garage Sales and Your HOA

Sun, 25 Mar 2012 00:00:00 -0700

As the weather starts to turn from winter to spring, a great transformation happens in this part of the country: people begin to come out of their homes and start spending more time outdoors.� With the increase in yard work, outdoor recreational activities, and leisurely strolls through the neighborhood, a great American past-time begins to sprout alongside the daffodils and tulips: garage sales.� We have all seen the garage sale signs affixed to light poles, scrawled on sandwich boards, and tacked to boxes set on the side of the road, all of which are designed to drive traffic to those homes trying to accomplish their spring cleaning through a money-making exercise.� (While hidden treasures may sometimes await us, my personal experience lends more credence to the term “garbage sale” rather than “garage sale.”)

Recently, however, I was approached by a homeowners association seeking to banish these shabby showcases of suburban salesmanship.� The justification for doing so was the detrimental effect on property values.� The authority for doing so was “commercial activities” prohibition in the association’s governing documents.� In short, the board contended that, because commercial activities are prohibited in the community, garage sales must be banned.

I must confess I was surprised by the request.� Very few sets of HOA or condominium CC&Rs or bylaws—I can count the ones I have seen on one hand—expressly prohibit garage sales in a community.� But, fewer still are the association boards that take the next step and attempt to ban garage sales based on an interpretation and application of existing language in the governing documents without seeking to amend the governing documents to add an express garage sale ban.�

Legally, depending on the specific language being relied upon in the CC&Rs or bylaws, a ban based on the existing language in CC&Rs or bylaws can be done.� Many “commercial activity,” “business activity,” “traffic,” or other governing document clauses can be interpreted to include garage sales within their ambit, depending on the specific language used in the CC&R or bylaw.� Such action, however, must be determined on a case-by-case basis because each association’s governing documents are unique.� Beyond the legality, though, is it worth the political cost?

The job of an association’s board of directors is simple: to protect and preserve property values in the community.� This is addressed and accomplished in many ways, but it is clear that the policies a board adopts to accomplish this task have a significant effect on the feel and “neighborliness” of the community.� Property values are not all wrapped up in clean, well-manicured yards; tidy, well-kept building exteriors; community centers, clubhouses, and pools; and green-spaces, views, and solitude… Non-aesthetic elements such as the feel or sense of community of a neighborhood can have a very real effect on property values.� Therefore, when deciding if and how to regulate garage sales in a community, the board of directors should consider the political ramifications of any regulations.� The greater weight may lie with allowing community commerce to continue.

In conclusion, absent a specific provision in an association’s governing documents that bans garage sales, association boards of directors must consider both legal and political issues when establishing a “No Garage Sales” policy within their communities.� Can it legally be done?� If so, politically, should it be done?

The association referenced above ultimately chose to revoke a rule that banned garage sales in the community.� The board decided that the potential traffic and other issues with garage sales were outweighed by the benefits such sales brought to the owners in the community.� In doing so, the board concluded that while it might legally have the authority to ban garage sales, politically it was not worth it.�

$7 Million Collected!

Wed, 22 Feb 2012 00:00:00 -0800

Each year, Vial Fotheringham collects millions in past-due assessments, all without using the funds of our client associations. Our collections approach is to recover assessments you are owed (and need in order to maintain an association), in order to ensure a steady collection of HOA assessments and promote the overall health of your association. Our services are now available as an online application, offering online access to each individual collections account 24/7, 365 days a year.

Our custom online system, CommunityCollect, streamlines collections services and allows clients, association board members, and managers to check the status of delinquent accounts in collections. This program offers real-time information and up-to-the-minute status reports. CommunityCollect includes protected and personalized access, as well as an ability to view all documents, dues, and liens filed on the account at the touch of a button.

We know that the key to successful assessment collection is the timely exchange of reliable and accurate information between Vial Fotheringham, the board members, and the managers regarding a turned-over account. With CommunityCollect, you will be able to access account information at your convenience, and have a resource that holds us accountable through an ability to view and monitor all progress being made in real-time.

To learn more, please contact:

OREGON & WASHINGTON - Sarah Lappin, Attorney at Law:
P: 503. 684. 4111, Ext. 156 or e-mail her at csl@vf-law.com

IDAHO - Jeremy O. Evans, Attorney at Law:
P: 208.629.4567 or email: joe@vf-law.com

UTAH - Peter H. Harrison, Attorney at Law:
P: 801.355.9594 or email: phh@vf-law.com

St. George Utah - Bruce Jenkins, Attorney at Law:
P: 435.656.8200 or email: bcj@vf-law.com

$7 Million Collected!

Wed, 22 Feb 2012 00:00:00 -0800

Flag Act Strikes Balance

Tue, 01 Nov 2011 00:00:00 -0700

Homeowners often express righteous indignation when their Association asks them to take down or alter their display of the American flag. Although architectural review committees and governing documents preserve both the value and aesthetics of owners’ property, they can also confine expression. Many owners feel that it is their patriotic right to display the flag on their property. These competing priorities can create conflict in a homeowners association.

Congress recently addressed this issue with new legislation entitled the “Freedom to Display the American Flag Act of 2005”. The “Flag Act” as it is commonly known, was originally introduced by House Representative Roscoe Bartlett (R-MD) in January 2005. It was signed into law by President Bush in July of 2006. It is was effectively immediately.

The Flag Act prevents homeowners associations from adopting or enforcing policies which would “restrict or prevent a member of the association from displaying the flag” on property owned by that individual member. However, it recognizes the right of homeowners associations to place reasonable restrictions on the “time, place or manner” in which the owner displays the US Flag if such restrictions are necessary to protect a substantial interest of the Association.

As the Flag Act is federal legislation, it is applicable in all 50 states. It applies to condominium associations, planned community associations and any other residential property ownership scheme governed by a homeowners association.

The Flag Act reflects the policies of the Community Association Institute (CAI) - a nationwide trade group and organization specializing in homeowners associations. CAI’s policy is for “the elimination of community association restrictions that prohibit the display of a reasonably sized, removable American flag from a resident’s exclusive use of limited common element areas, so long as the flag is displayed in accordance with the Federal Flag Code… ”

Jason L. Grosz
Attorney at Law
jlg@vf-law.com

Where is the Civility?

Mon, 27 Jun 2011 00:00:00 -0700

Recently I dealt with an issue in a condominium association where the tenant of a unit owner was out of control. The boorish and, in some cases, criminal behavior of this tenant made life miserable for many of the residents of an otherwise quiet condominium community. Despite the HOA board’s attempts to have the unit owner intervene and resolve the situation, nothing was done until the situation spiraled so far out of control that the judicial system had to become involved.

This experience led me to think about a greater concern in our society, of which HOAs are merely a microcosm: Where has our civility gone? What has happened to basic decorum? Has the proverbial common courtesy been thrown out with the bath water?

One might think it odd that a lawyer muse on such topics when the nature of my profession is built upon debate and dispute, and my paychecks frequently come from owner-board disputes. Nevertheless, I cannot view the acerbic interaction in many associations without wondering if the problems could not be resolved by taking a step back and a deep breath.

The law, in its imperfect and rudimentary way, attempts to foster some level of civility and courtesy in HOAs. Some examples of “legal civility” include requirements that notice be given of meetings, opportunities for hearings before a fine may be levied, and the mandate of parliamentary rules of procedure.

In moments of frustration, often weeks and months in the making, HOA board members (and owners) all too frequently say and do things that are regretted during quiet reflection later on. Sometimes reverting to “the law” is not the best solution. Rather, civility, respect, and friendship go a long way toward soothing feelings, quieting anger, and solving the practical problems of noise, litter, parking, and pets. Pertinent examples include conducting open forums before board meetings that allow owners to speak (with time limits so that all may have an opportunity to be heard), board member visits to owners about a violation before any enforcement action is taken, and community activities that allow neighbors to greet and get to know one another.

Like the condominium association with the troublesome tenant, there are situations when the effectiveness of civility and courtesy has passed. In those moments, running to the courthouse for judicial intervention may be the only option. Hopefully, though, boards will use the twin swords of civility and courtesy to head off problems before a jog to the courthouse becomes necessary.

Effective Rules and Regulations

Wed, 15 Jun 2011 00:00:00 -0700

A tool all community associations may access to protect the peace, quiet, and aesthetics of the community is rules and regulations. Almost all associations’ governing documents give the board of directors (or a rules committee) the power to pass rules. Even without that authority in the documents, both the Oregon Planned Community Act (ORS 94.630) and the Oregon Condominium Act (ORS 100.405) give associations the power to regulate use of the common areas or elements. That being said, association rules are often a double-edged sword. Clear rules that address real problems within the association can go a long way to promoting a sense of community and preventing owner conflicts. Unclear rules, in contrast, may themselves result in conflict as owners fight over the meaning of the rules. Deficient rule may be worse than no rule at all…

As a lawyer, I’m frequently asked to review homeowners association rules and regulations. Below are some recommendations I have for board members as they try to draft rules for their community:

1. Pass Rules that Comport with Your Governing Documents
The board of directors usually has great flexibility to pass rules it feels are appropriate. Nevertheless, the board should make sure it has the power to pass a proposed rule before adopting it. The board should identify authority in statute or in the association’s governing documents supporting its authority to adopt a rule. Rules cannot conflict with the association’s governing documents; for example, the board can usually clarify ambiguous terms in the documents, such as defining a “commercial vehicle.” However, if the association’s declaration requires owners to install cedar shake roofs, the board cannot allow composite roofing by rule —it must pass a declaration amendment to effect the change.

2. Adopt Clear Rules
Good rules are not vague or too discretionary. Your association’s rules should set out clear standards that the board can apply easily and uniformly over time. Words like “reasonable” or “regularly” may be used, but should be avoided if possible.

3. Use Terms Consistently
Well-drafted rules avoid using one word to reference two separate things, or two words to refer to one thing. Common problems include interchanging or inconsistently employing the words “tenant,” “resident,” and “owner.” Rule-drafters also frequently interchange the terms: “visitor,” “invitee,” or guest” for one another. If “visitor” and “guest” refer to the same thing, then pick one term and stick with it; if they mean different things, then define each term at the beginning of the rules so that owners know the difference. I would recommend avoiding the term “invitee” all together, as it has a specific legal meaning that you probably do not intend.

4. Eliminate Discretion
It’s hard to foresee every possible problem before it arises. In an attempt to solve this problem, boards will sometimes enact vague rules that give the board broad discretion to determine whether a violation has occurred. However, rules that leave everything to the unfettered discretion of the board do not provide owners with adequate notice or guidance about what behavior is prohibited. Discretionary rules also leave the board open to attacks about favoritism and bias. If at all possible, do not leave standards to be determined by the board in an ad hoc manner.

5. Don’t Go Overboard
Good rules are not overly complicated. Let’s face the facts: most owners do not read the association declaration or bylaws. Therefore, they probably aren’t going to read the rules you adopt either and—if they do read them—they will most likely only read them once. Your rules should not be so complicated that the owner needs a law degree to decipher their meaning. Simple, straightforward rules in plain English are the easiest to enforce.

6. Make Rules Available
Secret rules are not legally effective. You’re association’s rules need to be circulated to the members to be effective. The board should also be aware that rules are not recorded, and so owners who move into the association after the rules are passed will not have a copy. The board should ensure that these new owners are provided a copy of the rules shortly after move-in. It’s also a good idea to make rules available online.

Note: The general recommendations are applicable for most states, but for Washington, Utah, and Idaho specifics (statutes), please email lawfirm@vf-law.com with your request!

Satellites

Thu, 26 May 2011 00:00:00 -0700

Lawyers are often asked about an HOA’s ability to restrict or prevent the installation of satellite dishes. An HOA generally has the authority to restrict or prohibit all sorts of things; shouldn’t a satellite dish be included? Given that some believe a satellite dish to be a cumbersome eyesore, it would only seem logical that the HOA could preserve the look and feel of the neighborhood by having such a restriction. However, federal law has a different interpretation.

In October 1996, the Federal Communications Commission (FCC) adopted the Over-the-Air Reception Devices Rule (OTARD rule or rule) concerning governmental and non-governmental restrictions on viewers' ability to receive video programming signals from direct broadcast satellites ("DBS"), multi-channel multi-point distribution (wireless cable) providers ("MMDS"), and television broadcast stations ("TVBS").

The OTARD rule prohibits entities, such as community associations, from creating restrictions that impair the installation, maintenance or use of antennas used to receive video programming. The OTARD rule prohibits restrictions that: (1) unreasonably delay or prevent installation, maintenance or use; (2) unreasonably increase the cost of installation, maintenance or use; or (3) preclude reception of an acceptable quality signal. The rule does not prohibit restrictions that merely affect a viewer's ability to receive signals as long as the restrictions do not impair. Therefore, architectural restrictions that affect but do not impair a viewer's ability to receive signals are permissible.

Despite this, there are some allowable restrictions against satellite dishes and antennas. If there are legitimate safety concerns, restrictions will be permitted, even if they impair reception, or delay/increase the cost of installation, maintenance, or use of the antenna. An HOA can enforce a safety restriction while the FCC reviews the validity of the restriction. Valid safety restrictions include preventing people from installing antennas on fire escapes, requiring that a person not place an antenna within a certain distance from a power line, following electrical code requirements to properly ground the antenna, prohibiting installation at a location that will obstruct a driver's view of an intersection or street, and creating installation specifications and requirements that describe proper methods to secure an antenna.

The safety reason for the restriction must be written in a document that is readily available to antenna users prior to installation, so that a person wanting to install an antenna knows what restrictions may apply. The restriction cannot impose a more burdensome requirement than is needed to ensure safety. In addition, the restriction must explain the reason for the safety concern. A safety restriction will not be valid without a specific explanation of its necessity.

HOAs need to be careful when dealing with the use of satellite dishes and should consult with counsel prior to prohibiting or restricting the use of a satellite dish.

Barks and Meows

Fri, 01 Apr 2011 00:00:00 -0700

Recently, CNN did a special report on pets. Currently, in the United States, there are 360 million pets, according to the pet industry. This means that pets actually outnumber people in the United States by about 60 million. Because pets are such an integral part of most people's lives, pet issues are some of the most common issues with which condominiums and homeowners associations have to deal. How many pets you are allowed to have? What types of pet are permitted? Where pets are allowed to roam? These are just some of the examples of pet issues facing associations.

Before the board can even consider adopting a pet policy, the first source that associations must look at to determine how much authority the board has to impose restrictions is the governing documents (i.e. the declaration and bylaws). After careful review of the governing documents, the board can then evaluate whether the pet restrictions in the documents, if any, are clear or need further clarification, and whether it should adopt other rules to protect the association.

Before drafting a pet policy, the board should understand that pet rules are about people with pets, and not just pets. For example, a rule stating that pets are not allowed to “do their business” on the common area is probably not as effective as a rule stating that owners must clean up after their pets. Focusing on regulating the behavior of the owner will make enforcement of the rule easier for the association.

Associations need rules that are clear, well-defined, and above all, reasonable. If a rule is unreasonable, courts will not enforce it. There are four things associations should consider after drafting a pet rule.

1. Does it serve a purpose?

Board members should ask whether the rule was adopted in good faith to benefit the community as a whole, or whether the rule was adopted to address a particular owner with who a member of the board has a problem and is furthering a vendetta. The board may want to consider adding language such as “providing for the health, comfort, safety, and well-being of the residents,” to underscore that the rule was adopted for a legitimate purpose.

2. Is it reasonable?

Board members should ask whether the rule is logical, whether it addresses a specific problem with a specific solution that is rational and fair, and whether it is too broad or too restrictive.

3. Is the rule consistent with the declaration, bylaws, local and state statutes, and federal regulations?

As was mentioned above, before a pet rule is adopted, the board should determine whether the rule would violate the declaration, bylaws, or other local, state, or federal laws. The association’s attorney should be consulted in making this determination.

4. Is the rule consistent with public policy?

Board members should ask whether there is anything in the rule that is discriminatory or that would be contrary to public policy.

Affirmative answers to the four questions above will make it more likely that a court would uphold a pet restriction if it were to be challenged.

Pets are a part of life in a community association. If the association recognizes this and adopts reasonable pet policies, then the likelihood increases that both people and their pets will be able to live together in harmony.

Gregory B. Coxey
Attorney at Law
gbc@vf-law.com

Transfer Fee Bans

Tue, 15 Mar 2011 00:00:00 -0700

On March 8, the Idaho Senate sent an act restricting deed-based transfer fees to the House. To those of us following association law, this looked a lot like the contested federal lending restrictions that the FHFA is currently considering for fees found in declarations. (http://www.caionline.org/govt/news/Pages/FHFA,TransferFeeRegResourcePage.aspx) Is this new act a rematch of the federal fight in a state-based setting?

Fortunately, it appears that the victories won at the federal level by CAI (a non-profit, pro-association group) and other groups have resulted in accommodations to associations at the state level, even here in Idaho. As a result, Idaho associations will not have to repeat the same fight. They will be excluded from application of the rule, and—with a little careful review of their documents—can be sure they will not be affected. A brief summary follows of 1) The FHFA proposed federal lending rule; 2) Idaho’s proposed law; and 3) Five practical tips for Idaho associations and managers in light of Idaho’s new law.

Transfer fees can represent important income for associations. They help defray administrative costs involved with enrolling new members to the association, make important contributions to reserve accounts, pay management companies for their services, or otherwise help stabilize a budget. Associations have just right to be concerned by threats to this income.

The Federal Housing Finance Agency, or FHFA, regulates all federal funding of mortgages by determining which mortgages may be purchased by entities like Fannie Mae, and those that may be bundled into securities. In so doing, the FHFA can determine which properties are marketable, and which are not. If a property cannot be mortgaged by federal funds, its value drops, because few people buy homes without federal loans. Last year, the FHFA proposed a regulation that would have prohibited the purchase of a mortgage of any property with a deed-based transfer fee.

The intent of the FHFA regulation was to discourage third-party transfer fees. For example, a developer could encumber each parcel of her property with an obligation to pay a fee to herself or to some third party any time the property sold in the future. These obligations could then be packaged and securitized, much like the notorious high-risk mortgages that caused the U.S. housing crash. This would create a stream of revenue for the developer or security-holder unrelated in any way to ongoing benefits to the property. In some cases, these obligations were not recorded or otherwise disclosed to potential purchasers, causing unforeseen problems for real estate and financial professionals at closing. This practice, in the view of the FHFA, is unsound.

Unfortunately, one way to create these disfavored third-party obligations is through an obligation recorded on a deed. At first glance, this obligation may look very much like the declaration creating an association; the original proposed FHFA rule did not distinguish between the two. Although the intent and impact of association transfer fees are not at all like the investment schemes targeted by these laws, associations can be equally affected by any broad prohibition on deed-based transfer fees.

CAI and some four thousand other individuals or entities commented on the proposed FHFA rule. In response, during January of this year, the FHFA clarified that properties subject only to association transfer fees would not be impacted by their proposed rule. The FHFA recognized that association transfer fees increase property values, result in lower regular association dues, create a more desirable community, and can serve a beneficial purpose when used for capital improvements and repairs. The revised FHFA proposal specifically defines an “excepted transfer fee covenant” to mean “a covenant to pay a private transfer fee to a covered association that is used exclusively for the direct benefit of the real property [so]encumbered…” [Proposed 12 U.S.C. �1228.1]http://www.fhfa.gov/webfiles/19667/PrivTransFeeNPR020111.pdf FHFA also recognized that many states have already implemented private transfer fee prohibitions, and left room for these laws to operate.

Idaho law champions the importance of the free use and transfer of property, at times to the detriment of declaration-based associations. So, it was no surprise that only months after the revised FHFA notice was released, the Idaho Senate passed a bill to create Idaho’s first private transfer fee prohibition. The new Idaho legislation begins by emphasizing that, “the public policy of this state favors the transferability of interest in real property free from unreasonable restraints…” Idaho does not have a common-interest ownership law for homeowner associations, or protections found in other states so, a reader of the Idaho legislation would be justified to worry that the Legislature might not recognize the value provided by associations.

However, Idaho’s new law would clearly exempt most association-imposed transfer fees from regulation. The law recognizes the existence of “associations” created pursuant to a declaration. It explicitly excludes from the law:

“Any provision of a document requiring payment of a fee or charge to an association or any entity that operates for the benefit of the association, its members or property of the association or its members to be used exclusively for purposes authorized in the document, so long as no portion of the fee is required to be passed through to a third-party designated or identifiable by description in the document or another document referenced therein.” I.C. 55-3102(f) (S.B. 1123)

Obviously, while not following the exact model of the FHFA’s rule, Idaho’s legislature was also concerned about the same third parties benefitting from transfer fees. Fortunately, Idaho’s legislature was also savvy enough to adopt the post-comment period approach that the FHFA took to association-based fees. Clearly, the legislature did not intend to prohibit the enforcement of association transfer fees, but felt some need to prevent associations from being used as pass-through mechanisms for third-party investors.

Lastly, it should also be noted that the Idaho law would only prohibit transfer fees from being recorded after the enactment date of the law. In addition, it appears that no new liens may be filed on pre-enactment covenants for transfer fees. Therefore, any attempt to enforce older transfer fee covenants that are covered by the law would result in civil liability. To avoid liability, these transfer fee covenants must fit within the exception included in the law. This suggests a number of prudent steps for associations in Idaho to consider at this time:

1) Review governing documents to verify there is no language in them that might be considered a banned “transfer fee” under the legislation. A litigious owner may be able to take advantage of that language to make collection efforts difficult or impossible.

2) Review contracts with third parties. Verify that contracts reflect the specific language of governing documents, and that they do not unintentionally create a “third-party” beneficiary to the transfer fee covenant.

3) Managers are especially aware of transfer fees. Review manager’s contracts to verify that transfer fees are used only for “purposes authorized in the document [meaning Declaration].” Update contracts if needed.

4) Also, if needed, amend governing documents before the enactment of this new law [if possible] to avoid any “near miss” situations where careless provisions create unnecessary litigation.

5) Keep an eye on legislative developments, whether it is through our informational Vial Fotheringham Blog at http://vf-law.blogspot.com/, Community Association’s Institute (CAI)’s website at http://www.caionline.org/, or the Legislature’s online “Bill Center” at http://legislature.idaho.gov/legislation/2011/legIndex.htm. While associations have some favor with legislators and rule makers right now, a minor amendment to these laws or rules could inadvertently limit association access to an important source of funding.

Also, should you decide your association needs help, our Boise attorneys at Vial Fotheringham are ready to assist you with the action best suited to the wellbeing of your community.

Transfer Fee Bans

Tue, 15 Mar 2011 00:00:00 -0700

Association Liability

Tue, 15 Feb 2011 00:00:00 -0800

Without a doubt, the most common question I am asked as an attorney by my homeowners’ association clients is “What can we do to protect ourselves from getting sued?” My answer is always the same: “Nothing!” In this era of quick-trigger and frequent litigation, there truly is nothing that an association can do to stop itself from being sued. However, it is important to understand that the clients are asking the wrong question. Instead, they should be asking what the association can do to protect itself from being held liable in a lawsuit.

There is, truly, a great deal that associations can do to protect themselves from being found liable in a lawsuit. It is important to determine the sources of potential liability in the association and take protective measures to limit or eliminate the potential liability. Such action may not stop you from getting sued, but it certainly will limit the effectiveness and pain of such a suit. To that end, I offer three basic tips to assist association boards in understanding their liability risks and taking steps to limit it.

1. Know the sources of potential liability.
2. Insurance, insurance, insurance.
3. Be proactive.

First, it is important for association boards of directors to understand the sources or bases of potential liability. For example, does the potential liability arise from a contract to which the association is a party, general principles of tort law, such as negligence, or a statute such as the Planned Community Act or Condominium Act? The source or basis of potential liability often affects many issues involved in a lawsuit, such as insurance coverage, indemnity obligations, and statutes of limitation. In assessing these issues, boards should visit with their legal counsel to discuss their rights, responsibilities, and ramifications of their actions.

Second, association boards should make certain that their association’s insurance coverage is current and adequate. Boards should review their coverage at least annually, and should meet with their broker to discuss their needs. A straight renewal of the existing policies may be sufficient on some occasions, but boards should not simply rely on last year’s insurance in determining this year’s insurance needs.

Finally, association boards need to be proactive in their efforts to limit or eliminate potential liability. Boards should meet with their experts—accountants, reserve study specialists, management team, insurance broker, maintenance team, attorneys, and others—at least annually to gather the information necessary to protect the association’s assets and members. Boards should keep their eyes open about the condition of the common property in the community. They should ensure that the governing documents are being enforced evenly and consistently.

In short, anyone can sue another at any time for anything. Now, whether the lawsuit has any merit is another question. But, association boards can limit or eliminate potential association liability by following the three guidelines discussed above.

Construction Defect Litigation

Sat, 01 May 2010 00:00:00 -0700

There is no such thing as a perfectly constructed home. In fact, sometimes the developer and builder (i.e., contractor) responsible for ensuring construction quality fail to meet even the minimum standards for construction, such that the resulting building is not worthy of the title “home.” Problems with construction quality have become especially common in the last few years, when, during the construction boom, demand for new homes was high. Because the demand for qualified construction workers outstripped the supply, many inexperienced workers undertook construction work for which they were not qualified. Frequently, these inexperienced laborers failed to complete their work in compliance with industry standards and the building codes, resulting in defective construction and considerable damage to the buildings.

While the developer and builder are ultimately responsible for ensuring quality construction, frequently they will refuse the association’s request to make the necessary construction repairs. When these parties fail to take responsibility for their mistakes, the association’s sole recourse may be a construction defect claim. The lawyers at Vial Fotheringham spend a considerable amount of their time and have incredible experience helping association clients [and also a number of non-association clients] pursue construction defect claims against the contractors and developers.

Pursuing a construction defect claim is a daunting task. Clients that have filed or are contemplating filing a construction defect claim inevitably have questions. Below, I try to answer some of the most frequently asked questions.

1. How do I know if my Association Suffers from Construction Defects?

Frequently, when a builder has constructed something defectively, the builder has made that same mistake throughout the association. A pattern of problems may indicate that the builder has built your buildings negligently.

While no two projects are the same, a sizable number of the construction defects claims our firm files are for defect and damage resulting from water intrusion. For this reason, we recommend that, shortly after turnover, associations have a building envelope inspector evaluate the condition of the building's envelope.

Even without a consultant, you may have seen some signs of the water intrusion. Do your buildings have a lot of nail pops (nails that once were flush, now sticking out from the buildings)? Do they have metal flashings above door and window trims? Do your windows leak? Do you have discoloration or staining on the inside or outside of your buildings? Are your decks sloped away from the building? Does water pool on your decks? These are just some of the warning signs of defective construction.

2. Is the Association or the Homeowner Responsible for Pursuing Construction Defect Claims?

The association is the party responsible for pursuing a construction defect claim when the association is responsible for the maintenance of the defective building component. For example, if your association is responsible for maintaining and replacing the roof, and your building’s roof leaks because of defective construction, then the association is the party with standing to bring a construction defect claim.

Sometimes board member and homeowners are confused when the individual homeowners own the exterior of the buildings. The fact that the individuals own the building exteriors is, under Oregon law, irrelevant to whether or not the association is the party with standing to bring the claim. The sole question is whether the association is the entity responsible for fixing the construction defects.

When the association is not responsible for maintaining and repairing the buildings, then the association cannot pursue a construction defect claim in its own name, and the claim falls to the individual owners. Or course, that does not mean that the association has no play a role in potential litigation. The association can still play a valuable organizational role.

3. How Long do Construction Defect Cases Take to Resolve?

It’s impossible to know exactly how long a construction defect lawsuit will take. Generally, courts in the Portland Metro area will schedule trial for about a year to a year and a half out from the time the lawsuit has been filed. That date, however, is subject to change by the court. Furthermore, if the association has to appeal a decision, an appeal can add an additional year to the process. While one to two years is a good estimate, some cases may take as long as three or four.

4. How Expensive is it to Prosecute a Construction Defect Claim?

Again, the answer to this question is: it depends. Vial Fotheringham handles construction defect cases on an hourly basis, and also on a contingency fee basis. The fees will change depending on how large and how complicated the case is. Associations that are concerned about up-front cost can usually elect to pursue the case under a contingency fee arrangement.

5. Will my Association Recover Enough Money to Repair all of the Defects?

Depends. Some associations recover enough to fix all their defects, while others have to pick the most serious problem and fix only those; those associations can also levy a special assessment to supplement their recovery to have enough funds to fix all defects.

Frequently, board members conclude that they would rather not pursue a construction defect claim if the association cannot recover the full amount needed to fix the defects, because they do not want to have to levy a special assessment to cover any shortfall. This is the wrong way to think about the problem.

Instead, a board member should start with this truth: the association is responsible for fixing construction defects. How the board chooses to fund the necessary repairs is up to the board in its business judgment. A construction defect lawsuit is simply one way to fund necessary repairs and its recovery may reduce any future special assessment.

6. Our Board is Busy with Other Issues. Can We Wait a Few Years Before Pursuing our Construction Defect Claim?

You should not wait to pursue a claim. On the one hand, the law provides some protection for associations that suffer form latent defects, and, on the other hand, once the board is aware of a defects, it needs to act quickly.

Most relevant statutes of limitations do not begin until the association “knew or should have known” of the defects. However, once the association (through its director) knows [or should know of defects], the statute of limitations begins to run. Different claims have different statutes of limitations. The shortest relevant statutes are one year. While it seems like a long time, it really is not. Associations need to act quickly to ensure their rights are protected, because once the statute has run, the claim will be time-barred.

7. The Developer and/or Builder (Construction Company) Who Constructed my Association’s Building is/are Bankrupt or no Longer in Business. Is There any Point to Pursing a Construction Defect Case Against Those Entities?

Yes. Usually it is the developer’s or builder’s insurance carrier who will defend and pay the settlement in a construction defect case. Thus, just because your builder or developer is out of business, it does not mean you do not have a viable construction defect claim.

8. Should I Pursue a Remedy Through the Construction Contractors Board Before Getting a Lawyer Involved?

The construction contractors board (or CCB) may be a helpful resource, and the association may be able to resolve some smaller, simpler construction defect disputes through the board. However, if the case is of any substantial size, the best course of action is to file a lawsuit. A lawyer can help the board decide which path is the right one for an association’s particular claim. The association needs to make a conscientious choice about which path to take at the outset of the case, because, typically when a case is resolved through the CCB, the association must release the contractor from any and all other claims it has or will have in the future. In other words, choosing the CCB route will likely preclude the association from filing a lawsuit if they are unhappy with the result.

9. My Developer and/or Builder has Offered to Fix the Defects if our Board Signs a Waiver. What Should We Do?

Sometimes developers and builders do step up and try to fix their construction defects. If this is a viable option in your case, then you can save some time and money by pursuing it. However, the board should make sure that it knows the extent of the construction defects, so that the proposed work will, in fact, remedy what is ailing the association’s buildings. The association should also have an experienced construction defect lawyer carefully review any settlement or release agreement. An ounce of prevention in the drafting of the agreement may well be worth a pound of cure in subsequent years.

Annual Assessment Time!

Tue, 05 Jan 2010 00:00:00 -0800

As the New Year rolls through our neighborhoods, replacing sparkling lights with Broncos flags, with newly resolved joggers in the street and dead trees curbside, many people will also be facing another seasonal inevitability: the arrival of an annual assessment bill from their homeowners or condominium owners association. Assessments aren’t a mortgage payment, nor are they a tax or water bill, but--to the unprepared--they can bring the same sinking sensation and budget-busting problems.

This leaves many association members wondering what assessments are for. In a condominium, they are an obvious part of the deal. Assessments are needed by a condo association for things like repairing the roof, mowing the lawn, or shoveling the walks. In a single-family-home neighborhood with a homeowners association, the association’s role is similar, but less obvious.

Basically, an association will help protect individual home value. These days, this is more important than ever in Idaho. Homes in neighborhoods with nice amenities, such as pools and parks, have a better chance to sell. If an owner has an efficient, active association, it can be a great selling point and help keep their home value stable. However, these amenities and activities cost money to keep up.

Even in a neighborhood with minimal common areas and features, the association’s role is crucial. The association may be fighting to keep those newly bank-owned properties down the street from becoming weed-choked eyesores. It may be trying to keep a neighbor from using her property in a way that will drive down your home value and scare off potential purchasers. Without assessments, an association will wither up and die.

An owner in an association may think that the property value-enhancing reasons for paying assessments don’t add up this year. Maybe they ran up the Amex bill for Christmas, or perhaps they got off on the wrong foot with their board last year... Despite any of these situations, consider a few significant reasons this owner may need to review their title documents and re-evaluate where paying your assessments should fall on their budget priority list.

An association is obligated to collect assessments, along with doing its other duties; even in a tough economic climate, an association must keep doing its job. The bottom line is, if an owner doesn't pay their assessments, his neighbor will have to pay more in order for the association to continue functioning. Also, there are legal enforcement mechanisms written into most declarations of covenants, conditions, and restrictions. Not all of these are simple fines or loss of privileges like a pool key. Most associations have the right to take a delinquent owner to court to collect their assessments, adding all court costs and lawyer fees to their total bill. Under Idaho law, a board also has the right to lien the property and even foreclose on it. While this is very rare, the law underscores how important assessments are.

So, whether an owner keeps up on association requirements and knows their CC&Rs like the back of their hand, or they have never attended a neighborhood meeting or even read the documents recorded on their home's title, they must pay attention to assessment bills and pay them promptly. If an owner owes a large sum and is unable to write a check for the amount in full, it is highly beneficial for both parties to at least set up a payment plan with their association. Once done, the owner will have a healthier community and a happier new year! For more information on assessments or to speak with a lawyer knowledgeable in all aspects of HOA legal issues, visit idahohoalaw.com.

The Truth About Assessments

Tue, 15 Sep 2009 00:00:00 -0700

“Assessments” may be the most commonly used word in homeowners association vernacular, but what does it mean? Both the Oregon Planned Community Act and the Oregon Condominium Act define the term to include any charge levied against an owner by an association. Annual or monthly dues? Assessment. Fine for parking your R.V. out front? Assessment. Late charges, interest, and attorney fees for the Association having to sue you to get you to pay your fine? Assessments. All of these assessments, when past-due, automatically become a lien on the delinquent owner’s property. However, while all these types of charges may ultimately bear the same name, associations must be sure they know exactly what type of assessment they’re dealing with and act accordingly.

Annual or monthly dues to cover the operating costs and reserves of the association are the most common and straightforward type of assessment. Dues are based on an annually adopted budget, and once-levied owners have few defenses available to absolve them if they fail to pay. Associations forced to pursue legal action to collect delinquent dues have a high success rate and generally have no difficulty recovering attorney fees and other costs associated with the collection.

Fines present a slightly more complicated scenario. In general, an association may levy a fine against an owner for violating the governing documents. Although it seems straightforward enough, fines are not as bullet-proof as dues. In order to fine an owner, the association must give the owner notice and an opportunity to be heard. To ensure the enforceability of its fines, the board should adopt an enforcement resolution setting out the procedures for levying a fine, as well as a schedule of fines setting forth specific violations and the amount fined for each. Before levying a fine, boards should ensure they can prove that the violation occurred. If the violation is a recurring violation (such as a daily fine for an illegally parked car), proof will be necessary for each day the fine is imposed. Covering your bases on fines cases is particularly important because, if the matter ends up in court, the prevailing party can collect its attorney fees and costs from the loser. This means if the association fails to prove its case, it not only doesn’t collect the fine, it also loses the right to receive payment for its costs and must pay the owner's costs.

Another type of assessment occurs when the association charges an owner for a repair it had to perform on the owner’s behalf. Examples of this scenario include cases where an owner’s failure to maintain the plumbing in their unit causes damage to a common element of a condominium, or where an owner fails to maintain their yard in a reasonable condition so the association must go in and clean it up. In these situations, the board needs to be particularly careful to proceed according to the governing documents. Most documents spell out precisely which expenses are common expenses, and which can be assessed against an owner. In addition, association and owner insurance policies often come into play, requiring careful attention to the provisions in your documents regarding insurance proceeds and responsibility for paying deductibles. Again, it is crucial for the board to make sure that it dots its I’s and crosses its T’s in order to ensure it can collect the assessment and recover its collection costs if necessary.

There are plenty of other types of assessments, but the common theme is that boards must always be mindful of which type they are dealing with. If you lose track and fail to follow all the necessary procedures before levying the assessment, you risk forfeiting the right to collect the assessment; in addition, there will also be the possibility of having to pay an owner’s costs of defending against you.