Legal Articles
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Besides the challenges of deciphering a foreign language (to everyone but attorneys), the governing documents are vague by design to allow customization. Really! In other words, each association has the latitude to enact policies as long as those policies are not contrary to the governing documents. The documents grant authority to the board to make policy decisions. (Money policy matters like special assessments sometimes require approval by a majority of the homeowners.)

There are several issues that should be expanded upon as custom policies:

1. Money Collection
2. Parking Regulations
3. Architectural Design
4. Pet Regulations
5. Rental Restrictions

There are others but these are common to most HOAs. These issues are complex and can’t be addressed by simple "Thou shalt not" rules. They each require a comprehensive definition, method of enforcement, penalties and appeal process. By using the Resolution Process, they can be fully explored and developed. 

A big benefit of enacting Resolutions is that they don’t require amendment of the governing documents. They don’t (or shouldn’t) modify the governing documents but merely formalize the authority already granted. If the board wants to enact a policy that contradicts the governing documents, the governing documents should be amended.

There are times when the governing documents should be amended:

1. Illegal Provisions. Older documents may have provisions that are illegal under current statutes. These usually involve issues related to restricting residency because of age, sex, race, familial status, etc.

2. Unworkable Provisions. Some well intentioned drafters put money or percentage limits in the documents to control board spending. (Example: "The board shall not spend more than $500 without owner approval" or "The board may not increase the annual budget by more than 3%.")

While these limits may have made sense in 1972 (or maybe not), inflation makes them handcuffs instead of restraints. The board needs reasonable guidelines and the ability to handle routine affairs. Only extraordinary expenditures should trigger owner approval.

3. Changing Number of Directors. Sometimes, the number of directors called for is unrealistically high (Example: 7 or 9 directors for a community of 30 homes) and finding the required number is a constant challenge. If the association does not fill the positions by election or appointment within a reasonable time frame, it is in violation of the governing documents. These high requirements should be reduced to 3 or 5 director positions (always choose an odd number to ensure a voting majority).

4. Bad Drafting. Unfortunately, some documents have been drafted by attorneys that should be in another line of work. These folks had neither legal or practical experience and created documents that are confusing or plain wrong.

Caveat Doctorus (Doctor Beware). As with having too much rope, if the board messes with the documents too much, it may end up hanging itself. Some things in the documents may be annoying but don’t require fixing. (Example: References to the developer which no longer apply once the developer is gone. There is no need to remove or amend these references.)

Don’t perform document surgery alone. While amending documents may seem straight forward, the board should always consult with an attorney that specializes in homeowner association law to ensure that the amendments comply with current statute and common practice. Amended documents need to be properly filed with state authorities to be legal. The attorney knows both the amendment and filing process.

When doctoring the docs, first make sure surgery is needed and then assemble a competent surgical team. Then, only fix or remove what’s necessary to eliminate confusion and to make them "come alive".  Doctor Docs....please report to surgery.   BACK

Barring Rentals
In some homeowner associations, the number of owners who rent their units is extraordinarily high, sometimes even outnumbering resident owners. With absentee owners and just a few irresponsible renters, there may be a move by the Board to limit or eliminate rentals altogether. What things should be considered?

When it comes to sorting out rental restrictions, there is a hierarchy of "legal authority".

1.  The highest legal authority is the state’s corporation, condominium and homeowner association statutes. Statutes vary from state to state.

2.  The second highest legal authority is the association Declaration which is recorded in the county where the association is located. This document "declares" that there is a homeowner association and outlines the framework and a legal description of the property. The Declaration defines the three components of HOA property ownership: common elements (property owned and used by all owners), limited common elements (property owned by all but used by one owner) and individual homes (owned and used by one owner).

3.  The third legal authority is the association Bylaws. The bylaws spell out the operating guidelines of the association.

4.  Resolutions are the fourth level of authority. Resolutions generally deal with multifaceted issues like parking and architectural control that require clear definition and enforcement provisions.

5.  Rules and Regulations is the fifth legal authority. They may be written in the Bylaws or enacted by the Board. They are more of the "thou shalt not..." directives and may or may not elaborate on what that means or what the consequences for violating it are.

The Board cannot enact a Resolution, Rule or Regulation that conflicts with one of the higher legal authorities. If the Bylaws permit rentals, the board cannot reduce or eliminate them. The change requires an amendment to the bylaws usually subject to a "super majority" vote of the owners. A super majority can be anywhere from 67 to 100% depending on language in your governing documents and interpretation from an attorney specializing in HOA law.

The mortgage loan market imposes restrictions on the number of rental units in a homeowner association. If rentals exceed those limits, purchasers or owners who want to refinance their units may find it difficult to get financing at normal rates, if at all. Fannie Mae, Freddie Mac, FHA and VA all have restrictions on the percent of units which can be rented.

Homeowner associations try to balance the right to rent versus restrictions imposed by lenders. The three most common ways are:

Prohibition on Renting. To ensure that such a bylaw amendment would pass, existing landlords would insist on their units being "grandfathered" (exempted from the prohibition). Such a concession would be unfair to some owners since other owners have greater rights. The amendment should also allow renting in hardship cases like job transfer or job loss.

Limit Number of Rentals This provision requires that the Board actively monitor the number of renters and establishment of a "waiting list" so all owners could at some point have rental rights.

Sunset Rentals This is a variation of the "prohibition with grandfather" provision. By setting a deadline of, say, two years away, current landlords can continue to rent for a reasonable time and have time to market the home to an owner occupant. At the end of two years, all homes are expected to be owner occupied which levels the rental restriction playing field.

When owners purchase into a homeowner association, they are bound by the existing governing documents and all validly enacted amendments. However, the Board should keep in mind when amending and resolving that judges often side with property owners and their rights. If challenged, the association must defend a "greater good" theory such as: If the level of rentals is too great, mortgage loan options will be limited and negatively impact market values. If all owners buy into it, your job is easy. If not, you’ll need to convince the judge.  BACK

Condo or Not?
"Townhouse" is a term used by homebuilders and real estate agents to describe a two or more story attached dwelling whether an owned home or apartment. As an owned home, townhouses are most often condominiums, although not always. Sometimes they are formed under a different statute which makes the rights and obligations significantly different than condominiums.  The terminology to describe this form of ownership varies from state to state.

In Oregon, for example, homeowner associations with attached housing that looks very much like condominiums can be subject to the Planned Community Act instead of the Condominium Act. [see NOTE below]  Owners of units built under the Planned Community Act own the unit, inside and out, plus real estate below it and an undivided interest in all common area buildings and real estate. However the owner of a condominium generally owns only the unit interior plus an undivided interest in all common area buildings and real estate.

To make matters more confusing, owners of planned community property are responsible for both interior and exterior maintenance unless that responsibility is assigned to the homeowner association.  (It usually isn't.)  And while they are usually attached, they don't have to be and can be one or more stories.  (Same applies to condominiums.)

Unless the planned community owners grant insurance responsibility to the homeowner association in the governing documents, each owner must insure their property with the same kind of insurance used by single family homeowners. The insurance industry calls this "HO3" coverage. Condos use "HO6" coverage. The differences in the various policy coverage is significant.

For this reason, it's extremely important that owners and their insurance agents know what form of dwelling is being insured. Since some townhouses look like condos, they are often mistakenly insured like condos. If this mistake is made (and it's more common than you might think), the results of a fire could leave the owner uninsured for most of the damage. If an owner did not have the resources to rebuild, the burned out remains might remain just that.

The legal differences between these two forms of townhouses directly affects the owner maintenance and insurance obligations. When buying attached housing the buyer, sales agent and insurance agent need to know the difference.  Condo or not?  Make sure you know before you buy.  The implications are profound.

[NOTE: In California, townhouses that are not condominiums are described as a "planned development lot" or "zero lot line development".  Terminology used to describe them may vary from state to state.]   BACK

Rules are Rules
A rules enforcement policy is needed to ensure compliance with the rules and regulations or other policies duly enacted by the Board in accordance with the governing documents.  This sample resolution can be modified to conform your governing documents. Before implementation, it should be reviewed by an attorney specializing in homeowner association law.

WHEREAS Section ___ of the Bylaws grant the Board of Directors with the power to conduct Association business and, to protect community harmony by providing guidelines and a procedure for address conditions that disrupt that harmony,

LET IT BE RESOLVED THAT the following rules enforcement procedures will be followed:

1. The Board of Directors (or Property Manager) is authorized to enforce the Rules as outlined in the Rules and Regulations.

2. Rules violations are to be reported to the Board of Directors (or Property Manager) in writing and signed by the complainant. The complaint will be investigated as soon as possible.

3. If the report of violation is accurate, written notice will be sent to the Owner. The first notice of the violation will be regarded as a warning, unless otherwise stipulated in the Association Rules.

4. If the violation is not cleared within 10 days (or the time period allowed by notice if longer) or is repeated a second time within 90 days, a fine will be levied against the Owner in accordance with the Schedule of Fines Policy until the violation is cleared.

5. All Fines are subject to the Collection Policy if unpaid.

6. Appeal Process.   Any Owner receiving a Rules Violation Notice who believes no violation occurred, may submit a written explanation to the Board of Directors (or Property Manager). The owner will be given an opportunity for a hearing and no enforcement fee will be imposed until after the hearing.

Recorded in the Book of Minutes: _______, 200___

Signed:____________________, 200___

_________________________________
President - Board of Directors   BACK

Pet Peeves
One of the four classic challenges of community association is dogs. (The others are children, garbage and parking). People are extremely fond of their pets and simply cannot understand why others get upset when they run loose, bark or mess up the grounds. Some solutions:

1. If a pet is annoying, the neighbor should talk with the owner first before turning to the Association. In most cases owners are cooperative and embarrassed when the issue is brought to their attention.

2. Designate a dog walking place and provide disposal bags and receptacles in those areas for cleanup. The area will, no doubt, require periodic cleanup by the association, however, centralizing will reduce the size and cost of the job.

3. Adopt pet rules and enforcement provisions (including fines and banishment) and make sure all residents get a copy. Provide a process for formal complaint about an animal. Treat all residents equally. BACK

New Year’s Dispute Resolution
Disputes seem to be a fact of life for community associations. Considering the diversity of people, all living in close proximity, disagreements are bound to arise. Most of these disputes are settled amicably between the parties involved. But that's not always the case.

Calling in the attorneys seems to be a frequent response for many. While seeking competent legal advice makes sense, using a lawyer to sue community members or to defend an association against a lawsuit brought by an association member is costly and poor use of association money.

Equally costly is the practice of not using an attorney when you should. An example is when the Association expects its property manager to write contracts or other documents which lay out an agreement between the Association and another party, be it employee, contractor, supplier, or management. Equally at fault is an attorney drafted contract which a board approves without carefully reading and without fully understanding each of the provisions in the contract and their effect. To ensure legal fees are spent wisely, consider adopting the following New Year's resolutions for resolving disputes:

I RESOLVE:
To enter into every dispute with a firm commitment of finding a win/win solution.
To treat all members of the community fairly
To listen to concerns with an open mind.
To use mediation to settle disputes when appropriate.
That I will read every clause in a proposed contract
That I will question any contract provisions which I do not understand.
To refrain from using "standard contracts" since every agreement is unique.
That I will keep current on association issues
That I will attend all board meetings.
That significant association business will only be transacted at a legal board meeting.
To obtain competent advice on matters I don't understand.

      Article by Russell Hoselton  BACK

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