New Law to Curb Unfair Homeowners’ Associations

March 5, 2008

Over the last decade, or more, there has been a great deal of attention paid to fraud and mismanagement in homeowners’ associations. Condomiums are controlled by these organizations, as well as many communities created by subdivision or similar processes. The homeowners’ association is typically organized in a corporate structure with a governing board of directors.

Typically most owners are not much involved in the operations of the organization. Governance then falls on a small group of individuals with an interest in such things. Unfortunately sometimes these associations are run like a fiefdom by the individuals on the board. More recently boards have been assigning the duties of governance to management companies which collect a substantial fee and are often criticized for heavy handed treatment of the residents. The management fee can become the driving force in escalating owners’ fees.

In response to the widespread complaints of abusive practices by homowners’ associations, the legislature passed in 1995 laws governing the creation and administration of homeowners’ associations. The law certainly helped but cries of abuse were far from silenced.

This session the legislature is seeking to refine some of the features of this law and provide homeowners with better protection from mismanagement by their association. This bill excludes condominium associations, hopefully for some reason other than the fact that matters affecting condos are handled by a legislative committee separate from the home owners committee.

This bill says that associations cannot take any action that conflicts with the statutes. Before the association takes any enforcement action against an owner, it is required to give notice and a hearing. The new law spells out what the notice should contain and what recourse a homeowner has. This notice requirement will go a long way to helping people who feel that they are being singled out by requiring the association to specify the violation, the evidence, and its authority, among other things. The bill then specifies the rule that must be followed for a fair hearing. These requirement are fairly extensive and assure the person being fined that he or she knows the evidence and the exact procedure that will be followed. The right to a lawyer is affirmed.

Before anyone signs an agreement to property governed by an association, the seller is required to provide a statement informing the purchaser of the powers of the association. The seller is also required to provide an information packet that answers in some detail common question about associations. The “seller’s disclosure form” is also amended to provide the nam and contact information for the association.

Five percent of the owners can under this bill call a special meeting and set the agenda for that meeting. The board is required to arrange these meetings at a reasonable time and place.

The board is not permitted to have closed meetings, unless the majority so votes in an open meeting. The motion for a closed meeting must specifically state its purpose. The board is required to keep minutes of its meetings which must be made available to the members.

The bill contains sections limiting permissible bylaws and the scope of declarations and sets controls on action taken by the board without the approval of the members. Members are given rights with respect to rule changes.

There is also a mandatory mediation provision that gives disputants a middle ground for the resolution of many issues before resorting to court.

This bill, ESB 6745, passed the senate without dissent and is now in the house judiciary committee.