Don’t Forget to Conduct a Reserve Analysis by July 1!

June 12, 2012

By Curtis G. Kimble.

The deadline for all HOA and condominium boards in Utah to conduct a “reserve analysis” is fast approaching.  By July 1, every  board (except developer-controlled boards) needs to obtain or perform a reserve analysis if no reserve analysis has been conducted since March 1, 2008.

A reserve analysis is an analysis to determine:

(a)     the need for a reserve fund to accumulate money to cover the cost of repairing, replacing, and restoring common areas and facilities that have a useful life of three years or more, but excluding any cost that can reasonably be funded from the general budget or other funds of the association; and

(b)     the appropriate amount of any reserve fund.

So, each board must:

  1. determine which improvements have a useful life of 3 years or more, then
  2. determine what the cost is for maintaining those improvements over the next several years, and then
  3. determine what they think the appropriate amount of the reserve fund should be.

There are no requirements in the law as to who has to perform the reserve analysis.  So, a board can perform the analysis or it can engage a professional to perform it.  There are several competent reserve study professionals serving the state of Utah.  There are also websites that will create your reserve study for you based on your input, and some will allow users to run “what if” scenarios with their components and funding plans.  A simple Google search will lead to those sites (I cannot vouch for the quality or value of such online services since I’ve never personally used them or analyzed their results).

There are many options when it comes to fulfilling the requirements of this law.  Each association should find the option that works best for them.

Don’t forget the law also requires each board to, annually, present the reserve study to the homeowners at the annual homeowner meeting or at a special meeting of the homeowners, and provide an opportunity for homeowners to discuss reserves and to vote on whether to fund a reserve fund and, if so, how to fund it and in what amount.  The association must also prepare and keep minutes of the meeting and indicate in the minutes any decision relating to funding a reserve fund.

5 Comments | Governance, HOA Finances, New Condo Laws, New Non-Condo HOA Laws, Reserves, Uncategorized | Tagged: , , , | Permalink
Posted by Curtis G. Kimble

Can an HOA Board Draft their Own CC&Rs?

June 1, 2012

By Curtis G. Kimble.

I am routinely asked if I will review amended governing documents (CC&Rs, bylaws, etc.) which the board, their manager or another person has drafted in order to save money over having an HOA attorney draft them.

While this method can sometimes save some money if the association is just looking for a legal review to determine if any of the provisions are contrary to the law or fatally ambiguous or deficient, unfortunately, the new documents typically just exchange an old set of problems for a new set of problems and can even leave the association with worse documents than the original ones.

What about if a board drafts the documents and a qualified attorney reviews and revises them as necessary?  Unfortunately, that doesn’t work well either for several reasons.

1.  This approach is almost never more cost-effective.  It usually takes more work than if the attorney simply drafted the documents from scratch.   All of the drafting done by the board (or other person), down to even the individual words and punctuation (because certain punctuation can have a big effect on the meaning of a provision), not only has to be carefully and painstakingly reviewed to determine if the language would be interpreted in court in the way intended, to ensure that it complies with applicable laws and regulations, and adequately establishes the legal foundation of the development and the association, but also has to be analyzed together with the rest of the document and the other governing documents to ensure they are all consistent.  Then, revisions, comments and explanations have to be drafted and then conveyed to the board.  All of that is extraordinarily time consuming, and that’s often just the beginning of the revision process.

2.  This approach is never more efficient.  It results in the attorney spending the vast majority of time analyzing language written by someone else to determine what its effects will be in different circumstances, how it will be interpreted by a court, and whether it adequately accomplishes its goal.  One of the biggest problems with that is the attorney does not necessarily know what the underlying goal or intent is.  If the language is unclear at all, the attorney either must seek clarification from the board or must guess from the language itself, and then revise it to more clearly state what the attorney thinks was intended.

This would not be a big deal with a one page document.  But an association’s CC&Rs and bylaws are long, complex documents – and necessarily so.  If there is one thing I’ve learned, it’s that it is better to address potential questions and issues in the documents now and have those documents be a few pages longer, than for the association to be dragged into a long, drawn-out lawsuit over an issue that could have been addressed in the documents but wasn’t.

3.  Things get left out.  Because of the inefficiencies and constraints of this process, important remedies, clarifications, standards, and other language will inevitably be left out that may have otherwise been included if the attorney drafted the documents.  If the board drafts the documents, the attorney assumes the board knew what it wanted and what it didn’t want, and therefore that the documents include things and don’t include things on purpose.

4.  I can say with certainty that the inevitable result with this approach is that much of the language is left by the attorney “as is,” or is revised just enough to be satisfactory, rather than improved to an ideal level, because the budget of the association simply doesn’t allow for the attorney to revise every word and comma necessary in the 50 to 80 page document, or because of the other inefficiencies and constraints of this process.

As a side note, the CC&Rs and bylaws are together a 50 to 80 page document regardless of whether or not they are actually 50 to 80 pages (if they are shorter, they may be inadequate).  In other words, 50 to 80 pages are necessary in virtually any HOA to properly institute all of the provisions (rights, obligations, remedies, procedures, etc.) that should be in an association’s governing documents in order to adequately establish necessary obligations and rights, address common issues of dispute, include policy and procedures that help the association comply with current laws and regulations (both state and federal), and make clear the association’s ability and authority to operate and govern balanced against the rights of its members, all based on current case law, statutes, and local and national best practices.

As if board members and managers don’t have enough liability to worry about, the unauthorized practice of law also exposes them to potential liability.  Drafting a complex legal document defining, granting and restricting the legal rights and obligations of people other than the person drafting it, and which is recorded against the real property of people other than the person drafting it, constitutes the practice of law. As all states do, Utah specifically prohibits the practice of law without a license.

“To leave these issues up to laypersons that aren’t aware of or up to date on the many sources and intricacies of these issues should be unthinkable to any conscientious board.”

But not only that, CC&Rs are the source of broad, complicated contractual rights and obligations that involve property rights and obligations that are tied to the land directly and can affect the ability of owners to sell and finance the purchase of the properties within the association. To leave these issues up to laypersons that aren’t aware of or up to date on the many sources and intricacies of these issues should be unthinkable to any conscientious board. The first goal of drafting any legal document is to avoid expensive court battles over the interpretation and meaning of the terms of the document. Someone who has defended and enforced governing documents in court is able to draft documents effectively by knowing how that document will be interpreted and enforced by the courts.

In an illustration of how intricate and complex contract interpretation can be, the Iowa Supreme Court examined whether a $200,000 special assessment for garage repairs was void because the board failed to obtain preapproval of the repairs from two-thirds of the members in Oberbillig v. West Grand Towers Condominium Association.  The following phrase was in the association’s CC&Rs: “The board shall not approve any expenditure in excess of $25,000, unless required for emergency repair, protection or operation of the Common Elements without the prior approval of two-thirds of the total ownership of the Common Elements.”

Does the word “emergency” refer to all three words “repair, protection or operation” or does it just refer to and modify the word “repair”?  In other words, does an expenditure in excess of $25,000 for the protection or operation (in a non-emergency) of the Common Elements require a two-thirds vote of the members?  The court applied a legal doctrine of interpretation called the doctrine of the last preceding antecedent to rule that no vote of the members was necessary to levy a $200,000 special assessment for the protection or operation of common elements in a non-emergency.

I’ll spare you the boredom of an explanation of the doctrine of the last preceding antecedent.  Suffice it to say, legal documents, especially documents that govern the rights and obligations of dozens or hundreds of homeowners now and for years into the future, should not be drafted by a layperson that is unaware of how seemingly insignificant words and punctuation will affect a court’s interpretation of the document.

Additionally, an HOA attorney who routinely assists boards and property managers with the many issues that face associations on a daily basis knows what problems can and should be addressed in governing documents and how best to address them to minimize problems in the future.  Importantly, they’ll also know whether something properly belongs in the CC&Rs rather than in the rules and vice versa.  They know what works in other associations and what doesn’t.  They know what can lead to hate and discontent and they know what helps promote balance and harmony.

This isn’t to say documents shouldn’t be carefully tailored to an individual community. They definitely should be.  That is why form documents or documents taken straight from another community are never acceptable.

Every board should be careful to recognize the importance of their governing documents.  They should work closely with their attorney to ensure the documents match the needs and desires of the membership.  The attorney will need the input and direction of the board, but the board and manager should stay away from the drafting.

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Posted by Curtis G. Kimble

Using Social Media in Homeowner Associations

May 11, 2012

By Curtis G. Kimble.

I attended a great event today held by the Utah Chapter of CAI where we had a panel of HOA professionals discuss and respond to questions about the use of social media in homeowner associations.  I moderated the discussion and offered a legal perspective.

To me, social media is anything technology based that creates a community of some form and allows for a degree of interactive communication.  Social networking sites such as Facebook and Twitter are obviously social media, but any form of instant, electronic communication, such as email or a website, has benefits and risks that are worthy of consideration by an HOA.

It became quite clear in the discussion today that utilizing various forms of social media, or even just one form, can be an extremely valuable and effective tool for communicating and conveying information, encouraging owner involvement, and building community.  It can be much more effective, cheaper and easier than traditional methods such as newsletters, sporadic word of mouth and hard copy mailings.

An open line of communication with owners is arguably the single greatest factor in minimizing disputes and creating satisfaction and harmony within a community.  The goal of any board should be to reach as many owners as possible.  To do that, an association should consider any widely used method of communication.  Social networking sites can be great for quickly and easily sending out bits of information, meeting reminders, notice of community events and success stories.  Nothing beats the convenience of having the association’s governing documents right there on the association website or of submitting and receiving requests for maintenance or complaints through an electronic form on the website.

However, it’s critical that social media is created, published and updated correctly, carefully and reasonably diligently.  For instance, if governing documents are posted online, care should be taken by the association to ensure they are always up to date and that they are accurate and complete copies.

Social media can even be an effective way for members of an association to engage in conversation.  Facebook and other platforms allow owners to post comments, questions, pictures, and other content.   But, this is also where the legal issues exponentially increase.  Associations that maintain social networking sites are subject to the same liability risks as any other company or person that distributes information.  Risks include potential liability for claims of libel or defamation, copyright infringement (for reproducing content without permission), plagiarism, interference with contractual relations, emotional distress, and invasion of privacy, among others.

Federal law offers some protection from these claims where the content was posted by third parties, but if such law applies, it will only be a defense for the association and won’t prevent the lawsuit from being filed and having to be defended by the association in the first place.  It’s important to use a disclaimer on the site, use privacy controls, and review comments before they are posted.

A good social media policy is essential and should, at a minimum: define and limit who can access or post on the site; prohibit false, offensive, disparaging or potentially defamatory posts or publication of any confidential or private information; establish the board’s right to remove posts or content that violates the policy and the right to revoke access to users who violate the policy; and establish appropriate disclaimers (the views expressed do not represent the official position of the association, and so forth).  In the end, the risks should be able to be mitigated by the association, depending on their approach.

Social media isn’t a mere trend or something will go away if you ignore it.  Rather, if you ignore it, the risk is that you will be ignored as younger generations and an increasingly faster paced world demand the convenience and benefits of social media as a primary form of communication.  So, as an effective and valuable tool, every association should consider using social media and determine if it could provide a benefit to them, but it must be used correctly and with care.

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Posted by Curtis G. Kimble

Cockroaches, Fires and Grossly Offensive Odors – Hoarding Affects Everyone in a Condominium

April 25, 2012

By Curtis G. Kimble.

It seems to be coming up more and more often – hoarding and the problems it causes in condominiums and other attached housing.  One condominium association I recently spoke with has a unit owner whose hoarding is preventing the effective treatment of a major cockroach problem in the building, which in turn is preventing an adjacent unit owner from being able to rent or sell her unit and is causing others to have to treat and spray for cockroaches at least weekly.

A court of appeals in Tennessee recently approved a board’s request to force the sale of a unit and ruled that the unit owner’s hoarding, and the nuisance and health threat it created, violated the association’s CC&Rs  (4215 Harding Road Homeowners Association v. Harris).  The court unanimously agreed that a forced sale of the unit was not only the appropriate remedy, but “the only remedy” possible since the owner refused to correct the problem and because of the impact on the other residents of the “grossly offensive odors” and other problems the hoarding created.

Before filing the suit, the association had a professional bio-hazard cleanup company that cleans crime scenes and gross filth and hoarding situations come in and spend nine hours one day and fifteen hours the next cleaning the unit.   Multiple odor bombs had to be set off and three commercial dumpsters were filled with massive amounts of filthy debris, molding paper products and rotting food.  Bleach had to be used to clean the mold off the walls and windows and then the unit was repainted.  The property manager personally did thirty-eight loads of laundry for the unit owner.   Other residents pitched in, some paid for the unit owner to stay in a hotel and others brought her meals.

But that solution only lasted a few months before the residents that shared the unit owner’s HVAC air stack were again faced with nauseating, unbearable odors.  This time, the unit owner refused to allow the association to help remedy the problem, despite repeated attempts.

That particular association had a very unique provision  in their governing documents which specifically authorized the association to sell a unit as a remedy for persistent and serious violations of the CC&Rs.  So, this remedy won’t be available to most associations in Utah, but other remedies are available to an association or to an affected unit owner (almost all governing documents prohibit nuisances, for instance).  The Tennessee case highlights the importance of the fact that no single unit owner can be allowed to affect the safety, quality of life and enjoyment of property of the remaining residents.  As discussed in this blog post, hoarding fueled a recent condo fire in Arizona, as well as several others.

As with any enforcement issue, the board, or an affected owner, should start with the least threatening and most amiable methods possible.  In-person conversations, phone calls and letters should courteously explain the problem and ask for compliance, and should only escalate from there if necessary.  The unit owner needs to understand the broad consequences and effect of the problem, including health and safety concerns.  At least two or three letters should be sent clearly identifying the issue and what is needed to cure the problem so there is a paper trail documenting your efforts.

If those efforts are unsuccessful, it’s important to obtain evidence of the problem.  Subjective, general assertions from a neighbor or witness won’t count for much.  It’s important to have specific details described in writing.  And photographs are always best.  Keep a detailed record of everything that transpires relating to the unit and the problem.  If the health department or fire department will come out and issue citations (I’m not necessarily saying they will), that will help a great deal in documenting the problem for a court action.

It’s important to remember that hoarding reflects an illness that needs to be treated with sensitivity.  But, it’s also important to remember that the actions of one person can’t be permitted to destroy the right of every resident to use and enjoy his or her unit.  Use common sense and consult your association attorney as necessary.

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Posted by Curtis G. Kimble

Taking Advantage of Committees in Associations

April 5, 2012

By Curtis G. Kimble.

One of the most powerful but overlooked tools at the disposal of an association board is that of committees.

HOA boards can face a number of issues and be pulled in many directions that would tax any full time, paid board.  But HOA boards are volunteer and are not full time.  To deal with this and to avoid board member burnout, many associations elect a large board – 5, 7 or even 9 members.  However, having a large board presents many difficulties.  It is often difficult to find enough willing and able people to fill a 3 or 5 person board, and larger boards are that much more difficult to fill.  Additionally, it is no small task to schedule and gather together a large board.

Committees are an invaluable tool in HOAs where volunteers sufficiently capable of dedicating the time, attention and skills required to serve on the board tend to be hard to come by.  It is often effective for an association to have a small board and then any number of committees in order to extend the board’s reach, ability and effectiveness.  This allows the benefits of a smaller board without necessarily sacrificing the distribution of workload that comes with a bigger board.  It also helps reduce board member burnout.

For purposes of this discussion, I’ll break committees into two types: committees of the board, and regular committees.

Committees of the Board.  A committee of the board is a small subset of the board and is composed solely of board members.  It has the full power of the board to make decisions and take actions to the extent specified by the board or the governing documents (CC&Rs, bylaws, etc.).  In this way, a committee of the board is like an officer of the association, except instead of just one person, it’s made up of two or more people, all of which must be board members.

While a committee of the board has the power and authority of the full board as to issues within its purview, it is also subject to the same requirements as the board regarding meetings, action without meeting, notice, waiver of notice, and quorum and voting requirements.

Regular Committees.  Regular committees do not have to be composed of board members.  They are established by the governing documents or by the board and they are composed of the members established by the board or the governing documents.  They can be temporary, ad hoc committees, or they can be more permanent, standing committees.

Regular committees do not have the power of the board to make decisions or take actions, i.e., they may not exercise any power or authority reserved to the board by the law or the governing documents.  At the same time, regular committees aren’t bound by the same requirements as the board regarding meetings, action without meeting, notice, waiver of notice, and quorum and voting requirements.  The board or the governing documents establish any rules of procedure for the committee, if desired.  Regular committees provide the advice, service, and assistance to the association and carry out the duties and responsibilities for the association specified in the governing documents or by the board.

With any committee, it is important that, through a board resolution, the board clearly specify the committee’s name, purpose, responsibilities, term, number of members, and designation of the members of the committee, unless those items are spelled out in the CC&Rs or bylaws (which is common for an architectural control committee).  When appropriate, usually with ad hoc committees, there should be a specific termination point by which the committee should have met its objectives.

Examples of committees include, but are not limited to, maintenance committee, nominating (or elections) committee, architectural control committee, budget/finance committee, communications committee, rules enforcement committee, newsletter committee, and social committee.

Committees have many purposes and benefits.  They can prepare members to serve on the board, they let prior board members remain active as association volunteers, they allow members to be active and involved in association issues and operations, and they allow the board to take advantage of the wide range of talents and expertise available via the members of the association.  They can help the board by gathering information and making recommendations.  Finally, committees broaden the board’s knowledge and awareness of the “pulse” of the community, that is, the homeowners’ opinions, attitudes and desires for the direction of the community.

If used effectively, committees can greatly enhance the operation and governance of any homeowners association.

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Posted by Curtis G. Kimble

Some Topical Updates on HOA Issues

March 16, 2012

By Curtis G. Kimble.

On our Facebook page, we share information, articles, links, and developments in condo and HOA issues, in addition to our more detailed posts on this blog.  For those of you who don’t subscribe to our Facebook page, I thought I’d pass on some recent links and news we’ve shared recently:

  • Condo Association Settles Lawsuit with Veteran over Service Dog  By Erin Alberty | The Salt Lake Tribune

“A Park City condo association will pay $20,000 to a disabled veteran, ending a legal conflict over whether the man should be forced to pay fees to keep a service dog that helps him cope with depression and anxiety.

The U.S. Justice Department sued the Fox Point at Redstone condo association and its management company in November, alleging that Thomas Burton, a combat veteran of the first Gulf War, was forced to move out of his rented condo because the association would not waive its pet fees and insurance requirements for Burton’s service dog . . .”   Read more here

  • Who Prepares Your Association’s Tax Return?   by Lisa Magill, Florida Condo and HOA Law Blog

“A Las Vegas HOA is currently fighting with the IRS over the question of whether $2 million held in the HOA’s savings account is subject to income tax at the rate of 30%.

Associations are generally organized as not-for-profit corporations (some older associations are not incorporated) and therefore must file tax returns like other not-for-profit corporations. Associations are not entitled to tax exempt status like charitable organizations. To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in the Code. To be tax exempt under IRC 501(c)(4), a homeowners’ association must operate for the benefit of the general public, i.e., it must provide a community benefit – not a benefit to the owners or residents . . .”  Read more here

  • Although written in Virginia, the same principles apply in Utah:  Is It Time for Your Community Association to Audit Its Governing Documents?  By Susan Bradford Tarley.

“Many communities were established 20-40 years ago with governing documents that worked well for the developer, and for the most part the community association. However, many of these governing documents are outdated. Virginia and federal laws pertaining to community associations have changed substantially. If your board of directors has not engaged in an audit of your communities governing documents in the past 5-7 years, it should.

When should documents be amended?  Although there are many reasons for amending documents, these 7 reasons are the most common: . . .”   Read more here

If you would like to see more information, links and updates on condo and HOA issues in addition to the posts on this blog, be sure to like us on Facebook and you’ll see our Facebook posts in your Facebook feed.  A direct link is on the right of this page, or our page can be found here Richards, Kimble & Winn on Facebook

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Posted by Curtis G. Kimble

The Results Are In: The 2012 Utah Legislative Session

March 8, 2012

By Curtis G. Kimble.

The 2012 general session of the Utah Legislature ends tonight at midnight and only one small change to a current law and no new laws affecting condominiums and homeowners associations were passed this year.  This is probably welcome news to the many boards and management committees that were likely more than a little overwhelmed by last year’s many changes.

The only change this year is to the law regarding reserve studies.  A board is required to conduct a reserve study every five years and to review and update it every two years.  But, when S.B. 56 goes into effect on May 8 of this year (assuming it’s signed by the Governor), a board will only have to conduct a reserve study every six years and review and update it every three years.  While industry professionals generally agree that a reserve study should be updated more frequently than that, even annually, and many states require an annual review and update of a reserve study, this change to the law will take some pressure off boards.

No other new laws or changes affecting condos and HOAs will go into effect this year.  Next year, expect to see more significant changes proposed that haven’t been seen yet.  I have a feeling we can also expect to see that Ombudsman bill (H.B. 56) that I explained here proposed yet again.

1 Comment | New Condo Laws, New HOA Laws, New Non-Condo HOA Laws, Reserves | Tagged: , , , | Permalink
Posted by Curtis G. Kimble

The Ups and Downs of the 2012 Utah Legislative Session

February 17, 2012

By Curtis G. Kimble.

As many of you know, we’re right in the middle of the the 2012 general session of the Utah Legislature, which is January 23 to March 8.

So far, the bills being proposed relating to HOAs are fairly minor, with one or two exceptions:

1.  H.B. 56 (the Ombudsman bill) proposes to require every Utah HOA (both condo and non-condo HOAs) to pay 2$ per unit or lot annually to yet another government bureaucracy, the Utah Office of the Property Rights Ombudsman.  The Ombudsman Office would be authorized to represent and advise a unit or lot owner who has a dispute with his or her homeowners association and force the association to mediate or arbitrate the dispute.  So, every unit and lot owner in Utah will be paying for these disputes, whether they’re involved or not.

Unfortunately, this bill is attempting to impose a mandatory solution that just doesn’t work.  There are already better remedies to the problem the bill is attempting to address.  Utah homeowners associations don’t need yet another tax or fee to deplete their already suffering budgets in this foreclosure ridden economy, especially for a program that will likely be less effective and more expensive than other solutions.   Yet another government bureaucracy simply isn’t the answer in this situation.

For more information on this bill, and for comments by our own John Richards, check out this article at the ParkRecord.com: “HOAs and condo owners at odds – Legislation heats debate on how HOAs handle owner disputes”

For the reasons above, I give H.B. 56 the thumbs down.

Other proposed bills include:

Thumbs Up   2.  H.B. 275 (Seismic Requirements for Condominium Conversion Projects) which requires the owner of a structure two or more stories high, and which was built before 1975, to cause a seismic evaluation of the structure to be performed if the owner converts the structure to a condominium.  Because the risk of collapse of a structure should be discovered and disclosed or fixed before selling converted condominiums, I give this bill the thumbs up.

3.  H.B. 406 (Homeowner Association Registration Amendments) which does virtually nothing.  The current law requiring every HOA to register with the state as an HOA gives an HOA 90 days to update its information with the state when any of the information changes or becomes outdated (e.g., the HOA changes property managers).

This bill says that an HOA that hasn’t updated is still in compliance with the law until that 90 days is up, as if that wasn’t already clear.  Why else would the 90 days have been given if it wasn’t as a safe harbor?  The answer is it wouldn’t have been.  If you weren’t in compliance the minute your information changed but before you updated your info with the state, there would be no point in giving 90 days to update your information.  Because this bill doesn’t change anything whether it passes or not, I don’t give it a thumbs up or a thumbs down.

Thumbs Down

4.  Finally, S.B. 56 (Homeowner Association Reserve Account Amendments) amends the current reserve analysis law by changing the required frequency of a reserve analysis (or reserve study) and the review and update of that reserve analysis.  The current requirement is to cause a reserve analysis to be conducted every five years and reviewed (and updated, if necessary) every two years.  S.B. 56 would require a reserve analysis to be conducted every six years and reviewed (and updated, if necessary) every three years.

This would fix what some might see as a mismatch of years between the analysis and the review and update in the current law so it would be more spread out.  However, in our experience, more frequent review and update of a reserve study is generally good practice and necessary, not less.  So, always remember, this law is only intended to establish a minimum requirement and every association should decide on their own what they need to be doing to protect the investments of their homes and the long term viability of their common area improvements and infrastructure.

Because this bill falls short of fixing the problems with the current law noted in my blog post here (link), I give it the thumbs down.

I know other bills are out there in the works (for better or for worse) that may or may not be run this legislative session.  I’ll provide updates as the legislative session progresses.

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Posted by Curtis G. Kimble

FHA Status Impacts Condo Owners Ability to Sell Their Units

February 6, 2012

By Curtis G. Kimble

I thought I’d share this article from the Salt Lake Tribune so that any of you out there feeling frustration over the difficulties the FHA certification process is causing to buyers and sellers of condominium units, as well as the boards of condominium associations, can commiserate knowing you’re not alone:  Thousands of condo owners stuck in condos they can’t sell | The Salt Lake Tribune.

A few years ago, a condominium board may have never heard of certifying their condo project under the Federal Housing Administration (FHA).  The FHA insures private sector loans used for the purchase of a home, so that, under an FHA backed loan, the government helps cover losses to the lender when the borrower can’t pay his or her mortgage.  A few years ago, these loans could be obtained on a unit by unit basis.  Additionally, only about 3% of condominium mortgages were FHA backed five or six years ago.

Now, FHA backed loans have become one of the only options for many borrowers.  But, the whole condominium project must be certified with the FHA before any units within it can be bought with FHA loans.  And today, more than half of new condominium mortgages are FHA loans, making FHA certified status extremely valuable for a condominium project.  Even for buyers not interested in an FHA loan, FHA certification tells a buyer that the condominium association has met certain standards which help ensure the long-term financial viability of the association.

The problem is that the process to get FHA certified is rarely easy.

We routinely help condominium projects throughout Utah obtain FHA certification.  The problems we see the most are inadequate fidelity insurance coverage (not enough coverage or the policy doesn’t name the specific property management company as a covered entity), not enough reserves, too many delinquencies, and having a transfer fee in the governing documents.  If the association has a pending special assessment, is involved in major litigation or has a bank loan, these issues may also prevent the association from becoming certified.

The process for obtaining certification can take anywhere from a couple of months to a year or more.  To make matters worse, the certification expires every two years requiring the association to go through the certification process again and again.    However, obtaining FHA certification can have dramatic benefits to the salability and property value of the units within a project.

The possibility of obtaining FHA certification should at least be examined by every condominium board to determine if it’s feasible for their association.  If the association becomes FHA certified, it will make all the difference in the world to the buyers and sellers of units within the association, as well as to owners of units wishing to refinance with an FHA loan.

Contact us if you’d like help certifying your association with the FHA.

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Posted by Curtis G. Kimble

Understanding Board Executive Sessions

January 22, 2012

Clients and Friends:

I wanted to follow up on a very well done blog entry by my law partner, Curtis Kimble, in which he discussed HOA minutes (please refer to our prior posts).  This entry will go a bit “deeper” and explore the often used procedure of adjourning a Board meeting into “executive session.”  Two topics will be briefly discussed below:  (1) when is it appropriate to adjourn into executive session, and (2) should minutes be taken during executive session?

Our firm is working towards legislation that gives more guidance on executive session but that has yet to come to pass.  In the meantime, we have to rely upon time-tested common law principles and rules of parlimentary procedure to answer the following questions:

1.  When Should the Board Adjourn into Exective Session?  The Board must not use executive session as a means to simply “excuse” members who have shown up at a Board meeting.  Traditionally, there are only a limited number of issues that qualify you to adjourn into executive session:

(a)  Discussions of threatened or pending litigation;

(b)  Personnel matters, assuming you have employees, such as hiring and firing.  This includes discussions about your managment company, attorney, accountant, etc.

(c)  The formation of contracts with third parties (this is because you don’t want sensitive information about competiting bids to be out in the public just yet).

(d)  Member discipline – such as putting someone into collections, or levying a fine against a particular homeowner for a specified violation.

(e)  Other matters which you sense that by naming a homeowner or homeowners in front of non-Board members, that the information is too sensitive for general knowledge in the community (such as issues that are related to privacy of particular member(s)).

2.  Should Minutes be Taken During Executive Session?  I have a mixed response as to this question.

The minutes kept during your regular Board meeting should indicate that the Board adjourned into executive session.  Typically, executive session works best if held at the end of the meeting so any homeowners in attendance can be excused.  However, a debate rages over whether you should take separate minutes in executive session or not.

Prior to addressing this issue, however, after the executive session is over, the regular Board minutes should reflect which decisions were made in executive session (without any detail of the discussion that occurred) and which action will be taken.  You should not, in your regular minutes or in any records kept during executive session, state any specific advice that your attorney gave you simply because you may lose your attorney-client privilege if you do so.  Regardless of which minutes were kept, you simply note what decisions were made.  Make sure the vote of the Board is clearly reflected in the regular Board minutes.

As for taking minutes or other notes during executive session, I do advise that you keep a record of your actions and disucssions made during executive session.  However, remember (see Curtis’ prior blog entry), minutes should NOT be a verbatim re-creation of what was said and discussed.  You should simply address the issue(s) at hand, indicate that discussion was held, and that a vote was taken.  We maintain, as do many other state laws and general rules of procedure, that executive session minutes are privielged from access by the general membership.  Though you have nothing to hide, please remember that a court of law could still require that you reveal anything kept in written or electronic format from an executive session.  This concern should not chill your discussion, but should keep your focussed on the issue for which you have adjourned into executive session and help curtail and tendency to make any inflamantory, defamtory or otherwise insensitive comments that sometimes come out “behind closed doors.”

As always, please contact us for a follow up if you have any questions about executive session meetings and minutes.  This entry is intended to give some general guidance only and each factual situation may result in more detailed advice.

Next time, I’d like to have a discussion about requring Board meetings to be open to the membership by announcing them in advance and encouraging attendance.  Presently, in Utah, there is no express requirement for ‘open Board meetings’ but I have found, probably like many of you, that nothing creates more suspicion in a community than when members have no idea how their Board is acting, when they are meeting and what issues are being discussed.  MORE TO COME!!!

Until then, best regards, John Richards.   john@rkw-law.com

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Posted by John Richards, Esq

Home Ownership and Second Hand Smoke: the American Dream or a Health Nightmare?

January 20, 2012

By Curtis G. Kimble.

How far can a government or an HOA go to dictate what can and can’t be done inside of a homeowners own home? Is an owner of an attached dwelling or a condominium unit able to do whatever they want within the confines of their home as long as it’s not illegal? Is a homeowner entitled to create and distribute from their home a “Class A” carcinogenic substance, which causes cancer and respiratory diseases and disorders, among other problems and which is able to infiltrate neighboring homes?

This is a question being increasingly asked in other states where some state courts have held that smoke transferring between units is a nuisance. But others have determined that the cigarette smoke is like an odor intrusion, a condition of living in a community environment that residents simply have to put up with – a startlingly misguided mentality considering the fact that the EPA has determined that there is no acceptable level of exposure to Class A carcinogens, and considering that second hand smoke causes serious problems for children, including ear problems, middle ear disease, acute respiratory infections, wheeze illness, slowed lung growth, and more severe asthma, and that 430 American newborns die each year from Sudden Infant Death Syndrome (SIDS) caused by second hand smoke.

Incentives offered by the Federal Government have led cities from Austin to Boston to prohibit smoking in public housing. In 2006, a judge ruled that secondhand smoke could be a breach of “warranty of habitability” under New York law.  At least six California cities and counties have banned smoking in all condo units.

Fortunately for Utah residents who don’t appreciate dangerous and toxic chemicals being forced down their breathing passages, Utah law clearly states that smoke transferring between dwelling units is a nuisance and may be the subject of an action brought by “any person whose property is injuriously affected, or whose personal enjoyment is lessened by the nuisance” and “upon judgment, the nuisance may be enjoined or abated, and damages may be recovered.”

A nuisance under Utah law includes tobacco smoke that drifts into any residential unit a person rents, leases, or owns, from another residential or commercial unit and the smoke drifts in more than once in each of two or more consecutive seven-day periods, and is injurious to health, indecent, offensive to the senses, or an obstruction to the free use of property, so as to interfere with the comfortable enjoyment of life or property.

The Utah Condominium Ownership Act states that restrictions in governing documents “regarding the use of the units may include other prohibitions on, or allowance of, smoking tobacco products.”

The Utah Community Association Act, which applies to non-condo HOAs, states that a rule of an association may prohibit an activity within a dwelling if there are attached dwellings, and the activity creates the potential for smoke to enter another lot owner’s dwelling, the common areas, or limited common areas.

Utah law is at the forefront of the national trend to protect the right of every individual to live in their own homes without being subjected to dangerous and toxic chemicals contained in second hand smoke. Contact us to take advantage of these laws and help your association adopt a policy regarding smoking.

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Posted by Curtis G. Kimble

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