How Should Your Association Respond to Banks' Foreclosure Delays?

National Public Radio reported earlier this month about the “shadow inventory” problem in the U.S. housing market. There are currently about six hundred thousand homes that banks have foreclosed but not yet put on the market. There are millions more homes in the early stages of foreclosure or more than ninety days past due on the mortgage. RealtyTrac estimates that approximately three million foreclosed homes will enter the market over the next three years. Banks appear to be responding to this situation by slowing down the pace of their foreclosure activity. Why?

Banks own a large number of mortgages on homes that have lost a significant amount of value. However, such transactions do not appear as losses on their books until the homes are re-sold for less than the values of the mortgages. Spreading out the re-sale of foreclosed homes over a longer period of time gives banks time to raise money to cover losses and could result in smaller losses if the market improves. Banks are also concerned about flooding the market with repossessed homes over a short period of time, which would cause home prices to decrease further and could produce another housing crisis. In addition, banks may be finding it difficult to keep up with a volume of foreclosures that has increased tenfold over the last several years.

If foreclosures are inevitable, Washington condominium and homeowners associations have a strong financial interest in them proceeding rapidly. When lender foreclosures are not completed in a timely manner, community associations are faced with an unpleasant choice – endure very long delinquencies or pursue their own foreclosures. Boards may need to adjust their existing collection practices in light of the present slow pace of lender foreclosures. More extensive use of associations’ collection powers has the potential to speed up transitions to new owners and even produce income from delinquent properties until foreclosures are completed.

For more information about community associations’ use of foreclosure, please review these past posts on that subject:

New Tenant Protection Law Helps Associations Collect Delinquent Assessments
The Rising Use of Foreclosure to Collect Delinquent Assessments

Free Fair Housing Training Available for Seattle Area Condominium Associations

Fair housing laws require Washington condominium and homeowners associations to discuss requests for disability accommodations with owners and to make reasonable accommodations once disabilities have been established. If an association fails to do so, a disabled owner can file charges of discrimination against the association and its board members. It is therefore important for boards to be familiar with their legal obligations in this area.

The King County Office of Civil Rights offers six free three-hour training sessions to educate condominium associations about fair housing laws each year. The next two dates that the county will present its fair housing basics workshop and advanced seminar are October 27 and December 8. These training sessions take place at the Jackson Federal Building, which is located at 915 Second Avenue in Seattle. Preregistration is required, and this can be accomplished by calling (206) 296-7592. The Office's webpage is a useful source of information about fair housing and related topics.

A major benefit of learning more about fair housing issues is a greater sense of caution given the risks involved. Community association boards should strongly consider consulting with an attorney before denying an owner's request for a disability accommodation.

Flag and Sign Display Considerations for Washington Community Associations

A recent story on The Upshot blog chronicles how homeowners in Arizona and Colorado have fought their associations to fly their flags of choice (a "Tea Party" flag and a "Don't Tread On Me" flag). Both homeowners associations initially demanded that the owners remove the flags. The owners resisted and threatened legal action. The Colorado association eventually decided to reclassify the flags at issue as political signs and allow them. The Arizona association maintained its strict interpretation of that state's law and refused to permit the display of the owner's flag. It is unclear whether the owner in that dispute will challenge the association's position in court.

The Freedom to Display the American Flag Act of 2005 is a federal law that protects citizens' right to display the U.S. flag. It prohibits condominium associations, cooperatives, and real estate management associations from taking action to prevent residents from displaying the U.S. flag on their property in accordance with the Federal Flag Code. The Act permits associations to impose reasonable restrictions on the time, place, and manner of flag displays if those restrictions are necessary to protect a substantial interest of the association.

The Washington state law governing homeowners associations protects the right of owners and residents to both the outdoor display of the U.S. flag on their property and the outdoor display of political yard signs on their property before a primary or general election. Homeowners associations are permitted by those statutes to impose reasonable rules regarding the placement and manner of displays of the U.S. flag and political yard signs.

The Washington state laws governing condominium associations, on the other hand, do not contain any provisions protecting the display of flags or political signs. Washington condominium associations are still required to permit the display of the U.S. flag in accordance with the federal law discussed above, but they do have more freedom than homeowners associations to restrict political signs.

Community associations' governing documents often contain provisions restricting the ability of owners and tenants to display flags and signs, and such provisions are enforceable as long as they do not violate applicable federal and state laws. Since attempts to end flag and sign displays often provoke strong emotional reactions and can incite litigation, boards should base enforcement actions squarely on the standards stated in their associations' governing documents and apply those standards uniformly across their communities.