Use It or Lose It - The Three-Year Limitation on Collecting Delinquent Condominium Assessments

The Washington Condominium Act states in part as follows: "A lien for unpaid assessments and the personal liability for payment of assessments is extinguished unless proceedings to enforce the lien or collect the debt are instituted within three years after the amount of the assessments sought to be recovered becomes due." This basically means that a Washington condominium association does not have the right to collect assessments that are more than three years old unless a lawsuit seeking payment or foreclosure is already pending. This law applies to condominiums created before July 1, 1990 as well as newer condominiums.

The three-year limitation on collecting delinquent assessments obligates condominium boards to monitor the length of delinquencies and take legal action to collect them before it is too late. Beginning a personal lawsuit against the owner in small claims or superior court within the three year period will preserve the owner’s obligation to pay the full debt. Beginning a foreclosure lawsuit against the unit within the three year period will preserve the association’s full lien rights. Being proactive in this manner will help to maximize the association’s ability to collect the money it is owed.

Using Executive Sessions of Board Meetings to Address Sensitive Matters

Most of the important decisions regarding a condominium or homeowners association are made at board meetings. The attendance of owners at board meetings has many benefits, but owners may be excluded in certain situations. Such closed portions of board meetings are called executive sessions.

The Washington Homeowners’ Associations Act requires board meetings to be open for observation by owners and their agents. It goes on to state that boards may vote during meetings to hold executive sessions that only directors may attend. The motion to hold an executive session must specifically state the purpose of that session. The Act lists five areas that are appropriately handled in executive session:

1) Consideration of personnel matters.
2) Consultation with attorneys or consideration of legal advice.
3) Discussion of likely or pending litigation.
4) Discussion of possible violations of the governing documents.
5) Discussion of an owner’s possible liability to the association.

After an executive session has concluded, the board must vote in open session in order to take any action with regard to the matters discussed in executive session. Homeowners associations’ governing documents may impose additional procedures relating to board meetings and executive sessions.

Washington laws governing condominiums do not contain specific requirements pertaining to the attendance of owners at board meetings or executive sessions. However, many condominium associations’ governing documents contain provisions that cover those topics. If an association’s governing documents are silent, the board may wish to consider complying with the rules applicable to homeowners associations to give its actions an extra measure of protection.

The Nuts and Bolts of Association Meetings - Notices, Quorums, and Proxies

The Washington Condominium Act states that condominium associations must hold at least one meeting a year. The Act requires meeting notices to be hand-delivered or mailed to the owners at least 10 days before the meeting and no more than 60 days before the meeting. The notice must describe the issues that are before the owners for a vote, including the general nature of proposed amendments to the declaration or bylaws, changes in a previously approved budget that alter assessment obligations, and proposals to remove a director or officer.

Unless the governing documents specify a higher percentage, a quorum is present in a condominium covered by the Washington Condominium Act if owners of units to which 25% of the votes of the association are allocated are present in person or by proxy at the beginning of the meeting. This is the minimum acceptable quorum. A proxy is void if it is not dated or if it claims to be revocable without notice. Unless the proxy states otherwise, it terminates 11 months after it was executed.

The Washington Homeowners’ Associations Act largely includes the same meeting and notice requirements in the first paragraph above, but it requires a minimum of 14 days notice of association meetings to be given to owners. Unless the governing documents specify a different percentage, a quorum is present at a homeowners association meeting if owners to which 34% of the votes in the association are allocated are present in person or by proxy at the beginning of the meeting. This is the default quorum, and it can be adjusted in either direction by the governing documents. There is no provision in this law about proxies.

These two laws are not the only source of information about association meetings. The association’s declaration and bylaws must also be consulted. The quorum amounts established by governing documents are often higher than the percentages stated in the laws. It is fairly common for bylaws to elaborate on the content of valid meeting notices and proxies as well. Following the requirements relating to notices, quorums, and proxies will help to deflect any challenges to actions taken at association meetings.

The Sword, the Shield, and the Guide - Working with the Association's Attorney

A board should strive to get the most out of its relationship with the association’s attorney. There are three types of attorney roles that a board is likely to encounter – sword, shield, and guide. The third role is just as important as the first two, but it is often the least understood.

Boards retain attorneys to enforce the CC&Rs and collect delinquent assessments. The attorneys are swords used to produce compliance. Boards hire attorneys to defend the association from legal action by owners or others. The attorneys are shields used to deflect liability. Most board members are familiar with these two attorney roles.

Some boards retain attorneys to provide comments and recommendations about association affairs as they happen. The attorneys are guides used to ensure that the association is managed in accordance with the governing documents and applicable laws. They can amend declarations to produce more desirable results. They can inform boards of the risks and benefits involved when faced with difficult choices. The attorneys add their knowledge and experience to board deliberations and (hopefully) help boards make better decisions.

The guide role can produce many benefits for an association, but it does require the commitment to regularly inform the attorney of the significant business before the board. Once the proper procedures are in place, the attorney can often help resolve a matter with a brief email or phone call.

Court Requires Washington Condominium Associations to Submit Construction Defect Claims to Binding Arbitration

The Washington Supreme Court ruled last week that Washington condominium associations are bound by arbitration clauses contained in purchase and sale agreements between developers and original unit owners even though the Washington Condominium Act guarantees them a day in court. Since such arbitration clauses are almost always present in those agreements, this decision means that most Washington condominium associations no longer have the ability to successfully sue developers for construction defects. They must instead submit those claims to binding arbitration.

Arbitration is a less favorable forum than litigation for condominium associations asserting construction defect claims for at least three reasons. First, the expansive right of associations to obtain information and documents from developers during litigation is significantly curtailed in the arbitration process. Second, arbitrators are not explicitly required to decide matters in accordance with the law (much of which is designed to protect consumers). Third, there is anecdotal evidence that juries of ordinary citizens are more inclined to identify with condominium associations than professional arbitrators selected by developers.

Washington condominium associations still have the right to hold developers accountable if the initial construction of their buildings did not meet applicable standards. However, it is unfortunately difficult to avoid the conclusion that it just got harder for associations to win those claims and obtain enough money to perform necessary repairs.

Enforcing Restrictions on Holiday Decorations

The holiday season can be tough on community association boards. Owners sometimes place decorations on or near their homes that violate the governing documents, pose safety hazards, and/or annoy other owners. Informal attempts to reign in their exuberance typically result in accusations that the boards are acting like Scrooges and blunt refusals to tone down or remove the displays. Boards are then forced to decide whether the decorations merit fines or other punitive measures.

There is nothing wrong with enforcing restrictions on owners’ holiday displays if those restrictions have a reasonable basis (maintaining a uniform appearance, reducing the risk of property damage, etc.) and all owners are held to the same standard. However, boards may also wish to consider amending their association’s governing documents to reflect the prevailing practice in the community or a more permissive policy in general. This usually involves allowing owners to display holiday decorations within a specified time period as long as they do not pose a danger or unduly bother other owners. Boards retain the power to act in extreme situations while otherwise permitting the owners to celebrate the season as they see fit.

As a wise man said long ago, there is a time and place for everything. Strict enforcement of broad rules is appropriate in many situations. A more flexible approach may be preferable in other situations. Boards that make these types of distinctions are laying the groundwork for happier communities.

New Tenant Protection Law Helps Associations Collect Delinquent Assessments

The Protecting Tenants at Foreclosure Act went into effect in May of 2009. This federal law requires a foreclosing party to provide 90 days notice before attempting to evict a tenant. It also allows a tenant under a lease executed before the foreclosure started to remain for the rest of the lease term unless the property is conveyed to a person that intends to occupy it as a primary residence (which is usually not the case in lender foreclosures). These tenant protections also enhance community associations’ ability to collect unpaid assessments.

All Washington condominium associations and most Washington homeowners associations have the power to foreclose their delinquent assessment liens. An association is entitled to the appointment of a receiver over the property during a foreclosure action if the property is not occupied by the owner. A receiver seeks to collect rent to pay off receivership costs and unpaid assessments. The new federal law allows receivers to install long-term tenants into properties (or execute long-term agreements with existing tenants) even though lender foreclosures during the lease terms are probable. Collecting rent for a number of months could resolve many delinquencies.

The increasingly frequent elimination of delinquent assessment liens by lender foreclosures has been a major source of frustration for condominium and homeowners associations this year. Receivership is now a more potent collection tool that can be used to address this problem in some circumstances. A board should give this option serious consideration if the owner of a vacant or leased property owes the association a significant sum. Temporarily stepping into the role of landlord may be the only realistic way to collect the unpaid assessments.