PLEASE TELL YOUR LEGISLATORS - SSB 6175 HURTS HOMEOWNERS FAR MORE THAN IT HELPS

The bill that would become the Washington Common Interest Ownership Act, SSB 6175, continues to move forward in the legislature.  The bill was passed out of the House Judiciary Committee with minor amendments that did not address concerns with the bill.  As a law firm that has represented community associations in Washington State for over 25 years and that has been involved in committee work to draft legislation, we at Barker Martin have strong opinions about legislative action relating to homeowner rights and this bill, in particular.  The bill is very long and its effects will be wide-ranging.  As a service to those who subscribe to this email, we want to highlight some of the continued problems with the bill.  If you want to confirm our information, citations to sections of the bill are below. 

The bill is on the schedule to be heard on the House floor this week.  If you share the concerns below, please contact your Representative to oppose this bill.  At the bottom of this email, there is a sample communication that you can to share with your Representative. 

We understand there are differences of opinion on many aspects of community association law, but as attorneys representing homeowner associations as general counsel and in litigation, we see the devastating effects upon homeowners that changes in the law can bring about and we oppose any law that doesn’t provide the minimum protections for homeowners as discussed below. 

Non-Homeowners on Boards

Many of you have worked with or been on boards where the developer either still controlled the board or at the very least, had a seat on the board.  We have had to argue many times on behalf of our clients that boards with persons appointed by the developer prevent the Association from exercising its rights against the developer.  Yet this bill allows the developer to appoint a non-owner to a board, who cannot be removed by the owners for any reason.  See Section 218 (1)(b) and 305(3).  Moreover, instead of a fiduciary duty, developer-related board members only have the same duties as any other elected board member.  See Section 303(b).  This is another change from the status quo.  Thus, proving that the existence of non-owners on the board impacted the Association’s ability to exercise its rights will be harder than it previously was.  A community’s leadership should be chosen by the community, not dictated to them by “another person.”

Banks over Homeowners

Unlike the current Condo Act, SSB 6175 includes a limit on legal fees that can be collected as part of the “superpriority” lien from lenders – regardless of how much an Association has actually spent to foreclose a unit.  See Section 317.  No other lien holder in the State of Washington is subjected to this type of limitation.  If a homeowner association is forced to foreclose a non-paying owner then its investment in attorney fees and costs should be protected.   See Section 317. 

No Warranty Rights for HOAs

Unlike the Uniform Common Interest Ownership Act, the Washington version does not grant warranty rights to homeowners in non-condominium HOAs.  This was deemed “too controversial” for the committee or legislature to handle.  Instead, the plan was to keep the “status quo” for condominium warranty rights, but that turned out not to be the case.  See 401(3) (limiting warranty rights to condominiums). 

WaCIOA Allows Declarants to Bind Associations to Arbitration

Prior to Homeowner Control of the Association. 

The Uniform Act specifically requires that any binding arbitration agreement between an association and a declarant must be entered into after the period of declarant control.  This is consistent with CAI policy, which encourages alternative dispute resolution (ADR) if it is truly voluntary and occurs after the dispute arises.  SSB 6175 is in direct conflict with the uniform act and CAI policy.  It allows parties to a dispute, including the association, to agree to alternative dispute resolution “at any time” without any limitation on the terms of binding or non-binding arbitration.  See Section 418(2).

RCW 64.55, which was drafted by a balanced committee of industry stakeholders in 2005, currently gives developers the right to demand arbitration with certain limitations that protect an association’s right to judicial review.  If SSB 6175 becomes law, Declarants will rely not on 64.55, but on their own one-sided arbitration clauses.  In our experience, when developers try to bind associations to arbitration prior to a dispute, they often include language that does the following:    

  • Forces owners to pay all or a portion of arbitration costs without recourse;
  • Requires notice of problems within shortened timelines.
  • Requires the venue (location of the arbitration) to be out-of-state.
  • Creates building standards that are lower than the minimum standards set by the building code. 
  • Limits remedies to loss in value rather than the cost of repairs even though Associations have a duty to make repairs.
  • Attempts to bar recovery for attorney fees. 
  • Limits the arbitrator’s authority in ways that are detrimental to Associations.

In short, changes were made to the Condo Warranties after the drafting committee completed its work that may allow declarants to bind the Association to expensive and near-unconscionable arbitration provisions of their own choosing, despite the existence of a balanced statutory arbitration scheme enacted in 2005.  See section 418(2), arguably allowing developers to put such provisions in the declaration itself. 

Will There Be Any More Warranties for Condos?

In addition, the bill as drafted by the committee allowed the creation of “Miscellaneous Communities,” but originally, it had language ensuring that declarants could not avoid the condominium warranties by simply calling a condo a “miscellaneous community.”  This language has been changed to make it far less clear that a “miscellaneous community” must be subject to the subdivision statute (which condos are not).  See Section 102(33), 401(3).

Conclusion

Again, these are just a few of the many concerns our firm has regarding this bill.  Are there provisions that would be helpful to owners, and in particular, HOAs?  Yes.  But given the catastrophic blow to a homeowners’ right to their day in court and loss of certainty as to condo warranties, the bill on the whole is far more detrimental than it is helpful. 

PLEASE CONSIDER SENDING AN EMAIL TO YOUR REPRESENTATIVES ASAP!

You can look up your elected representative by using this link:

http://app.leg.wa.gov/districtfinder

Rep. ________:

Please oppose SSB 6175.  The bill is detrimental to HOAs and Condominiums in Washington State in several key respects including the following:

Sect. 218 (1)(b):  It is fundamentally undemocratic to allow “another person” who is not an owner or member of an association to appoint up to 1/3 of the board of directors. 

Section 317:  Imposes ridiculously low limits on the legal fees and costs that are secured when an association exercises its lien rights. This will harm all Associations.

Sect. 317: SSB 6175 eliminates requirements that if any unit pays assessments, all units pay assessments.

Section 403(oo):  Conversion condominium disclosures should include any recommended repairs and estimated costs of repair.

Section 418(2):  A declarant should not be allowed to dictate unfair arbitration provisions to an association while the association is under declarant control.  Provisions that prohibit overreaching arbitration terms need to be added to SSB 6175.