CC&Rs

Creating a Homeowners Association in Oregon

 

Many older subdivisions have recorded CC&Rs but no homeowners association to govern the community. Who enforces the provisions of the CC&Rs?  Who maintains the common areas? Who ensures compliance with the architectural requirements? As a practical matter, it often makes sense to have an HOA handle these issues, rather than an individual owner or group of owners.

The Oregon Planned Community Act (ORS Chapter 94) contains a process for owners to use to form an HOA. The procedure applies to pre-2002 communities with shared maintenance responsibilities (private roads, perimeter fence, entrance monument) and with CC&Rs that require owners to pay assessments.

The process is started when at least 10% of the lot owners initiate the process. Once that happens, here are the following steps:

  1. Notice of an organizational meeting is sent to all lot owners in the community.

  2. The notice must include the names of the individuals initiating the process, a statement that the purpose of the meeting is to form an HOA, and a copy of the proposed articles of incorporation.

  3. In addition, the notice must state the required number of votes necessary to form the HOA. If the existing CC&Rs are silent, then at least a majority of the lot owners must vote to create the HOA.

  4. Lastly, the notice must state that the owners will vote to elect a board of directors to govern the new HOA.

  5. At the organizational meeting, a new board of directors is elected. The new board is then required to file the articles of incorporation and record any required documents in the county recording office.

Assuming the owners vote to form the HOA, all of the organizational expenses are a common expense shared by all owners.  Now, this is a simplified version of the process. The statute governing the process (ORS 94.574) is a bit more complex, and you should consult a qualified attorney before embarking on the formation of a homeowners association.

But what if the subdivision has recorded CC&Rs but no shared maintenance obligations or payment of dues? In that case, the owners must amend the CC&Rs to form an HOA. The CC&R amendment would add provisions creating the HOA and authorizing the election of a board of directors. The required vote may be high. Some CC&Rs required the approval of at least 90% of all owners. In that case, it’s critical that owners understand the benefit and value of forming an HOA.

Once the amendment is approved and recorded, the owners should incorporate as a nonprofit and file articles of incorporation with the Oregon Secretary of State. In addition, the owners should adopt bylaws. The bylaws are the operational guidelines for the new HOA and the board of directors, and should be recorded in the county recording office.

The process to form an HOA can be complicated, and as always, you are encouraged to seek competent legal advice.

Applying the Oregon Planned Community Act

The Oregon Planned Community Act (ORS Chapter 94) was adopted in the early 1980s. The Act applies to any subdivision where the owners have collective obligations. Collective obligations include maintaining common property or paying assessments that are used for association operations. A community may be subject to ORS Chapter 94 even if created prior to the adoption of the Act and even if the governing documents make no mention of the statute.

The applicability of the Act depends on the year the community was created, the number of lots, and the total amount of annual assessments. The number of lots and the total amount of annual assessments determine the "class" of the planned community. Class 1 planned communities contain at least 13 lots with at least $10,000 in total annual assessments. Communities with 5-12 lots and at least $1,000 in total annual assessments are Class 2 planned communities. All other subdivisions with collective obligations are considered Class 3 planned communities.

For Class 1 and Class 2 planned communities created prior to 2002, certain provisions of the Act apply to the extend the statute is consistent with the governing documents. Here is a quick way to determine which portions of ORS Chapter 94 apply to your community (if created before 2002): https://calaw.attorney/ors94applicability

 

 

 

 

 

 

 

Amending Governing Documents

Amending your condominium or homeowners association governing documents is no easy chore. It can be a long and costly process, and even then, you may not receive enough votes to approve the amendments. The process of amending goes like this:

1. Identify the reasons for amendments 2. Determine any statutory requirements 3. Determine voting requirements 4. Decide on the method of voting 5. Solicit owner feedback on proposed amendments 6. Conduct the vote 7. Prepare the amendments for recording 8. Sign and notarize 9. Secure any governmental approvals 10. Record the amendments with the county recorder

Here are some things to consider before embarking on an amendment project:

Identify the Reasons for the Amendments

There are many reasons to amend governing documents. Common reasons include:

1. Legislative changes 2. Ambiguous provisions 3. Outdated provisions 4. Community demographic has changed 5. Removal of “declarant” language 6. Adding or removing restrictions

It’s critical that the reasons for each amendment are conveyed to the owners. After all, most amendments require owner approval. Making a convincing case to the ownership will result in higher voter turnout and more “yes” votes.

Find out What’s Required

Most CC&R amendments require a vote of between 65%-75% of the entire ownership. Bylaw amendments typically require a majority vote of the owners. However, sometimes state law will require different approval requirements. For example, in Oregon condominiums the approval of 75% of all owners is required for any amendment related to pet restrictions or the rental or leasing of units. (ORS 100.410(4)). In Washington, a homeowners association may amend its governing documents to remove discriminatory provisions by a majority vote of just the board of directors (RCW 64.38.028)

Method of Voting

Most associations will find it impossible to approve a governing document amendment at a physical meeting of the owners. For a CC&R amendment requiring 75% approval, the chances of that many owners attending a physical meeting in person or proxy is slim. The most common method is to conduct the vote by written ballot. Better yet, some communities may conduct the vote via online ballot. This often generates the most voter turn out. For an example of an online ballot, click here.

Finalize and Record

Once the required number of votes have been received, the amendment must be prepared for signature and recording. In some cases, approval by the state or a governmental authority must be received and reflected on the amendment. The amendment should contain references to the original documents which are subject to the amendments, and must be signed and notarized. The amendments do not become effective until recorded with the county recorders office.

To learn more, check out our document amendment timeline.

Understanding Governing Document Restatements

The process of amending governing documents is no easy task. Changes to the CC&Rs typically require between 66%-75% of the owners to approve.  Bylaw amendments, on the other hand, are a little easier to modify, usually requiring a majority vote of the owners.

But suppose over the years your governing documents have been amended several times. Numerous amendments can make things complicated. When reading the CC&Rs or Bylaws, the reader must frequently refer to the amendments to confirm which sections have been modified.

“Restating” a governing document means combining the original document with all subsequent amendments. The association prepares a document incorporating all amendments and records a single “restated” version. Now, members can use and refer to a single document instead of an original and multiple separate amendments.   

For example, let’s suppose your original Bylaws were adopted in 1995. In 1998 the association (via an amendment) increased the number of directors. Then, in 2000, the members voted to change the date of the annual meeting. Two years later, another amendment was adopted increasing the quorum requirement. Lastly, a recent amendment mandated that the board of directors carry liability insurance. Reading the Bylaws now requires the reader to review each of the amendments to ensure whichever section they are reading hasn’t been modified.

Oregon and Washington both provide procedures for restating. Washington, however, only addresses the process to restate the articles of incorporation. (RCW 24.03.183).

The procedure for Oregon planned communities and condominiums is the same. The board of directors adopts a resolution to prepare, codify, and record individual amendments. This does not require a vote of the owners. At the beginning of the restated document, the board must:

1. Include a statement that the board has adopted a resolution authorizing a restatement;

2. Not include any other changes which have not been properly adopted by the membership (except for scriveners’ error or to conform with format or style);

3. Include a certification by the president and secretary that the restated document includes all previously adopted amendments;

4. Cite to the document recording numbers of the previous amendments; and

5. Record the restatement in the county records where the community is located.

If your association has adopted multiple amendments over the years, talk with a qualified attorney and consider codifying and restating your documents.

Governing Document Review

If your governing documents are old, drafted by the developer, or merely unintelligible, one of our lawyers will perform a thorough review of the association's Declaration/CC&Rs and Bylaws. The review lists each of the substantive provisions in your Declaration and Bylaws, as well as provisions which should be in the governing documents. Next to the provision is a recommendation or comment addressing whether the provision is out-dated, should be amended, or should be left as-is. Example:

photo_doc

For associations considering amending the governing documents, this is a great starting point to determine which sections need to be addressed.

Fill out the form below to get started:

[gravityform id="32" title="false" description="false"]

 

 

Recording Documents in Community Associations

Oregon and Washington are both “record notice” states. This means that owners are deemed to be on notice of any recorded documents—whether or not the owner actually received or reviewed the documents. The act of recording the document "constitutes notice".

Recording is important for other reasons, too.  For example, a lot in an Oregon planned community may not be sold or conveyed until the declaration or CC&Rs are recorded in the county records. (ORS 94.565). Similarly, a condominium in Washington is created only when the developer records the declaration or CC&Rs. (RCW 64.34.200)

Keep in mind, improperly recording a document may have legal consequences.  If a homeowner or condominium association mistakenly records a lien against a lot or unit, the Association could be liable for damages.  The claim against the Association is called "slander of title."  In most cases, recorded documents should be prepared and recorded by qualified legal counsel.

By statute, Declarations or CC&Rs must be recorded in the county records where the community is located. This is also true for plat maps, which depict the lot or unit boundaries, easements, streets, and other ownership interests within the subdivision or condominium. In many cases, the association’s bylaws must also be recorded. If an association amends any of the recorded documents, the amendment is not effective until recorded. Oregon law requires amendments to be recorded within one year from the time of owner approval.  If the amendment is not recorded in that time frame, the process must be repeated.    

Each county has recording requirements which specific font size, margins, and information to included on the first page of the documents.  In Oregon, the requirements for recorded documents are found in ORS 205.  The requirements include 8 point or larger fonts, 4" on the top margin of the first page, and letter or legal sized paper. The first page of the document must state the title of the document, names of the parties, any consideration (amount paid), and the name and address where the document should be returned.

The requirements for recording documents in Washington are found in RCW 36.18 and RCW 64.04.  The requirements include at least a 3" margin on the top of the first page, names of parties involved, an abbreviated legal description, and the tax parcel identification or account number.

County

First Page

Additional Pages

Clark County, WA

$73

$1

Multnomah, OR

$46 (deeds); $36 (liens)

$5

Washington County, OR

$41

$5

Clackamas, OR

$53 (deeds); $43 (liens)

$5

Deschutes County

$54 (deeds); $37 (liens)

$5

Here are some of the county recording requirements:

https://multco.us/recording/recording-requirements

http://www.clackamas.us/recording/standards.html

http://www.co.washington.or.us/AssessmentTaxation/Recording/requirements-for-standard-recording.cfm

http://www.co.marion.or.us/CO/records/Documents/firstpagerequirements3512.pdf

http://www.deschutes.org/clerk/page/first-page-requirements

https://www.clark.wa.gov/sites/all/files/auditor/documents/Document_Standardization_Guide.pdf

Dealing with Short-Term Rentals

The rise of short-term lease websites (AirBnB, VRBO) has caused significant concern among condominium and homeowner associations. Repeated, short-term rentals may cause parking issues, noise, and other nuisances which disturb community residents.  What can an association do to restrict these types of rental arrangements?

In most cases, an amendment to the governing documents is required to address or restrict short-term rentals. Some associations have attempted to restrict short-term rentals under existing provisions of the governing documents. In most cases, those attempts were unsuccessful.

In a New Mexico case, the association’s governing documents required all lots to be used for “residential purposes” and homes must be “single family” dwellings.[footnote]Estates at Desert Ridge Trails Homeowners' Ass'n v. Vazques, 300 P.3d 736 (2013).[/footnote]  There was no dispute that, in general, owners are entitled to rent their home. But it was the repeated, short-term rentals that caused an issue. An owner in the association began advertising his home on the internet for minimum stays of three nights. 

The association requested a court order stating that the owner was in violation of the “residential purposes” and “single family” dwelling provisions of its CC&Rs, arguing that short-term rentals are inconsistent with those restrictions. The court stated that “residential use” and “residential purposes” is typically interpreted to mean use of property for living purposes, or a dwelling, or a place of abode. The court rejected the association’s argument that repeated short-term rentals constitutes an economic or commercial endeavor, and is thereby inconsistent with “residential use”:

We therefore conclude…that an economic benefit flowing to Defendant from the rental of his home, whether long- or short-term, does not by itself constitute an impermissible business or commercial activity under the “residential purposes” restrictive covenant.

The Oregon Supreme Court decided a similar case.[footnote]Yogman v. Parrot, 325 Or. 358 (1997).[/footnote] An owner in a beachfront subdivision rented his home on a repeated short-term basis. The association’s governing documents stated that all lots be “used exclusively for residential purposes and no commercial enterprise shall be constructed or permitted on any of said property.”

The Court took the position that the short-term renters are “residents”—they eat, sleep, bathe and watch television within the dwelling.  Thus, the use of the home complied with the “residential purposes” language in the CC&Rs. As for the commercial enterprise language, the Court held that the language was ambiguous:

if a “commercial enterprise” requires a business organization that has profit as its primary aim, then the covenant does not cover defendants' use, because the facts shown do not demonstrate that defendants are a business organization or that they have profit as their primary aim (as would be true, for example, of a bed-and-breakfast business).

Ultimately, the Court concluded that the owner’s repeated short-term rental of his home did not violate the CC&Rs.

Many governing documents prohibit rentals of less than 30 days. If that’s the case, the association may prohibit AirBnB type arrangements which are less than 30 days. In addition, if the association’s governing documents provide for a rental cap (only a certain number of lots or units may be rented at a given time), then any type of rental exceeding the rental cap are prohibited. 

If your governing documents do not address short-term rentals, first look to see if city or county ordinances provide guidance. For example, the city of Bend, Oregon, has a local ordinance restricting short-term rentals and requiring permits for such a use. Click here to review the ordinance. 

Absent a city or county ordinance addressing short-term rentals, the association will likely need to consider an amendment to the governing documents. An amendment restricting short-term rentals requires the vote of the membership. If there are already units or lots used as short-term rentals, consider exempting those owners from the restriction so long as they own the property. As always, amendments to the governing documents should be drafted with the help of legal counsel.

The First Amendment and Community Associations

My 15 year old son often argues that I have no authority or control over his right to say what he pleases. His justification is that he has First Amendment rights under the United States Constitution. He’s correct that he has First Amendment rights, but he’s wrong that the First Amendment applies in my home. The rights granted under the First Amendment prohibit government interference with free speech, the right to assemble, and the right to religious freedom.  But, you see, I am not the government and therefore not bound by the First Amendment.

For the most part, community associations are not bound by the First Amendment, either. CC&Rs and Bylaws often restrict owners’ rights to display signs, even political signs. In a well-known Pennsylvania case a unit owner wanted to place a “for sale” sign on the window of their condominium. The CC&Rs contained a “no sign” provision which the Association attempted to enforce.  The owner argued that the Association had no right to enforce the prohibition under the First Amendment. The Court held that the condominium is private property and that the Association’s enforcement of its CC&Rs was not state or governmental action. Thus, the First Amendment did not apply.

A few years ago the New Jersey courts decided perhaps the most significant case involving community associations and free speech. Owners at a condominium posted flyers in the common areas, which the Association quickly removed. The owners argued that the Association had no right to remove the flyers under the First Amendment. They also argued that the Association acted more as a municipality, since the community contained approximately 1 square mile of townhouses, single family homes, condominiums and commercial shopping and was home to about 10,000 residents.  That court ruled that "the minor restrictions on plaintiffs' expressional activities are not unreasonable or oppressive...," and that the association's rules didn't violate the freedom of speech and assembly clauses of the state constitution.

Some forms of expression are legislatively allowed regardless of the restrictions in the governing documents.  For example, the Freedom to Display the American Flag Act was adopted in 2005. This federal legislation prohibits homeowner associations from banning the installation or display of the American flag. The Washington Homeowners Association statute incorporates the federal law:

(1) The governing documents may not prohibit the outdoor display of the flag of the United States by an owner or resident on the owner's or resident's property if the flag is displayed in a manner consistent with federal flag display law, 4 U.S.C. Sec. 1 et seq. The governing documents may include reasonable rules and regulations, consistent with 4 U.S.C. Sec. 1 et seq., regarding the placement and manner of display of the flag of the United States. (RCW 64.38.030)

In addition, some states mandate that associations grant freedom of expression regardless of the contents of the governing documents. Arizona passed a law that community associations may not prohibit the indoor or outdoor display of a political sign within 45 days of an election and seven days after an election. However, associations may regulate the size and number of political signs as long as their rules aren't more restrictive than city or county ordinances.

Community associations should strike a balance between the restrictions governing the community and owner’s rights to speech and expression.  Here are some things to consider when adopting amendments or rules which may impact freedom of speech or expression:

  • Consult state statutes. State law may already provide the maximum restrictions allowed. If the state regulates political signs in community associations, the association's rules must be consistent with state law.
  • Review city and county ordinances. If state statutes or court decisions don't allow association regulations to be more restrictive than those imposed by local government officials, the board members must follow the local regulations.
  • Don't prohibit political signs without exception. If the association's regulations are reasonable, content neutral and consistently enforced, the board is more likely to avoid expensive litigation and preserve the delicate balance between the community's aesthetic values and individuals' free-speech rights.
  • Remind residents of sign rules prior to election season or when they become effective. Use the association newspaper, website, a letter or a community meeting to remind residents of the rules at least 15 to 30 days before signs may first be displayed.
  • Don't forcibly remove signs. This should be done only as a last resort.
  • Approach enforcement reasonably and in a way that encourages compliance rather than acrimony or litigation. Don't feel compelled to measure the size of everyone's yard signs. If a sign obviously violates the size restrictions, then proceed with enforcement.

Understanding Easements

Easements are very common in condominium and homeowner associations throughout Oregon and Washington.  Simply put, an easement is the right of someone to use or access the property of another.

There are numerous forms of easements.  For example, an owner may have the right to drive across their neighbor’s property in order to access their own property.  This is called an "easement appurtenant", where there is a dominant estate (the property where the driveway is located) and a servient estate (the property benefited by the use of the driveway).

The other type of easement is called an easement in gross. With this type of easement, the ownership of an adjacent parcel doesn’t matter.  An easement in favor of a utility company through a subdivision is an easement in gross—it doesn’t matter that the utility company doesn’t own adjacent property.

Either type of easement may be created in a variety of ways. Typically, easements are written and then recorded in the county records.  The written document will detail the duration of the easement, the permitted uses, and who should maintain the easement area.  If the written document does not specifically state how long the easement lasts, the easement will typically last in perpetuity.

Besides a formal written agreement to create an easement, there are other ways that easements may be created.  Similar to adverse possession, an easement may be created by “prescription.”  This is similar to adverse possession, where an individual may take ownership of property by unauthorized, but continuous possession or use.  For example, if I walk across my neighbor’s property to access the beachfront (without my neighbor’s permission), I may ultimately create a prescriptive easement.

Another way to create an easement without a written agreement is through an easement by necessity.  Suppose I split my property into two separate lots, and sell one of the lots to a third party.  But the only way for the new owner to access the highway is across the parcel I kept.  The courts in that case would likely grant an easement of necessity.

Homeowner and condominium associations are affected by several types of easements.  First, utility companies have easement rights to establish and maintain water lines, sewer lines, and electrical wiring. In association with common property, the right of owners to use those areas is an easement right.  Lastly, many governing documents provide a “right of entry” authorizing the association to enter lots or condominium units to remedy violations.  This too, is a type of easement.

Here are some depictions of easements common in homeowner and condominium associations:

This is an easement in favor of the State of Oregon. This easement is a walkway/bikepath open and accessible to the public.

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The easement shown here is for a storm drain. The easement runs along the length of the individual owners' lot lines.

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The notations on plat maps often indicate maintenance and repair obligations.

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Another example of an access/utility easement found on a plat map.

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Enforcement of CC&Rs

Condominium and homeowner association CC&Rs are, in many ways, similar to contracts. If one party breaches the terms of the contract, the other party may seek the help of the legal system for damages or to require the breaching party to fulfill their obligations. Most CC&Rs allow the community association to enforce the covenants and promises found in the governing documents. The association does this through its elected board of directors.  But does the association have an obligation to enforce the CC&Rs? In most cases, the answer is yes.

A careful look at the CC&Rs will determine who has enforcement authority and whether enforcement is an obligation or a right. Some governing documents require a vote of the owners prior to taking certain enforcement actions.  Other CC&Rs (where there may not be an association) require individual owners to enforce all of the provisions of the governing documents.

The question of whether or not an association may use legal proceedings to enforce its CC&Rs depends on “standing.”  Standing, in a legal sense, means that the party to the litigation has a stake or interest in the dispute, as well as the capacity to sue.  In Oregon and Washington, state law grants community associations standing and authority to enforce covenants through legal action.

Oregon law specifically authorizes community associations to initiate or intervene in matters relating to the enforcement of governing documents:

[A] homeowners association may…initiate or intervene in litigation or administrative proceedings in its own name and without joining the individual owners in the following:

      (A) Matters relating to the collection of assessments and the enforcement of governing documents[.] (ORS 94.630(e)(A))

In Washington, homeowners associations have similar authority. Unless prohibited by the governing documents, an association may:

Institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more owners on matters affecting the homeowners' association, but not on behalf of owners involved in disputes that are not the responsibility of the association[.] (RCW 64.38.020)

Before an association takes legal action to enforce its governing documents, ask these questions:

1. Would levying fines against a violating owner be more effective?

2. Does the cost of litigation outweigh enforcement through a lawsuit?

3. Does the association have an affirmative duty to enforce the covenant?

4. Is enforcement of the issue more appropriately handled between individual owners?

5. Is alternative dispute resolution an option to resolve the violation?

Drones in Community Associations

Drones are no longer exclusive to the military.  The prices continue to plummet and the technology has improved to allow even the not-so-tech-savvy consumer to easily pilot the flying devices.  But when drones land on the White House lawn or interfere with firefighting operations, public concern grows.

There are many practical uses for drones. Arial video and imagery are used by construction professionals, farmers, conservationists, and film makers. Most exciting: Amazon has announced that products will be delivered by drone in the near future.

But for many individuals, drones raise safety and privacy concerns. Federal laws impose some expectations and regulations on drone pilots.  For example, the FAA encourages recreational or hobby users to follow certain guidelines:

  • Fly below 400 feet and remain clear of surrounding obstacles
  • Keep the aircraft within visual line of sight at all times
  • Remain well clear of and do not interfere with manned aircraft operations
  • Don't fly within 5 miles of an airport unless you contact the airport and control tower before flying
  • Don't fly near people or stadiums
  • Don't fly an aircraft that weighs more than 55 lbs
  • Don't be careless or reckless with your unmanned aircraft – you could be fined for endangering people or other aircraft

Oregon has adopted legislation governing the use of drones which may be used to regulate the flying of drones. ORS 837.380 allows property owners to sue a drone operator if (1) a drone has flown less than 400 feet above the owner’s property at least once; (2) the property owner has told the drone operator that they do not consent to the drone flying over their property, and; (3) the operator then flies the drone less than 400 feet above the property again. If these three conditions are met, the property owner can seek injunctive relief, “treble damages for any injury to the person or the property,” and attorney fees if the amount of damages is under $10,000.

What can community associations do to limit or regulate drones? The answer is: not much.  Some associations would like an all out ban.  Other associations have taken a more moderate approach, and amended the governing documents to allow the board to adopt rules and regulations which govern the flying of drones within the community.  This allows flexibility as technology changes and unanticipated uses arise. If the use of drones in your community creates a nuisance or violates other owner’s privacy, there may already be tools in your governing documents to handle those types of violations.

Stay tuned for a sample set of rules and regulations governing the use of drones in community associations.

  

2015 Case Law Review

Lawyers depend on case law to provide advice to homeowner and condominium associations.  While cases in other states are not binding, they often provide guidance to lawyers and board members. The following is a short summary of cases from around the United States involving community associations.

Filmore LLLP v. Unit Owners Association of Centre Pointe Condominium - Washington

The association attempted to adopt a cap on the number of rentals in the community. While the governing documents stated that only a majority of owners were required to vote in favor of the amendment, the Court imposed a higher approval threshold of a supermajority of all owners.

Acorn Ponds Homeowners Association vs. DeBenedittis - New York

Pedestrian filed action against homeowners association and association's snow removal contractor to recover damages for personal injuries pedestrian allegedly sustained when he slipped and fell on a patch of ice on property owned by association. The court found that the snow removal contractor did not substantially contribute to the injuries.

Neufairfield Homeowners Association v. Wagner - Illinois

The court in this case determined that two daycare businesses did not create sufficient traffic to violate a use restriction prohibiting frequent commercial traffic in the subdivision.

100 Harborview Drive Condominium Council of Unit Owners v. Clark - Maryland

An owner sued the association after the board refused to provide copies of it’s legal invoices. Under the law, communications between an association and it’s legal counsel are considered privileged. The court denied the owner’s request for copies of those documents.

Bluff Point Townhouse Owners Ass'n, Inc. v. Kapsokefalos - New York

An owner within the community claimed that the association did not have the authority to levy assessments. The Court found that the governing documents provided the authority to levy assessments and that the board had followed the proper procedures to levy and collect monthly assessments.

Arbors at Sugar Creek HOA vs. Jefferson Bank - Missouri

Owners of five lots in 18-lot subdivision brought action against lender that acquired from developer, through foreclosure, the 13 unsold lots and against contractor that agreed to build on the unsold lots seeking, among other things, declaratory and injunctive relief relating to management of the subdivision. The court made the following rulings:

1 lender could establish a successor homeowners association for the subdivision;

2 lender did not violate its duty of good faith and fair dealing by amending subdivision's declaration of covenants so as to remove residency requirement for members of association's board;

3 sufficient evidence supported trial court's finding that board acted reasonably and in good faith in approving building plans for one of the unsold lots;

4 lender was not entitled to recover from the lot owners the expenses it incurred to maintain the subdivision; and

5 lot owners could not be held liable to lender for abuse of process or slander of title.

Belleville vs. Malvern Hunt Homeowners Association - Pennsylvania

The developer of the community recorded CC&Rs before starting construction of the homes. During construction, the developer decided that a portion of the community would receive certain services (snow removal, landscaping) and that other portions would not receive those services.  Shortly after that decision, an owner purchased a lot. The developer gave the owner an unrecorded and unsigned amendment to the CC&Rs. The Court held that without recording the amendment, it was not valid or binding on the owner.

Houston v. Wilson Mesa Ranch Homeowners Association, Inc - Colorado

An owner in the community began leasing his home using VRBO (a short-term vacation rental website). The association took the position that frequent short-term rentals violated the commercial use provision in the CC&Rs.  The Court found that even though the owner was making a profit, the rentals merely provided a place for others to eat and sleep—therefore the use was “residential” and not commercial.

Gonon v. Community Management Services, Inc. - Indiana

Law firms or agencies which handle the collection of assessments are subject to the Federal Fair Debt Collections Practices Act. In this case, an owner sued the association’s management company for violations of the Act. The Court found that because the owner was not delinquent at the time the association hired the management company, the management company was not subject to the Act.

Walker I Investments, LLC v. Sunpeak Association, Inc. - Utah

In this case the Court found under the state’s nonprofit corporation law, the homeowners association was not obligated to provide an owner with the email addresses or phone numbers of the other owners in the community.

 

Online Voting for Community Associations

We recently concluded a membership vote to adopt an entirely new set of CC&Rs and Bylaws.  The CC&Rs require 75% of all owners to approve, and the Bylaws require 51%. With nearly 300 lots in the community, it was a high number of "yes" votes to receive.  Surprisingly, within a matter of weeks the necessary votes were received and the documents approved. The Association appointed a committee to oversee and coordinate the "governing document project." After an initial meeting to review the challenges with the original governing documents, CALAW created a first draft of the CC&Rs and Bylaws.  Those drafts were reviewed, comments were solicited, and revisions were made.  After one more round of meetings and revisions, we were ready to present the proposed documents to the owners.

First, we posted drafts of the proposed documents on the internet for owners to review and download. Shortly after the documents were provided to the owners, the first of two townhall-style meetings were held.  At the first meeting, attorney Kevin Harker reviewed each section of the CC&Rs and Bylaws, explaining the meaning of each provision and reasons for inclusion.

For the next several days after the meeting, we collected feedback from the owners. Once the owners' concerns and comments were incorporated into a new draft, a second townhall meeting was held to ensure that owners understood the importance and significance of adopting new CC&Rs and Bylaws.

Then came the voting. Owners voted through an online ballot:

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As soon as owners clicked "submit", the vote was recorded in an online spreadsheet:

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The spreadsheet contained a separate area which kept a live tally of the votes:

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With the required number of votes received, the next step was to sign and record.  Community Association Law Group uses Simplifile to upload and record documents to the county recorder's office:

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Thirty minutes later the documents were recorded with the county recorder's office:

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Once recorded, the documents were official!

 

 

 

Common Legal Terms in Governing Documents

Community association CC&Rs and Bylaws contain numerous legal terms.  Some of those terms have common meanings, others have very specific and legal meaning.  Here is a list of common legal terms, along with plain English definitions: Abate - To stop or diminish.

Alienation - To transfer ownership or possession of land from one person to another.  Governing documents may have a provision against “any restraints on alienation.” This can mean that the Association may not impose rental restrictions or impose criteria for buyers of lots or units.

Declarant - The individual or entity who creates a condominium or planned community.

Casualty - A disastrous occurrence due to a sudden, unexpected, or unusual cause. A “casualty” event is what triggers many insurance policies.

Condemnation - The process of taking private property for public use by a governmental body.

Common Property - Property owned or leased by the association. Usually designated on the plat and described in the Declaration.

Contribution - The right of one person who has discharged a liability to recover from another who was also liable.

Common Elements - The portions of a condominium which are jointly owned.

Cumulative Voting - The ability to cast multiple votes for the same director. Typically prohibited.

Easement - The right of use upon the property of another.

Encroachment - When land is conveyed and it is then discovered that improvements on the property are partially located on an adjacent owner’s property.

Encumbrance - Any right or interest in land, like a mortgage or lien.

Enjoin - To require someone to do something.

Enjoyment - The exercise of the right to use your property. Owners have the right to “quiet enjoyment” of their property.

Enumeration - To list or describe.

E&O - Errors and Omissions insurance. Typically called D&O—Directors and Officers.

Estoppel - When someone is prevented, by their own actions, from claiming a right to the determent of another who was entitled to rely on such conduct.  For example, if the association is aware of a violation and does not act to enforce for a significant amount of time, the association may be “estopped” from enforcement.

Fidelity Bond - An insurance policy for the theft of association funds or money.

Fiduciary - Derived from Roman law, meaning a person of trust and confidence.  Board members are fiduciaries. This means all decisions must be made in the best interests of Association and members.

Foreclosure - The process used by a mortgagor or holder of a lien to deprive an owner of property from their interests in the property.

Improvement - An addition made to property, including sheds, walkways, and utilities.

Indemnification - To restore the victim of a loss, in whole or part, by payment, repair or replacement. If a director is sued for acting in their capacity as a director, the Association typically must “indemnify” the director.  This means the association pays legal fees and the judgment.

Invitee - A person is an invitee on the land of another if they are there by invitation or authorization.

Joint and Several - The liability of two or more people who make the same promise. If a husband and wife purchase a lot in an association, both are liable for the full amount of any delinquent assessments.

Legal Description - A unique description of property that allows the property to be found and identified.

Lien - A claim on property for the payment of debt.

Metes and Bounds - The boundary lines of a piece of property, including the starting and end point.

Mortgage - An interest in property created by a written document providing security in the land in exchange for the payment of debt.

Mortgagee - Person who takes or receives a mortgage.

Nuisance - Any activity on land which is unreasonable, unwarranted or unlawful and is an annoyance or inconvenience to others.

Offset - A deduction. State law prohibits owners from claiming any offset relating to payment of assessments.

Quorum - The percentage or number of members who must be present in person or by proxy in order to hold a valid meeting and conduct business.

Right of Entry - The association’s right to enter an owner’s lot or home to remedy a violation.

Severability - Capable of being divided.

Subrogation - To substitute one person in the place of another.

Successor Unincorporated Association - If an association fails to renew its corporate status, an unincorporated association automatically exists.

Turnover - The process of transferring control of the association from the developer to the owners.

Reading and Understanding Title Reports

What is “Title”? The term “title” has been defined as that which is the foundation of ownership, of either real or personal property, and that which constitutes a just cause of exclusive possession. It has also been defined as ownership, equitable or legal.

Title Companies

Before a title insurer or its agent can insure a transaction, it must operate a title plant in the county where the real property is located or purchase title insurance from a company that does. ORS 731.438(1). All title services by a title insurer must be provided within Oregon, and the information used to produce the services “must be maintained and must be capable of reproduction within the state at all times.” ORS 731.438(2).

A title plant can be jointly owned and maintained in “any county with a population of 500,000 or more, or any county with a population of 200,000 or more that is contiguous to a county with a population of 500,000 or more.” ORS 731.438(4).

Preliminary Title Report vs. Title Commitment 

A PTR does not constitute title insurance. A PTR is also not a promise with respect to the state of the title of real property. It is simply an offer to issue title insurance in a particular form.

A title commitment is an agreement to issue a specified policy to a specified insured upon acquisition of the insurable interest, if accomplished within a limited time, and upon payment of the premium and charges.

Insurable Title

There is a difference between insurable title and marketable title. Title is insurable if the title company determines that, based on its examination of the public record, the company will deliver to the party to be insured a title insurance policy (i.e., a contract of indemnity) subject to the company’s usual printed exceptions and exclusions from coverage as well as subject to certain matters shown in the title report (e.g., a recorded easement).

Scope of Insurance

Title Vested

Any defect in or lien or encumbrance

Unmarketable Title

No Right of Access

Endorsements

Zoning - It provides assurance that the insured property is in a particular zoning designation and that certain specified uses are allowed in that designation. The endorsement does not insure, however, that any of the existing uses on the property are in compliance.

Access - The access endorsements provide additional assurances to the insured regarding access to the insured property, and can be used with owners’ and lenders’ policies. The endorsements specifically identify the physically opened street to which the insured property has access.

Environmental - The endorsements cover only loss sustained by reason of lack of priority of the lien of the insured mortgage over any environmental-protection lien recorded in the public records. The endorsements provide absolutely no protection to lenders regarding the numerous off-record issues raised by federal and state environmental laws.

Location of Improvements - the location-of-improvements endorsement assures that improvements having a specified street address or route or box number are located on the insured property.

Marketable Title

Marketable title is “title such as a prudent man, well advised as to the facts and their legal bearings, would be willing to accept.”

Abstract or Chain of Title

An abstract of title is also different from title insurance. An abstract is a summary of the chain of title to a particular parcel of property that shows how each owner acquired and disposed of the owner’s interest in the property. An abstract also discloses the nature and source of liens, encumbrances, and other matters appearing of public record in the chain of title.

Contents of a Title Report

Estate of Interest Covered

Fee Simple - The fee simple estate (also called “absolute estate” or “fee simple absolute”) is described as “full ownership.” A fee simple absolute is the most common estate in modern times; most people own their property in fee simple. The presumption is that a person conveys the fee estate unless the conveyance expressly states otherwise.  The fee simple absolute is considered the greatest estate because it is of unlimited duration. The estate ends only by the sale of the property or the death of the holder without heirs. It is freely alienable, devisable, and inheritable.

Current Owner of Estate or Interest

Shows the current owner of record and how title is vested, i.e. single man, window, husband and wife.

Parcel of Land Involved/Legal Description

Rectangular or Governmental System - Under the Rectangular System of survey, the surveyors first established a reference point from which a line ran due north and south. This north-south line was designated the principal meridian. The principal meridian for Oregon is the “Willamette Meridian.” After establishing the principal meridian, the surveyors located a point on the principal meridian from which they ran a line due east and west. This east-west line was designated the baseline. In Multnomah County, the baseline for Oregon runs east-west along Stark Street east of the Willamette River and Burnside Street west of the Willamette River.

Subdivision Plats - Subdivisions (but not partitions) are named on the plat. In either case, the locations and descriptions of all monuments found or set must be recorded on the plat, and the courses and distances of all boundary lines must be shown. ORS 92.050(5). Each lot or parcel must be numbered consecutively, and the lengths and courses of all boundaries of each lot or parcel must be shown. ORS 92.050(4). When the subdivision or partition plat is completed and approved, and all required fees are paid, the plat may be recorded in the county records of the county where the described land is situated. ORS 92.050(1).

Metes & Bounds - A metes and bounds description typically contains an introduction defining the general location of the property by reference to the governmental survey, the place of beginning, and the body that describes the various courses of the property boundary by distance and bearing.

Liens

A lien is a claim or charge on property as security for payment of a debt or the fulfillment of an obligation.

Covenants, Conditions and Restrictions

Covenants running with the land take different forms. When a single owner wishes to divide a parcel of land and create a scheme of contractual obligations binding on all future owners of the resulting parcels, the term declaration is an accurate description of what the owner does by recording a written statement of the covenants; hence the term declaration of covenants, conditions, and restrictions or CC&R declara­tion. Often, covenants are also included as a part of and literally on a recorded subdivision or partition plat.

Covenants and servitudes are important tools in private land use planning and regulation. Declarations of covenants, conditions, and restrictions (“CC&R declarations” or simply “CC&Rs”) for subdivisions often parallel public land use regulatory schemes and function as an overlay containing more restrictive requirements. In many instances, the CC&R declaration is coupled with an association, which is a quasi-municipal government for the project, providing services over and above the services provided by the local government.

Easements

An easement is a nonpossessory interest in the land of another that entitles the owner of the interest to a limited use or enjoyment of the other’s land and to protection from interference with this use. The inter­est, once created, may be irrevocable and generally is not subject to the will of the land owner.

Taxes

The first exception shown is a statement regarding the amount and status of the current year’s taxes (e.g., taxes now a lien, now due, or respective installment paid or unpaid).

Other Types of Title Insurance

Litigation Guarantee - The litigation guarantee is used by attorneys who are contemplating filing an action concerning the affected property, such as a quiet-title action, a partition action, or a suit to enforce an easement.

Foreclosure Guarantee - Judicial-foreclosure guarantees are issued to attorneys to indicate the status of the title and the parties to be named as defendants in a mortgage, trust deed, contract, or lien foreclosure suit. In addition to showing the status of title and the necessary defendants, a foreclosure guarantee shows all title exceptions that may or may not be pertinent to the contemplated foreclosure.

 

Marijuana in Community Associations

For some condominium and homeowner associations, marijuana (smoking and growing) is becoming a concern. There are a handful of tools the board of directors may consider to handle these issues.

1. Nuisance

A nuisance claim is most frequently used in banning smoking in multi-family residential units.  A “nuisance” is defined as conduct that causes a substantial and unreasonable interference with the use and enjoyment of the premises. 

In Christiansen v. Heritage Hills 1 Condominium Owners Association, a Colorado District Court held that second-hand cigarette smoke qualifies as a nuisance.  The Court also noted that smoking is not a right protected by the Constitution.

Although the courts in Oregon and Washington are not required to follow the holding in this case, the courts do still have discretion to follow the holding.  Both the smoking of cigarettes and the smoking of marijuana emit harmful chemicals that can cause serious health complications.  In fact, marijuana smoke has joined tobacco smoke on a list of substances that, in California, regulators say cause cancer. It is harmful to anyone’s use and enjoyment of their property to be involuntarily exposed to dangerous chemicals that can seriously damage their health.  The Board can point to the fact that marijuana can be ingested instead of smoked, which eliminates the dangerous exposure to other people. 

In banning the growing and cultivation of marijuana the Board may rely on a nuisance claim.  The growing of marijuana often emits a noxious odor that can travel from unit to unit.  Additionally, the use of chemicals and lighting for growing could be a fire hazard. The water and lighting required for growing could also constitute extra use of “common utilities.”  That kind of use could be costly and unfair to the other residents.  A community would likely be within its rights to ban growing and cultivation of marijuana.

2. Insurance Issues

In addition to the issues presented above, there is the issue of insurance liabilities.  Fires caused by smoking marijuana or growing it may not be covered by the insurance company.

3. Amendments and Rules

There are a couple different options a Board can use to control smoking and growing.  The first is to amend the CC&Rs.  The other option is to implement a new Rule and Regulation.

The advantage of amending the CC&Rs is that this method provides constructive or record notice to prospective purchasers—i.e. because the amendment is recorded in the county records, owners and perspective buyers are presumed to have notice. 

Additionally, CC&R amendments generally have stronger enforceability.  However, the disadvantage is that it requires membership vote which means it could take longer and it is more expensive.  Some state courts have actually held that the only way a board can implement a no smoking ban is to amend the CC&Rs.  Although there are disadvantages, this is the most reliable method of implementing the ban.

In the alternative, the Board may add a new Rule and Regulation.  The advantage is that these are easier to adopt because they require only board approval and not membership vote.  This also means it is less expensive.  However, prospective purchasers will not have constructive notice of the ban and the enforceability will not be as strong as an amendment to the CC&Rs.

Enforcement Problems

All owners within homeowner and condominium associations must comply with the governing documents.  The governing documents include the Declaration (CC&Rs), Bylaws, Articles of Incorporation, and Rules and Regulations.  It’s the obligation of the community association to enforce the governing documents when violations occur. However, there are instances when an association may lose the right to enforce provisions of the governing documents.  Court cases and statutes have evolved over the years to identify circumstances in which an association is prevented from enforcement.  Here are a few ways which  may create enforcement problems:

1. Arbitrary or Selective Enforcement

The association has an obligation to enforce all of the provisions in the governing documents equally, fairly, and consistently.  A restriction in the governing documents is arbitrarily enforced if it does not apply to all members of the association.  For example, an association in New Jersey adopted a policy of charging owners who rented their units a $225 security deposit.  The court held that such a policy was arbitrary because it created a separate class of owners who were subject to a fee above and beyond the normal monthly assessments.  Coventry Square Condo vs. Halpern.

Selective enforcement occurs when an association enforces a restriction against one owner, but not others.  Doing so may cause the association to lose its enforcement rights with respect to a particular restriction.  Each violation must be treated the same, and each owner must be subject to the same enforcement policies and procedures.

2. Waiver & Estoppel

Most states recognize the legal doctrines of waiver, estoppel and laches.  These doctrines are essentially the same, and are defenses to the enforcement of governing documents.  If an owner constructs or does something in violation of the CC&Rs, and the association fails to take enforcement action over a lengthy amount of time, the association “waives” the right to enforce and is “estopped” from taking any enforcement action.

An owner asserting any of these doctrines must show: (1) the association delayed asserting enforcement for an unreasonable length of time; (2) the association had full knowledge of all of the relevant facts; and (3) that the delay resulted in such substantial prejudice to the violating owner that it would be inequitable to allow the association to enforce.

Some guidance as to the length of time is found in a South Carolina case where a condominium association failed to enforce landscape restrictions for a period of 4 years. The court found that the Association was estopped from enforcement of the applicable provisions of the CC&Rs. Janasik v. Fairway Oaks Villas.

3. Changed Conditions or Abandonment

Over the course of decades, the aesthetics or architectural styles of the community may change.  An association in Utah (created in 1978) required all homes to be built with wood shingles.  During the next decade some owners installed roofs using materials other than wood shingles.  When the association attempted to enforce the wood shingle provision against an owner, the court found that 23 of the 81 homes in the community were not using wood shingles. As a result, that requirement had been “abandoned” and was no longer enforceable.  Fink v. Miller.

4. Statute of Limitations

Statutes of limitations are laws which prevent legal claims after a certain period of time.  There are multiple statutes of limitation for different legal claims that may arise in a community association.  Seek competent legal advice to ensure you do not lose an enforcement claim as a result of waiting too long.

Proposed Radio Antenna Legislation

A few months ago federal legislation was proposed relating to the installation and use of HAM radio antennas.  HR 1301 ("Amateur Radio Parity Act of 2015") would override homeowner association CC&R provisions which prohibit the installation of HAM radio antennas or related equipment. The full text of the legislation is here.

Click here for Community Association Institute's position on the proposed legislation.

How Covenants Are Created

Covenants are promises made by the purchaser of property to do (or not do) something upon the land. The most common form of covenants are CC&Rs: covenants, conditions and restrictions.  Almost always in writing, covenants may attach to the property in several different ways: 1. Deed

When the purchaser of property takes title, it is usually done so through a written and recorded deed.  The deed itself may contain covenants preventing the purchaser from certain activities, like mining for minerals or creating a nuisance affecting adjacent land owners.

2. Declaration

A declaration refers to a "declaration of covenants, conditions and restrictions"--the full title of CC&Rs. The declaration subjects multiple lots or parcels in a subdivision or community to the same set of covenants prior to the developer or "declarant" conveying the first lot in the community.  Often, the declaration is incorporated or referenced in the deeds to individual purchasers.  In most states, the recording of the declaration is sufficient without having to incorporate or reference the declaration in each individual deed.

3. Plat

Similar to a declaration, a developer may place covenants on the recorded plat of the community. The plat is a graphical depiction of the lot lines, roads, and common property.  For condominiums, the plat will also show the elevation profile of the units and common elements.  Covenants contained in plats are typically noted in the narrative portion of the plat or referenced on the affected parcels.

Exercising an Association's Right of Entry

Suppose you’re on the board of directors of a condominium.  In the middle of the night you receive a call that Unit 201 has a broken gas line.  The gas line poses significant health, life and safety issues for the other owners.  Can the manager or a board member enter the unit to turn off the gas or fix the line? It’s not always a clear-cut answer. Owners have an expectation of privacy on their lots, in their units, and in their homes.  However, many governing documents contain a right of entry provision.  This provision allows agents of the association or board members to enter property or condominium units to prevent damage to other areas of the property or to ensure compliance with the governing documents. For example,  planned community associations (if authorized by the governing documents) often exercise the right of entry to remedy landscaping violations. Typically, the association’s governing documents allow all related expenses to be charged to the owner.

Here is an example of a right of entry provision in a planned community Declaration of Covenants, Conditions and Restrictions, which allows the association to:

Enter the Lot or Living Unit in which or as to which such violation exists and to summarily abate and remove, at the expense of the Owner, any thing or condition that may exist therein contrary to the intent and meaning of said provisions, and the Board shall not thereby be deemed in any manner of trespass[.]

In the condominium context, issues which require immediate attention to prevent damage to property or injury to other owners may give rise to an easement of necessity. This is similar to the legal right granted by a right of entry provision in the governing documents. However, the circumstances must be severe and immediate.  In an Ohio Court of Appeals case involving an association’s right of entry, the court stated:

In reviewing a decision by a board of managers to enter a residential unit in a condominium to spray insecticides, the trial court…applies the test of reasonableness, that is, whether under all the facts and circumstances in evidence, the decision to enter was reasonable. This test subsumes three major questions: (1) whether the decision was arbitrary or capricious; (2) whether it was nondiscriminatory and even-handed; and (3) whether it was made in good faith for the common welfare of the owners and occupants of the condominium. River Terrace Condo Ass’n v. Lewis, 514 NE 2d 732 (1986).

In deciding whether to exercise the association’s right of entry, ALWAYS, ALWAYS, consult with legal counsel. Significant liability could result if the circumstances do not warrant using the right of entry or if the process is not followed correctly.