NEW FHA LAW REDUCES OWNER-OCCUPIED REQUIREMENT FOR FHA CERTIFICATION

Authored by Douglas C. Shumway

If you manage or own a unit in a condominium association, you know how difficult it can be to obtain FHA certification. The volume of documents and ever-changing FHA guidelines can make the certification and re-certification process pretty daunting. One of the things that creates an obstacle for some associations in obtaining FHA certification is the requirement that 50% of the units must be owner-occupied.  A new law changes this requirement, however, in a way that benefits condo associations, purchasers, and developers.  

New FHA Law

On July 29, 2016, President Obama signed into law the Housing Opportunity Through Modernization Act (passed by unanimous vote in the US House of Representatives), which changes FHA requirements for condominium certification.  Specifically, the new law requires the Secretary of HUD to issue additional guidance for the owner-occupied percentage requirement within 90 days of the law’s enactment, which will be around November 1, 2016. 

If the secretary does not issue any such guidance in the 90-day timeframe, the percentage requirement will automatically reduce from 50% to 35%.  The secretary could issue guidance requiring more than 35% on a project-by-project basis, however, but the overall purpose of the law is to relax current FHA requirements and make FHA financing more available to condo buyers and developers.  As such, we will likely see a significant decrease in the owner-occupied requirement for condo associations in Utah.  

Revisiting Your Condo Rental Cap

This new law is great news for Utah purchasers, and for condo associations that struggle getting certified due to the current owner-occupied requirement. For associations that desire less rental units, the law does not prohibit lower rental caps, it merely authorizes higher ones.  As such, and in light of this new law, it would be prudent for your condo association to reconsider the purpose behind your current rental cap, and determine whether amending your rental cap in your governing documents would be in the best interest of your community once the new percentage requirement is established on or around November 1, 2016.  

Please contact one of the friendly attorneys at Miller Harrison if you would like assistance with this and any other HOA concerns.

 

 

Architectural Control, What Can an HOA Actually Enforce?

By Peter H. Harrison and Tyler S. LaMarr

Architectural Control is one of the key reasons people either choose to live in or run from an HOA.  Some people appreciate the HOA’s ability to enforce architectural controls via an Architectural Control Committee (“ACC”); whereas, others resent the thought of another organization telling them how they can modify or decorate their home. When these preferences are mismatched, it often leads to conflict.

Architectural controls include such things as the general design of a home, exterior finishes, color, landscaping, fencing, window covering, sheds, etc.  Those who appreciate them, point out that compliance with these standards dramatically increases property values and ensures a beautiful community for the owners.

Owners opposed to architectural controls feel as though they unfairly target HOA members, and create arbitrary or even silly standards.  I have heard residents refer to their ACC in derogatory terms such as “gestapo”, “Nazi”, “commie”, “crazy”, or “belligerent”.  Some of these owners feel as though an ACC is antithetical to the ideals of American home ownership and the United States Constitution, not realizing that the Constitution generally does not apply to private contractual relationships in this context.

Effective ACC Procedure

No matter the viewpoint, an HOA should and can implement effective procedures to reduce conflict. Over the years there have been multiple media articles referencing methods to properly manage an ACC or criticizing the role of an ACC[1].  These articles include opinions from architects, constitutionalists, lawyers citing national case, and property managers who deal with the day to day realities of such policies.  While these articles effectively contrast general policy consideration, the following practical tips will help an ACC properly function:

Tip # 1 – Follow your governing documents and form a committee.

Tip # 2 – Engage professionals such as architects, attorneys and managers to help draft appropriate architectural control guidelines.

Tip # 3 – Follow and enforce the guidelines in a uniform and clear manner.

Tip # 4 – Communicate with the owners and provide notice of the requirements and guidelines.

Tip # 5 – Monitor construction, and architectural changes and take early action to correct any deviations from the guidelines.

Enforcement – Case Law

The case law in Utah is pretty clear that an HOA can indeed enforce standards via an ACC.  In Swan Creek Vill. Homeowners v. Warne, 2006 UT 22, ¶ 44, 134 P.3d 1122 the Utah Supreme Court determined that an HOA’s governing documents constitute a contract between owners and the HOA.  In Rowley v. Marrcrest Homeowners’ Ass’n, 656 P.2d 414 (Utah 1982) the Utah Supreme Court recognized an HOA’s authority to enforce restrictive covenants relating to construction and unapproved building plans where the violating owner had notice of the restriction but nonetheless proceeded with construction.  Freeman v. Gee, 18 Utah 2d 339, 423 P.2d 155(1967)., made it clear that it is the Court’s duty to enforce the intentions of the parties as expressed in the plain language of covenants.

The case law focuses on the enforcement of the covenants and governing documents.  Thus, it is essential for an HOA to have a clearly outlined policy of specific guidelines for the ACC to enforce.  An HOA that has a thorough set of guidelines could have a set of documents that consists of over 30 pages of both process (the method and manner of submitting an application, follow-up throughout the construction process) and form (what the structure will look like, including finishes).  Once an HOA has a policy in place, it is important that the HOA uniformly follows that policy.

An important consideration in the enforcement battle over ACC guidelines is the fact that generally the prevailing party will be entitled to an award of attorney fees.  Pepperwood Homeowners Ass’n v. Mitchell, 2015 UT App 137, ¶ 12, 351 P.3d 844.  In Kenny v. Rich, 2008 UT App 209, ¶¶ 42-43, 186 P.3d 989, a Utah court awarded attorney fees to an HOA who was obligated to sue to enforce architectural restrictions.  I have personally been involved in representing HOAs who have both enforced their guidelines and recovered substantial attorney fee balances as a result of an owner’s noncompliance. In some cases, the expense and stress of litigation could have been avoided if the non-compliant owner (or their attorneys) could have set aside the emotions and made a decision on the case law and contracts.  

In the event of a violation, it is important for the HOA to inform the owner of the potential liability that will result if the HOA has to take enforcement action.  This simple step can often prevent the necessity of the HOA taking additional judicial action to correct the issue.

An effective ACC can be integral to the long-term function and cooperation of the owners within an HOA.  If you have questions regarding your ACC or the proper implementation of an ACC, please don’t hesitate to contact any of the attorneys at http://www.millerharrisonlaw.com.

[1] http://www.charlotteobserver.com/living/home-garden/michael-hunter/article9097763.html, http://communityassociations.net/cacondoguru/hoa-board-architectural-control-control/, http://www.washingtonpost.com/wp-dyn/content/article/2007/09/07/AR2007090701143.html, and http://articles.chicagotribune.com/2001-05-20/business/0105200220_1_architectural-single-family-homes-board-and-committee.

Taking Action Without a Meeting

 

Authored by Michael Miller, also published at http://uccai.net/blog/taking-action-without-a-meeting/

While SB 99 from the 2015 legislative session required Board meetings to be open to all Association members, the Utah legislature, effective May 10, 2016, has provided 2 ways by which a Board can take action without a meeting.

The first way by which a Board can take action without a meeting is through unanimous consent of all Board members. Under this approach, a Board member may email the other Board members with a proposed action. If all Board members affirmatively consent, the proposed action becomes effective. Any Board member can revoke consent at any time until the action becomes effective. The action becomes effective when the final Board member so consents unless a different effective date is designated. If a single Board member fails to consent to the proposed action, the matter cannot be decided without a meeting.

The second way by which a Board can take action without a meeting does not require unanimous consent from all Board members. Under this approach, unless the Association’s Bylaws provide otherwise, a Board member may email the other Board members with a proposed action that includes a specific notice. This notice must state and include the following information:

  1. The specific action to be taken;

  2. The time by which a Board member must respond to the notice;

  3. A statement that failing to timely respond to the notice will have the same effect as: (i) abstaining in writing, and (ii) failing to demand in writing that the action not be taken without a meeting; and

  4. Any other matters deemed necessary by the Association.

The proposed action is approved if the affirmative votes equal or exceed the minimum number of votes that would be required if the action was taken at a meeting (typically this would be a majority of a quorum of Board members); and the Association hasn’t received written demand from a Board member that the action should not be taken without a meeting. In addition, this second approach may not be utilized by an Association if its Bylaws say that they cannot.

To illustrate this new legislation, let’s say the ABC Association has 3 Board members — X, Y, and Z. The ABC Association Bylaws provide that Board decisions require approval from at least 2 Board members. Board member X becomes aware that an Owner’s vehicle is parked contrary to the Association’s rules. Board member X sends Board member Y and Z an email proposing that the Association levy a fine against the Owner for the violation. Board member Y consents to the action, but Board member Z fails to respond. At this point, the Board would not be able to take action under the first approach since unanimous consent from all Board members was not reached. Knowing that the next Board meeting wasn’t scheduled for another 30 days, Board member X tries the second approach. Board member X emails the other Board members and provides them with the specific notice requirements. Board member Y responds consenting to the action, but once again, Board member Z fails to respond. This time however, the action carries because no Board member demanded that the matter be decided at a Board meeting and because it was approved by at least 2 Board members, which fulfills the Board voting threshold required by the Bylaws.

This new legislation can be an effective way for the Board to take action in between regularly scheduled meetings. However, it is not recommended that it be used simply as a way to avoid the open Board meeting requirements.

Please contact our legal team, if you would like assistance with chairing an upcoming Board of Annual meeting, or with taking action without a meeting.

Hidden Structural Elements: What You Can’t See Can Hurt You (Utah Law)

By: Doug C. Shumway

For those of us that live in or work with a community association, whether it’s a condominium or a traditional P.U.D., sharing the responsibility for maintaining, repairing and replacing structural elements can be a headache—okay, maybe even a migraine. The most hotly debated question whenever there’s damage to an association’s building structure is: “Who’s responsible in paying for that?” Depending on what the association’s governing documents say, the path to finding the correct answer to this question can be fraught with peril.

The answer ultimately depends on what the governing documents (“CC&Rs”) say, and—more specifically—how “common elements” are defined. Associations are most often responsible to pay for damage to the common elements, whereas owners are responsible to repair and maintain everything else. While most CC&Rs attempt to draw a clear line between where the association’s liability ends and the owner’s responsibility begins, many CC&Rs are less than clear. It is common to see documents that assign liability to the association for roofs and exterior walls, and liability to an individual owner for everything “from the drywall in,” i.e. anything within the walls of the unit. However, what about the space between the ceiling and the roof? Or the 2 x 4 wood studs behind the drywall? If your governing documents do not clearly assign responsibility for these elements, you could find yourself being held liable for damage that shouldn’t be your responsibility.

For example, during the winter holiday in 2011, “Adam and Theresa” were away from their condo unit for a week-long honeymoon. Two days into their nuptial celebration, the water line behind the kitchen wall broke, causing flooding and damage to the walls, floor, and the neighboring unit. The association hired an emergency plumbing service to break down the door and open the wall to perform the necessary repairs. When the happy couple returned, not only did they discover the damage to their unit, but the association handed them a repair bill in excess of $5,000. The couple immediately tendered the bill to their homeowner’s insurance carrier, but the carrier refused to pay because all elements within the wall were arguably the responsibility of the association.  Attorneys were hired on both sides and the legal arguments dragged on for several weeks. A close reading of the CC&Rs revealed that, while the main water line was a “common element” and therefore the association’s responsibility, the water line that broke was a “limited common area” sub-line, and was the responsibility of the unit owner. The association’s attorney sent a demand letter to the insurance attorney citing the CC&Rs, and, within a week, the insurance company paid the association in full for the repair.

The best medicine for the liability migraine discussed above is clear and specific language in your CC&Rs. If your current documents do not sufficiently define “common elements,” or do not specifically enumerate the various types of elements and spaces within your building structures, make sure you either amend your documents appropriately or see that the association establishes guidelines for who is responsible for specific kinds of loss.

Amending Governing Documents

Amending Governing Documents- Utah

By: Tyler LaMarr

A common question of HOA directors and managers is “How often should the Association be amending its governing documents?” A common answer provided by HOA lawyers is “It depends.” This brief article outlines a few important considerations in deciding whether it is time to amend.

Overview of Governing Documents

HOA’s are governed by the following documents: (a) the Plat, (b) the Articles of Incorporation (if incorporated), (c) the Declaration of Covenants, Conditions and Restrictions (CC&Rs or Declaration), (d) the Bylaws, and (e) the Rules, Regulations, and Resolutions. This collection of documents is referred to more generally as the HOA’s governing documents.

When the governing documents are silent on a given topic an HOA should turn to the Utah Statutes for “gap-fillers”. Important Utah Statutes include the Utah Condominium Ownership Act, The Utah Community Association Act, and the Utah Revised Nonprofit Corporation Act.

Resolving Ambiguity

HOAs often encounter problem areas in their documents when a new dispute arises in the community. For example, an ambiguity may be discovered in the architectural control provisions when an owner decides to paint their siding neon pink. Or HOA may discovery that it does not have authority to charge interest until an owner becomes delinquent in paying assessments. Likewise, an HOA may learn it is does not qualify for Fair Housing Act approval because its provisions are discriminatory to residents based on age. These are just a few examples of the many unanticipated issues that may manifest over time.

When an HOA encounters such an ambiguity, the best course of action is likely to clarify the ambiguity. Sometimes this can be done through a simple Interpretive Resolution of the Board of Directors, which can save the Association time and money associated with an official amendment. Other times, an amendment will be required. Keep in mind that the cost to litigate about ambiguous and confusing provisions frequently exceeds to cost to amend the documents. Competent legal counsel can guide an association in helping them to know whether an amendment is necessary.

Removing Unnecessary or Undesirable Restrictions

Sometimes, new leadership of an HOA decides that it no longer wants to enforce certain provisions of the Governing Documents. If those provisions are embedded in the Rules and Regulations, the new Board can likely make policy changes without seeking approval of the membership. In contrast, if the provision is stated in the CC&Rs, members of the Board of Directors should remove the provision rather than just ignore it. Simply ignoring provisions invites lawsuits against the HOA directors for failure to uphold their duties to enforce the governing documents. Similarly, if a provision is desirable but the directors want to grant exemptions or exceptions to certain members, it is prudent to amend the documents accordingly. Otherwise, the HOA may face a lawsuit from its members for selective enforcement or waiver of its right to enforce.

Conformity with State and Federal Law

State and Federal legislation can have a large impact on the governance of an HOA. However, when new legislation conflicts with the provisions in the governing documents it can be very confusing for both directors and members. As such, from time to time, HOAs should review their documents and prepare amendments to conform them to impactful legislation.

Tips for Efficient Amendments

When it comes to an amendment, there are a number of things that board members and committees can do to give the amendment the greatest chance of approval by the owners. First, an Association should determine the percentage of homeowner approval needed. Once determined, it is helpful at this point to do a straw poll to determine owner support for the conceptual amendment.

When the amendment has garnered sufficient support, it will need to be drafted and circulated to the membership and sometimes the banks holding mortgages in the community. At this point it is helpful to hold town hall meetings to discuss the changes, why the changes are necessary and advertise the amendment. Committees can then be appointed to go door to door to educate the owners and resolve concerns. This face to face interaction will encourage the owners to fill out and return the ballots giving an association a higher chance of obtaining the necessary percentage of owner approval. After all, the more work that is done to educate and help owners understand the amendments, the greater the likelihood that the amendment will pass. Finally, don’t forget to timely record the amendment with the County Recorder’s office in which the community sits. Failure to record will likely invalidate the significant investment of resources.

Because amendments to governing documents have a significant impact on owners’ property rights, it is important that associations engage competent legal counsel to assist the association through the amendment process.

Assistance/Service/Comfort Animal Regulations

By: Tyler S. LaMarr, originally published through the Community Association Institute:  http://uccai.net/blog/comfort-pet-regulations/

We all know someone whose dog or cat is much more than just a pet. Well, for purposes of the Fair Housing Act, they may be right. Community associations must be careful as they adopt rules and regulations regarding animal restrictions because it is easy to run afoul of federal laws like the Fair Housing Act (FHA) or the Americans with Disabilities Act (ADA), which provide homeowners with special rights.

Generally speaking community associations can adopt and enforce animal restrictions including an outright ban on all pets. However, certain animals are not considered “pets” under federal law. For example, Seeing Eye dogs for the blind are considered service animals — not pets — and therefore cannot be banned by the association’s rules.

Under federal law, comfort animals are excluded from certain pet restrictions

Less obvious examples include companion or comfort animals for people who suffer from a disability such as post traumatic stress syndrome — such comfort and companion animals also are not considered “pets” under federal law and cannot be banned from the community.

Not surprisingly, some residents try to overcome community pet restrictions by making a bogus claim that their pet is needed to ameliorate a disability. Community managers are well within their rights to require proof from a medical professional or some other qualified person who can verify the existence of a disability and confirm the need for an assistance animal.

Unlike service animals, companion and comfort animals are not required to be certified with special training. Also keep in mind that assistance animals are not always cats and dogs — disability laws require reasonable accommodations for miniature ponies, pot-belly pigs, ferrets or any other animal that improves the mental or physical health of a disabled person.

“…not always cats and dogs… includes miniature ponies, pot-belly pigs, ferrets or any other animal…”

Furthermore, while the Association must provide reasonable accommodations for assistance animals, the Association need not tolerate nuisances from such animals. For example, nuisance rules regarding feces and excessive noise apply equally to assistance animals and ordinary pets.

Remember that penalties for an FHA or ADA violation can be expensive and can garner negative publicity for the HOA, so it is always a good idea to consult with an attorney to ensure that Association rules are in compliance with federal and state law.

Content on this site is provided for informational purposes only. It is not intended as, and does not constitute, legal advice. While all content is believed to be correct within the scope of its purposes when written, it may be incomplete and and/or the relevant law may have changed. Content on this site is not intended to comprehensively cover any subject, does not cover a number of related matters, and does not cover any person or entity's particular situation. As such, it is not reasonable for anyone to rely upon the information herein with respect to any particular legal matter. Rather, readers are encouraged to retain a licensed attorney to provide individualize and current legal advice.

Flying The American Flag - Can and Should HOAs restrict? By Peter H. Harrison

Recently our law firm was approached by an HOA that wanted to restrict its residents from continually flying the American flag. Needless to say HOA members and other Utahns were outraged over any restrictions regarding the American Flag.  Local and national television and online media outlets happily covered the story and the ensuing controversy.

Now let me be clear, I have great respect for the American flag.  My grandfather was a decorated soldier in World War II  who spent hours at the University of Utah documenting his war time experiences.  Through my discussions with him I learned about the sacrifices that so many have made to preserve the amazing freedoms that we enjoy in this country.  These freedoms are symbolized by our beautiful flag.  That being said, it is easy to lose sight that among these cherished freedoms that Americans enjoy, are the freedoms of expression and speech, freedom of association, and the freedom to contract. 

By purchasing a home in an HOA or Condo development, homeowners become members of an Association, and obligate themselves to adhere to legally binding contractual duties, that we commonly refer to as CC&Rs.  These CC&Rs are often complex and difficult to read. Just peruse this informative Wikipedia entry  for a taste of the complexity of condominiums. (Notably – America’s first modern Condo project was developed in Utah.) Due to the complex nature of CC&Rs, HOA members commonly fail to fully understand or appreciate the restrictions on their ownership rights. 

In the recent media coverage, the outraged homeowners turned to the Freedom to Display the Flag Act of 2005, to oppose the HOA’s rule restricting the placement of the American flag.  

However,  a careful reading of the Flag Act, which is also incorporated into Utah law reveals the Flag Act does not completely override an HOA's CC&Rs.

Utah Condominiums may restrict owners from affixing the American flag on any area in which the resident does not maintain exclusive use and control.  In plain terms, the HOA can restrict flag flying in the HOA common areas. The common areas in a condominium  project  typically include the surrounding landscaping and the entirety of the exterior of the buildings, including roofs, siding, stucco, etc.  HOAs often impose restrictions on flag flying to prevent unnecessary holes and fixtures in roofs and walls that can lead to water leaks and property damage, which the HOA would become responsible to repair; or, to preserve a common and uniform appearance throughout the development. Thus, under both the CC&Rs and the Flag Act, HOAs hold a broad legal right to restrict the location of flag flying.

It is important to remember that when you purchase in an HOA you could be contracting away certain “property rights” or your freedoms of speech and expression.  Remember that your first amendment rights prohibit the government from abridging your freedom of speech, but not necessarily a private HOA.  The first amendment does not prohibit or prevent an individual from contractual limiting those speech rights.

Flying the American flag is an important and protected expression of patriotism. However, as the media failed to address, this protected expression is not an unlimited right. Now just because an HOA has the legal right to restrict something, doesn't mean that it should.  HOAs and its members should work cooperatively to achieve solutions to allow our flag to fly in a way that allows the expression of patriotism, enhances the aesthetics of the community, and simultaneously prevents property damage.

If you have questions about your HOA's enforcement rights and contractual duties please don’t hesitate to contact our office.

References:

Fox and Friends - National News

Fox 13 - Local News

KUTV 2 - Local News

 

 

 

Why would anyone ever want to live in an HOA!?

 By Peter H. Harrison, Esquire

You’ve likely heard of an HOA abusing its power and discretion in enforcing CC&Rs.  Maybe you’ve heard about the HOA who refused to let a little boy sell lemonade (http://www.myfoxchicago.com/story/29554169/hoa-shuts) or about a Florida HOA who fined a man $5,000 because they determined his trees were too short (http://www.consumeraffairs.com/news/this-week-in-homeowners-association-news-111513.html).  With countless horror stories like these circulating the interwebs, why would someone ever want to live in an HOA?

Well, there are a number of great reasons to reside in an HOA.  Many people (particularly people like me) that don’t love the idea of having to do yard work love the low maintenance nature of HOA living.  Not everyone wants to shovel snow, mow the lawn, edge, landscape, etc.  HOAs also often take primary responsibility to maintain roadways, building exteriors and roofs.

Additionally, many HOA’s offer great amenities to their members such as swimming pools, parks, play grounds, tennis courts, hiking trails, horse trails, clubhouses, ski access, and some even have golf courses.  The shared nature of these amenities generally means affordable and convenient access to the membership.

Many of the horror stories involving HOA’s revolve around rule enforcement, however, most people that live in an HOA enjoy the conformity that the rules bring to the community.  Napolean once said, “Imagination rules the world.” If that were the case you could easily live in a community in which your next door neighbor built a pink house or even worse a “Garage-Mahal (http://www.deseretnews.com/article/600128770/Neighborhood-fights-for-identity.html?pg=all), which was built in my neighborhood. 

However, owners in HOA’s don’t have to worry about their neighbors building a hideous monstrosity because they are protected via the binding nature of the restrictive covenants.  Not only do rules help with the appearance of a community but they tend to preserve and increase property values.

It is important to remember that you can’t believe everything you see and hear in the media.  According to the Community Associations Institute (CAI), a non-profit dedicated to building better communities, some 62 million people live in an estimated 315,000 association-government communities, from townhouses to detached single-family homes to apartments.  A study performed by an independent research group for CAI http://uccai.net/ found that 7 out of 10 people who live under owner associations are happy with their communities. Only 8 percent express some level of discontent, while 22 percent were neither satisfied nor dissatisfied.  Most surprising in light of negative media coverage is that 81 percent of HOA residents believe they receive a “good” or “great” return on their HOA assessments.

Finally, several years ago I met with a group of people who were attempting to draft comprehensive beneficial legislation for HOA’s.  Among that group were several county recorders who stated that nearly all new communities at that time functioned as a community association.  This trend is only increasing.  The proliferation of HOAs is not going away. 

If you have questions, problems, concerns or simply want to become part of the 7 out of 10 people who enjoy their HOA community living please contact our office and see if we can help you.