last updated June 18, 2008
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What's New
Updates on the latest changes in law, other new developments, and general information affecting associations and real estate clients.
Read SB6215, effective June 12, 2008, Reserve Study Law for residential Condominium Associations
http://apps.leg.wa.gov/documents/billdocs/2007-08/Pdf/Bills/Senate%20Passed%20Legislature/6215.PL.pdf
Read HB 2791, effective June 12, 2008, Distressed property conveyances http://apps.leg.wa.gov/documents/billdocs/2007-08/Pdf/Bills/House%20Passed%20Legislature/2791.PL.pdf
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Condominium Associations: Have you read newly passed Washington SB6215? The reserve study law is effective June 12, 2008.
FAQs:
What does this new law mean for my condominium association? The new law requires residential condominium associations do reserve studies, and specifies how often they must be done, content and format, who can/must perform, requires inclusion in resale certificates and Public Offering Statements. The new law also requires associations disclose to buyers when a current reserve study doesn’t exist, and that insufficient reserves poses risks to the buyer. The new law requires associations to set up reserve accounts. It does not require funding. It does not have penalties for failure to comply with law.
What happens if my association is not in compliance by June 12th? If you have a reserve study in place, although it does not comply with the new law, it still provides information for owners and buyers. I would advise clients to include the current reserve study in any required disclosures for resale certificates and Public Offering Statements until a new reserve study can be budgeted in the next budget cycle.
What if we don’t have a reserve study? There are no monetary damages or any other liability that may be awarded or imposed for lack of a reserve study. A reserve study can serve as a tool to protect the association and directors. Yet if a study is made and left underfunded, such a situation may affect the market price of the units. Decisions related to reserve studies are made by the Board, exercising reasonable discretion. 20% of owners can demand inclusion of a reserve study in the next budget. The reserve study must be done if the budget is ratified. Owners cannot withhold payment for a COA’s failure to comply with the reserve study requirement. The new law requires a reserve study be made compliant with new statutory requirements. So, if your COA does not have a current reserve study, the Board should consider contacting a reserve study professional to perform one. There is a backlog for reserve studies by qualified professionals. So it may be 2-6 months out before the study is made. The new law provides that a COA must do a reserve study “unless doing so would impose an unreasonable hardship”. Hardship is not defined but does exist if cost of preparing the study exceeds 10% of the annual budget.
What are the penalties for failure to comply with the new law? There are no monetary damages or other liability under the new law. However, the new law protects persons who provide advice or assistance to establish reserve accounts, to have a study prepared or updated, to make required disclosures. Liability may arise outside of this law for known problems. Situations that may create liability are: failure to disclose known construction defects to buyers; failure to disclose reserve studies; failure to disclose known funding problems.
What must be disclosed on resale certificates or Public Offering Statements?
RCW 64.34.425 (1) (q) states a copy of the current reserve study (if any) must be included in any resale certificate. Section (1)(s) states if no current reserve study exists, then the COA must include in the disclosure statement: that no current reserve study exists; the lack of reserve study poses a risk to owners of special assessment. RCW 64.34.410 (1)(oo) states if no reserve study exists, the COA must include in the disclosure that there is no current reserve study, and lack of a reserve study poses a risk to owners of special assessment. Insert the following disclosure: “This association does not have a current reserve study. The lack of a current reserve study poses certain risks to you, the purchaser. Insufficient reserves may, under certain circumstances, require you to pay special assessment for your share of common expenses for the cost of major maintenance, repair, or replacement of a common element.” A reserve study (if any) must be part of the Public Offering Statement.
How do we set up the reserve account? RCW 64.34.372(2) requires a segregated account, and any transaction requires the signature of at least two officers or directors of the association. I would advise clients to require that Board Minutes reflect any reserve expenditure or deposit (planned or unplanned) to prevent misappropriation of funds.
Spending reserve funds. Budgeted or planned expenses have no special requirements. Unbudgeted expenditures require notice to owners which must be hand delivered or by mail. Unplanned expenditures must be recorded in Board Minutes. The new law requires a repayment plan to restore reserves spent within two years “unless it would impose unreasonable burden on owners”. The Board has discretion on whether it would be an unreasonable burden. So moving planned reserve expenditures forward may not require repayment.
Structure the funding of reserves. Consider your options: regular contribution versus special assessment paid over time. Allow sellers to pay off “unfunded” reserves on the transfer of the unit. Allow lower monthly payment for buyers, increases borrowing power. Such a scenario fairly allocates cost to those who used the components.
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Washington's new distressed house sale law HB2791
Effective June 12, 2008
The purpose of the law is to protect owners of distressed residential property from those who might try to take advantage of the owner's dire circumstances. Due to some ambiguity, the law remains open to interpretation and the effects of the scope of the new law await to be determined.
The law establishes a five-day opt-out period if the homeowner changes his or her mind. The law requires that the homeowner be able to afford all the terms and receive 82 percent of the fair market value if the house is sold. Any "rescue" agreement also must be clearly printed in 12-point font and written in the same language that the consultant used to solicit services from the homeowner. Of note, the new law establishes a "fiduciary" responsibility the moment a foreclosure "consultant" contacts a distressed homeowner—meaning they have to act in the homeowner's best interest.
From the language of the bill, the new law governs conveyances between a distressed property purchaser (any person acquiring an interest in distressed property) and the owner of residential real property that is distressed (in foreclosure, at risk of loss due to tax delinquency, or security for a loan in which the owner is more than 90 days delinquent).
A distressed property conveyance is a transaction in which: (1) a foreclosed homeowner transfers an interest in the distressed property to a distressed property purchaser (DPP); (2) the DPP allows the foreclosed homeowner to occupy the property; and (3) the DPP or a person acting in participation with the DPP conveys or promises to convey the property to the foreclosed homeowner; or provides the foreclosed homeowner with an option to purchase the property at a later date; or promises the foreclosed homeowner an interest in, or portion of, the proceeds of any resale of the property.
In sum, the law:
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Requires written contract for any conveyance of distressed property
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Right of cancellation any contract with a distressed property purchaser, and
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Prohibits certain acts with the purpose of protecting owners of residential real property that is distressed
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