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October 30, 2006

AARP: The Right to Be Told of All Rules and Charges

"Homeowners shall be told - before buying - of the association's broad powers, and the association may not exercise any power not clearly disclosed to the homeowner if the power unreasonably interferes with homeownership"

This one touches an area that I've previously written about - disclosure. However, lets take a look at how they approach it:

Governing documents - associations may not enforce charges or other rules against homeowners except those set forth in plain English in governing documents. All operating rules shall be compiled in a single document, available to homeowners upon request, that at the beginning provides contact information for the ombudsperson and a description of the ombudsperson's role.

Defining "plain English" should be fun. Attorneys (who will draft these documents) are genetically incapable of writing anything in plain English. What is plain English to one may not be to another. Who's going to define this? Someone is is going to have to establish a standard set of terms that is acceptable to both the courts and would be construed as "plain English". As for the ombudsperson, let's see how many states actually adopt this.

Disclosure to buyers: At least 'x' days before an offer to buy a home becomes binding, the homeowner shall furnish the potential buyer with: [summary] information statement prepared by ombudsperson, including acknowledgement for buyer to sign, all governing documents, statement of existing and delinquent assessments, any outstanding violations, with supporting claims, current operating budget, financial statement, summary of reserves, a statement of the number of foreclosures filed within the prior three years; noticve of any pending legal actions against the association.

First, this relies upon the buyer to provide this information to the seller. If the seller chooses not to provide any, or only part, of this information to the buyer, who does not investigate on his own. This continues the accepted real estate provisions of not allowing the association to become involved with the buyer. As a result they have no control over what the purchaser has read or understands, and therefore, they should not be held accountable for that. If you want to place conditions on the association, then you have to allow for the assocaition to provide the information directly to the purchaser, and to receive back, any signed agreements. The last item, regarding foreclosures, has no bearing on anything. It was placed in here by the advocates who feel that assocaitions should not be allowed to foreclose, period. Why not ask the local municipality to provide the number of foreclosures in their jurisdiction, or in the state.

The next part states that the information requested by the homeowner will be provided within 10 days, that the owner isn't responsible for any errors, that the buyer isn't responsible for any errors, or for correcting any violations not noted and the association may only charge "actual costs", not to exceed $___.
What is an error? If a selling owner's assessment payment has been received at the front desk of the management company but hasn't been posted to the books when the certificate goes out, is that an error? Who should pay? Everyone thinks that putting this together is simple and therefore, you can easily keep the cost low, but the fact is that there is a risk involved, of mistakes. Mistakes have been known to screw up closings and sales. Any limit on costs for providing these documents should include a right to repair oversights or mistakes, or else allow the party preparing them to include the cost of the risk. Also, there is a time element. All too often, a real estate agent comes charging into an office demanding the documentation for a closing that's an hour away. There should be an allowance for asociations or management companies to charge a higher fee for last minute demands.

Also, the proposed model document only requires the owner to sign as an acknowledgement of receipt of the documents. I would change that to include a statement that they have read and either a) understand the documents and the associations right to enforce them; b) have consulted with their own counsel and had them explained to them; and that they agree to abide by them. Let's put a little personal responsibility into the equation. You can't make the association responsible for everything, and let the owner completely off the hook. Let's end the continual litany of "I didn't read them" "I didn't understand them" "What documents?"

Upon request, the association shall make any legally require study of the association's reserves avilable to copy and audit.

No problem

Limits on Default and Implied Powers - without reprinting the whole section, it basically says that the association shall only have those powers specifically granted it in the documents, and limits any "implied" powers. It also states that the association may not impose restrictions on structures or landscaping placed on individually owned property or regarding the design, colors, materials or plants to be used. Last an association may only borrow money if it doesn't pledge future revenues or create a security interest in common property.
By prohibiting any changes the model document locks the association into the documents as they are. Times change, as do the need for implementing or removing rules. Advocates want the association to act more like a municipal government, but doesn't want them to have the same powers to adapt as cities have. This is a tricky issue - the proposal removes one of the mainstays of a democratically elected government - to reflect the will of the owners, or just to govern. It presumes that board members routinely abuse the documents by creating powers for themselves, through rule-making, that they shouldn't have. While true in some instances, the owners always have the ability to rescind. Although not often used, the right is still there. It looks like they are trying to move rules up to the status of CC&R's, requiring voter approval for all rules.

The last item is patently ridiculous. It essentially prohibilts an association from borrowing funds, since most banks base the loans on an assignment of future revenues. This would require the association to rely on special assessments, placing undue hardships on all owners, but mainly on fixed-income owners.

Posted by joewest at October 30, 2006 4:34 PM