SB6175's Assistance for Members of HOAs

Governor Inslee signed Washington’s Senate Bill 6175 on March 27th 2018. During public hearings about this 100 page document, several residents of HOAs voiced their concern that would have added more protections for homeowners in HOAs. On the other hand, in the State of Washington, and other states as well, the Courts will usually defer to the judgment of the Boards (aka the Business Judgment Rule) unless it can be proven that the Boards’ judgments were either self-servicing or based on an unreasonable decision-making process. Therefore, it is important to ensure through laws that a Board of Directors’ decisions and the process used for making its decisions are transparent so that the HOA's members can decide if the Board is functioning in the HOA’s best interests. SB6175 ensures that certain information must be prepared and must be accessible to members.

Meetings

An HOA’s governing documents should state that the Board of Directors must call at least one meeting annually in order to allow members to elect their directors to the Board and to approve the next budget. But, the reality is, if a Board becomes entrenched because only a few members know what decisions are being made, these Directors can become despots for the purposes of serving the interests of the minority. Such a Board will not advertise meetings, except for the one annual meeting; it will not mail or post the agenda for its regular meetings; and if a member is allowed to attend a meeting s(he) may be may be expected to say or present nothing.

Section 310. (Meetings) Every statement in Section 310 will help members because it ensures that members can attend every meeting, except for executive sessions, by being notified in advance of the time, place, date and agenda which must include any proposal to remove a board member, any proposal to amend governing documents, and any proposal to change a previously approved budget that will change assessment obligations. Furthermore, unit owners must be given the opportunity at any meeting to comment regarding any matter affecting the common interest of the Association.

Consider how important Section 310 is because many of the Board’s decisions that are made by a majority vote of the Board can actually be in violation of the HOA’s governing documents. But, if the members are not informed about these decisions so they can object to them in a timely fashion, it can be costly to litigate in order to remove the changes that the Board decided to make.

Records

Section 320 (Association Records). Minutes including those of executive sessions must be kept. All design requests for architectural approval must be kept for 7-years. All ballots, proxies and absentee ballots must be kept for 7 years. The current budget, detailed records of receipts and expenditures affecting the operation and administration of the association, and other appropriate accounting records must be kept within the last seven years. Copies of contracts to which the HOA is or was a party must be kept within the last seven years. Financial and other records must be sufficiently detailed to enable the association to comply with Section 409 of this act.

Section 409 refers to the contents of the State-Required Public Offering Statement that each buyer of property within an HOA must be given prior to the closing date of a sale. SB6175 adds a new provision that must include statements about the existence of any Reserve Funds and the status of these funds.

Other than changing a governing document that requires the members’ approval and not disclosing it, the other noticeable activity of a poorly functioning HOA’s Board of Directors is the misuse the Association’s funds. Irrespective of the Board‘s intentions, if the Board cannot manage the HOA as it was designed to be managed, then the impact could be devastating for the HOA’s members.

Budget Preparation and Delivery

Section 326 (Adoption of Budgets –Assessments and Special Assessments)

(1)(a) Within thirty days after adoption of any proposed budget for the common interest community, the board must provide a copy of the budget to all the unit owners and set a date for a meeting of the unit owners to consider ratification of the budget not less than fourteen nor more than fifty days after providing the budget. Unless at that meeting the unit owners of units to which a majority of the votes in the association are allocated ,or any larger percentage specified in the declaration reject the budget, the budget and the assessments against the units included in the budget are ratified, whether or not a quorum is present. (b) If the proposed budget is rejected or the required notice is not given, the periodic budget last ratified by the unit owners continues until the unit owners ratify a subsequent budget proposed by the board.

(2) The budget must include: (a) The projected income to the association by category; (b) The projected common expenses and those specially allocated expenses that are subject to being budgeted, both by category; (c) The amount of the assessments per unit and the date the assessments are due; (d) The current amount of regular assessments budgeted for contribution to the reserve account; (e) A statement of whether the association has a reserve study.

Reserves as Part of Budget Approval Process

Section 328 (Reserve Account- Establishment)

An association required to obtain a reserve study pursuant to section 330 of this act must establish one or more accounts for the deposit of funds, if any, for the replacement costs of reserve components. Any reserve account must be an income-earning account maintained under the direct control of the board, and the board is responsible for administering the reserve account.

Section 329(Reserve Account- Withdraws)

(1) The board may withdraw funds from the association's reserve account to pay for unforeseen or unbudgeted costs that are unrelated to replacement costs of the reserve components. Any such withdrawal must be recorded in the minute books of the association. The board must give notice of any such withdrawal to each unit owner and adopt a repayment schedule not to exceed twenty-four months unless the board determines that repayment within twenty-four months would impose an unreasonable burden on the unit owners. The board must provide to unit owners along with the annual budget adopted in accordance with section 326 of this act (a) notice of any such withdrawal, (b) a statement of the current deficiency in reserve funding expressed on a per unit basis, and (c) the repayment plan.

Section 330 (Reserve Account – Preparation).

(1) Unless exempt under subsection (2) of this section, an association must prepare and update a reserve study in accordance with this chapter. An initial reserve study must be prepared by a reserve study professional and based upon either a reserve study professional's visual site inspection of completed improvements or a review of plans and specifications of or for unbuilt improvements, or both when construction of some but not all of the improvements is complete. An updated reserve study must be prepared annually. An updated reserve study must be prepared at least every third year by a reserve study professional and based upon a visual site inspection conducted by the reserve study professional.

(2) Unless the governing documents require otherwise, subsection (1) of this section does not apply (a) to common interest communities containing units that are restricted in the declaration to nonresidential use, (b) to common interest communities that have only nominal reserve costs, or (c) when the cost of the reserve study or update exceeds ten percent of the association's annual budget.

(3) The governing documents may impose greater requirements on the board.

Source: https://legiscan.com/WA/text/SB6175/2017, Updated from Gov