[WSBARP] new case HOA statute

Wed Mar 9 11:29:23 PST 2016

On your last point I think the Ebel case has some bearing.

John M. Riley, III
Principal | Witherspoon * Kelley
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From: wsbarp-bounces at lists.wsbarppt.com [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Eric Nelsen
Sent: Wednesday, March 09, 2016 10:46 AM
To: WSBA Real Property Listserv
Subject: Re: [WSBARP] new case HOA statute

Rob, if you're ready to write the Bar Bulletin article on HOAs and covenants, I promise I'll read it!

I just read Walsh v. Halme and I think the "what is an association" section is a bit, well, inartful. But then, so is the statute, since the legislature clearly didn't think too hard about what constitutes a legal entity and what doesn't, before writing something like "a corporation, unincorporated association, or other legal entity." Which is kind of like saying, "a table, a fruitcake, or other item of furniture." But then, see RCW 1.16.080<http://app.leg.wa.gov/RCW/default.aspx?cite=1.16&full=true#1.16.080>, which says that "unincorporated association" in a statute can also include LLCs. Go figure--so an LLC can be a fruitcake for purposes of statutory construction.

Regardless of the HOA statute, I think the case comes down to: What does it take to form an unincorporated association? I think that your example of long-established groups of people working to collectively enforce a one-line covenant can still qualify as an unincorporated association, because I highly doubt that such a group does not have a set of bylaws and rules for elections of officers, etc. such that those are the formative documents for the Association, not the one-line covenant that the Association enforces. It is just in the nature of the beast - any group of more than three people that tries to organize collectively ends up establishing a set of governance rules in order to prevent the chaos of total democracy, and get everyone's buy-in that decisions can be made by majority rather than unanimity. And I don't think the governing documents have to be recorded; they just have to exist.

I think the problem in Walsh v. Halme is not that Walsh et al. didn't form an Association--they did. But they only did it for themselves, for their own properties, and because Halme didn't participate and didn't consent, he is not a member of the Association and he and his property are not subject to its jurisdiction.  The other term I see in case law for "unincorporated associations" is "voluntary associations," which I think makes the point. One can voluntarily join a group, or voluntarily purchase a property under a covenant that says ownership of the property constitutes membership in a group, but the point is that it's voluntary.

By the way, I do think that HOAs have questionable authority when formed independent of recorded covenants--that is, the covenant being enforced does not impose membership in an association for the burdened/benefitted properties. If membership in the HOA does not travel with the land, then on any transfer the new owner can elect not to join the HOA. But that doesn't mean the covenant is unenforceable; it just means that a non-consenting party will have to be sued for a covenant violation, and the court will determine for itself whether the covenant has been violated, rather than reviewing the HOA's determination that the covenant was violated.

Sincerely,

Eric

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA  98101-2837
phone 206-625-0092
fax 206-625-9040

From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Rob Wilson-Hoss
Sent: Tuesday, March 08, 2016 11:40 AM
To: 'WSBA Real Property Listserv'
Subject: [WSBARP] new case HOA statute

Interesting new published Div. II case about what a HOA is, Walsh v. Halme, out today. The statute at issue is 64.38.005(11), which defines homeowners' associations:

RCW 64.38.010(11) defines a "homeowners' association" as a corporation, unincorporated association, or other legal entity, each member of which is an owner of residential real property located within the association's jurisdiction, as described in the governing documents, and by virtue of membership or ownership of property is obligated to pay real property taxes, insurance premiums, maintenance costs, or for improvement of real property other than that which is owned by the member.

and the precise point is, what means the first part of this - "a corporation, unincorporated association, or other legal entity?" Some questionable analysis leads to the conclusion that the recorded documents must refer to some sort of entity other than the owners themselves, that is something more than your run-of-the-mill unincorporated association:

The HAA does not define "unincorporated association" or "legal entity," and no Washington case addresses the meaning of these terms in the homeowners' association context. Use of the word "other" before "legal entity" suggests that "unincorporated association" as used in RCW 64.38.010(11) must be a "legal entity." However, unincorporated associations generally are not legal entities. Newport Yacht Basin Ass'n of Condo. Owners v. Supreme Nw., Inc., 168 Wn. App. 56, 74, 277 P.3d 18 (2012). Therefore, RCW 64.38.010(11) seems to require something more than a "typical" unincorporated association.

According to the court, when the statute says "unincorporated association," that is modified by "other legal entity," so the governing documents actually have to refer to something more than a typical unincorporated association, whatever that is. Age has its privileges; mine includes the privilege to say, no, that is not what the Legislature meant, and this is statutory interpretation of the most outcome-based sort. If the court were right, and "other legal entity" modified unincorporated association, then the only unincorporated associations that would count would be legal entities, which by definintion they are not. Oops. The court no doubt recognized this when it said that the statute "seems to require something more than a 'typical' association." So it went ahead and helped the Legislature out by providing its own rule.

At any rate, the analysis then goes on to a discussion of what a typical unincorporated association is; it never gets to a discussion of what something more than a typical unincorporated association might be.

Regardless, the result is that any HOA is at risk of challenge if its governing documents do not refer in some unspecified way to some sort of unspecified category of association of members. And that includes a whole lot (at least hundreds if not thousands) of very long-established and successful HOAs with that one-page set of minimal restrictive covenants that many were using in the 1960s; you know, the ones that include,

No noxious or offensive activity shall be carried on upon said Tract or any part thereof, nor shall anything be done or maintained thereon which may be or become an annoyance or nuisance to the neighborhood.

Look, this is a serious issue and always has been, since the HOAA was adopted. Does it really apply all of the HOAA rules to small water or road maintenance associations? But the answer to the issue, politically, is to find a way to amend the statute to aim the HOAA rules to actual HOAs and not impose a bunch of silly requirements or powers on small associations that don't have or want rules about structure or behavior limitations. Here, according to this court, the answer is to interpret the statute to require that the governing documents include some reference to something more than a typical unincorporated association.

Right now, this is simply a statutory interpretation issue - what does "unincorporated association" mean in this context?

As for me, I don't think "other legal entity" defines or limits "unincorporated association," citing to Homer Simpson ("duh") (what did you want the Legislature to say, "unincorporated association, or other entity that has some legal status in addition to unincorporated and incorporated associations?") (and how can "other legal entity" apply to an unincorporated association that is by definition not a legal entity?); and I think this term, "unincorporated association," is meant to include an association of people. If we read the dictionary definitions of "association" in Google we can find one to suit every need and taste, including, "a connection or relationship between things or people," and a"group of persons banded together for a specific purpose." Road maintenance agreements and water agreements qualify under these definitions.

Finally, if anyone thinks that this opens the door to water or road maintenance associations starting to control the color palette for front doors, please remember the limitations of Wilkinson v. Chiwawa: is it already a covenant? (can't add new ones unless the old ones say you can specifically); can't add additional burdens; must be consistent with the general scheme of the development. Etc.

Your obedient servant,

Rob

Robert D. Wilson-Hoss
Hoss & Wilson-Hoss, LLP
236 West Birch Street
Shelton, WA 98584
360 426-2999
www.hossandwilson-hoss.com<www.hossandwilsonhoss.com>
rob at hctc.com<mailto:rob at hctc.com>

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