[WSBARP] new case HOA statute

[Eric Nelsen]

Maybe I misinterpreted what issue your post was most concerned about. The thing that I find interesting is the question of "how organized does a group have to get before it becomes an HOA under the statute"? That question heavily overlaps with the question of "how organized does a group have to get before it becomes an unincorporated association under Washington law"? And a related question to that, is whether an unincorporated association can have oral rules of governance, as opposed to written documents.

When I suggested that many groups enforcing covenants end up having bylaws and other operating rules, I was not thinking of road maintenance agreements and that sort of thing - I was thinking specifically of your example covenant: "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." A covenant like that has a wealth of opportunity for a proliferation of rules among the people affected, to help decide what is or is not an annoyance or nuisance.

Let me approach the same question instead from another direction. If three properties share a driveway and the easement is accompanied by a covenant under which the parties bear the costs of maintenance and expense in equal shares - and nothing else - then I would argue that no association is formed by the covenant. Similarly, if the three property owners get together every once in a while to discuss the condition of the road and mutually decide what kind of work might need to be done, I also would argue that no association is formed by that habit. That is simply cooperation between neighbors regarding a mutual responsibility.

Let us say there is a disagreement between the three property owners about whether a repair job is needed on the road. Two of them think yes, one of them thinks no. The one who thinks no says, "well, I do not think it is necessary but majority rules, so I agree." Have they just adopted a bylaw that authorizes majority voting? I still think no, because essentially the holdout was willing to change her/his vote for the sake of cooperation with the neighbors. It also was a single instance that was even arguably by majority vote, and not an express intention to adopt a rule binding those who disagree with the decision to follow the will of the majority.

And that is where I think we start to find the threshold between (A) groups of people cooperating regarding a shared responsibility, and (B) formation of an association. I think that formation of an association, even an unincorporated association, requires some affirmative intentional acts to create an ongoing set of governing rules. Without that intent to create, no association is formed. (For these purposes anyway--might be a bit different with social societies.) I don't think the intent even has to be express - it could be implied merely by a group of people deciding to do something "association-like":  appoint "officers" of some kind, either with some express duties or with the traditional duties of an officer with that title (President, Secretary, Treasurer, whatever). There are still gray areas, of course, but I think that is approaching my main concern about what an unincorporated association might be.

All this feeds back into the question of whether the HOA statute applies. I suspect that, by my definition, some of the groups that you are thinking of as associations, would not be associations under my definition. They would be simply groups of people cooperating. And I think those little cooperative groups should NOT be HOAs under the statute--there are an awful lot of powers conferred by those statutes that I think are utterly inappropriate for most circumstances not involving a much more traditional-looking HOA.

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] On Behalf Of Rob Wilson-Hoss
Sent: Wednesday, March 09, 2016 11:32 AM
To: 'WSBA Real Property Listserv'
Subject: Re: [WSBARP] new case HOA statute

Thanks, Eric. There are problems with the position that governing documents have to specify or refer to an association. First, as to current members and new members, as soon as they participate, vote, pay assessments, and so on, then they will ratify. But this leaves a mess, because some will not have ratified, in theory. So, some in, some out.

Then, you have the problem of unjust enrichment, see the end of Lake Limerick v. Hunt, 120 Wash App 246. Everyone has to pay. If everyone has to pay, then how do you administer the payments (or the work) without an association, some mechanism to take actions?

As to what an unincorporated association is, the Supreme Court in Riss v. Angel spent a bunch of time talking around that issue, and the result is sort of like a partnership, for the purposes of that decision. Of course, there, there were documents.

I just don't think courts take HOA cases seriously, and I am not the only one. Walsh v. Halme can't actually get to where they went - something more than just an unincorporated association. That's just plain invented by the court and of no use to practitioners.

I agree, the issue for the HOA statute is what an unincorporated association is, or at least, that's one of the issues. I disagree that groups that work together to enforce a one-page set of covenants have, commonly, bylaws and other operating rules. Many do, but  I know of a great many that do not, including in particular small road maintenance and water associations. And again, I disagree that governing documents have to specify an association; the definition in the statute does not make that a requirement. Just that they have to pay. That's the point of that statute - to avoid the need to have the association provided for in the governing documents.

Thanks for the reference to 1.16.080. Also look at CR 23.2 and the cases construing it. One of the comments refers to the lack of any definition of unincorporated association, for class action purposes. At least that's consistent....

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>

This message is intended solely for the use of the addressee and may contain information that is privileged, confidential, and exempt from disclosure under applicable law.  If you are not the addressee, you are hereby notified that any use, distribution, or copying of this message is strictly prohibited.  If you received this message in error, please notify us by reply e-mail or by telephone (call us collect at the number listed above) and immediately delete this message and any and all of its attachments.  Thank you.

This office does debt collection and this e-mail may be an attempt to collect a debt, Any information obtained will be used for that purpose.  To the extent the Federal Fair Debt Collection Practices Act (15 U.S.C. § 1692) applies this firm is acting as a debt collector for the condominium/homeowners' association named above to collect a debt owed to it. Any information obtained will be used for collection purposes. You have the right to seek advice of legal counsel.

From: wsbarp-bounces at lists.wsbarppt.com<mailto: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>

This message is intended solely for the use of the addressee and may contain information that is privileged, confidential, and exempt from disclosure under applicable law.  If you are not the addressee, you are hereby notified that any use, distribution, or copying of this message is strictly prohibited.  If you received this message in error, please notify us by reply e-mail or by telephone (call us collect at the number listed above) and immediately delete this message and any and all of its attachments.  Thank you.

This office does debt collection and this e-mail may be an attempt to collect a debt, Any information obtained will be used for that purpose.  To the extent the Federal Fair Debt Collection Practices Act (15 U.S.C. § 1692) applies this firm is acting as a debt collector for the condominium/homeowners' association named above to collect a debt owed to it. Any information obtained will be used for collection purposes. You have the right to seek advice of legal counsel.

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