[WSBARP] new case HOA statute

Wed Mar 9 14:52:54 PST 2016

Not to hijack the conversation, but I have a somewhat related situation I
could use some enlightenment on as this certainly isn’t my bailywick.
Specifically, a private subdivision plat was created/recorded back in 1975.
The Plat states that “maintenance of all private roads shall be vested in a
non-profit corporation whose members shall be all of the beneficial owners
of the properties served by said private roads”. 

A non-profit corporation was duly formed, but then some of the key people
moved on and it was administratively dissolved by the state in the 1990s for
failure to file annual reports. Since then, the owners have informally
maintained the roads but I was wondering about the need to (or ability) to
re-establish the non-profit corporation (I suspect some of the properties
will be sold in the not so distant future).  

It is my understanding that it is too late to resurrect the old non-profit.
If so, how do you establish a new non-profit (with bylaws, etc.), especially
when it is likely that at least one current owner will not cooperate?
Thanks in advance for any comments/suggestions, Cy

Cyrus W. Field, Attorney at Law (admitted in Washington and Oregon)

phone: 360-472-1223 Mail: POB 367, Shaw Island, WA 98286 Office: 640 Mullis
St. Friday Harbor, WA

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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 1:23 PM
To: WSBA Real Property Listserv
Subject: Re: [WSBARP] new case HOA statute

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
rob at hctc.com

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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] 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
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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