Here Are The Basics

Welcome! This outreach aims at the 25% of real estate owners in all 39 counties of Washington State, so as to educate each one about common interest communities.

What brings you here? Are you. . .

·         A new owner in a common interest community?

·         A new resident in Washington State who wants to know ‘How do they do it there?’

·         An owner interested in volunteering for your board of directors?

·         A newly elected board member?

·         A board member with a new challenge?

·         A person in search of best practices in common interest communities?

·         A realtor interested in selling real estate in common interest communities?

·         An association manager in search of new ideas?

·         A banker interested in loaning money to an association?

·         A legislator interested in learning more about issues in common interest communities?

·         A vendor interest in making your services available to common interest communities?

·         A curious person?

Regardless of what draws you here, we strive to provide the information you seek. You can review the checklist at the end of the page to help you find the particulars you need, depending on your purpose here.

If you’re looking for something you can’t find here – try search! – and don’t find it, please request it.

Let’s Get Started

Owning real estate in a common interest community isn’t like owning other real estate. It comes with limitations, reservations and community-wide financing, so that the community can support itself and protect and preserve its real estate assets. We are available to help you learn more, so that you can thrive in and maximize your investment.

Here you can find text to review so that you can become familiar with common interest community types, a few vocabulary words, and links to Washington State Statutes that govern common interest communities.

Common Interest Communities in Washington State

Whether you’re a first-time buyer into a common interest community in Washington, or simply familiar with common interest community laws in other states – or countries, you can learn more about these communities in Washington State, by reviewing these links.

Your governing documents may address many of the same issues contained in the State statutes, and that language applies to your community and supersedes State law, but may not conflict with it. And, where your governing documents are silent, the State law applies.

We have three types of common interest communities in Washington: Home Owner Associations, Condominiums and Co-ops. The physical form of the real estate assets – buildings -- may differ, but these are the types of real estate ownership available to owners in Washington State. Most associations are governed by one of two State Non-Profit Statutes.

Home Owner Associations

HOAs in Washington may be more lightly governed than they may be in other states. This doesn’t mean that owning a home in an HOA in Washington is like owning a stand-alone home. It does mean, however, that there are laws that govern this form of Washington State real estate ownership that you need to know about. You can read the law here:
      http://apps.leg.wa.gov/rcw/default.aspx?cite=64.38&full=true

Condominiums

In Washington, we have two statues that govern condominiums, one that governs communities formed before July 1, 1990, and the other for all condominium associations formed after that date. You can discover which statute covers your property by asking the board, or by looking at the date of your Articles of Incorporation on the Web site for the Secretary of State.

Associations Formed Prior to July 1, 1990

The original condominium act is titled Horizontal Property Regimes Act, and you can find it here:
     http://app.leg.wa.gov/RCW/default.aspx?cite=64.32

Associations Formed After July 1, 1990

The follow-on condominium law – called The Condominium Act – can be considered more robust and detailed than the first law. Most condominiums in the state are governed by this statute. You can find it here:
     http://apps.leg.wa.gov/rcw/default.aspx?cite=64.34

Co-operatives

There are fewer co-ops in Washington State than you may be used to, especially if you came to Washington from the East Coast. Residential co-ops operate in Washington like they do in most states, which means that you buy your way into a corporative ownership situation, and are given a designated space in which you can live.

Summary

Now that you have access to the state statutes you need, you can move along to learning more about your governing documents. As well, you can explore the site for more information.

Finally, please consider joining the Washington State Chapter of CAI. They offer classes, seminars, luncheon conversations, webinars, and an on-line community for people invested in common interest communities in our state.

DEFINITIONS

When you become involved in a common interest community, there is a vocabulary full of words and terminology that you need to understand. Here are a few basics.

Association Governing Documents

Every association of a common interest community is governed by a set of governing documents. As an owner, board member, prospective buyer and association manager, you are entitled to a current copy of each document.

Depending on the type of community, the composition of the documents may be made up of:

Conditions, covenants, restrictions and reservations

Often called the declaration, or ‘dec’ or ‘CC&Rs’, this land-use document is filed in the local county recorder assessor’s office by the original developer. It defines the land, its boundaries and its use. It can be amended – with self-contained instructions, and amendments are also filed.

By-laws

By-laws generally govern the actions of the board and of owners, and are based on the broad articles in the CC&Rs. These can be amended – with self-contained instructions, and are available from the board. These are most useful when then govern the business operations of the association.

Non-Profit Laws

Washington State has two non-profit statutes: the Corporations and Associations (Non-Profit) Act, and the Non-Profit Miscellaneous and Mutual Corporations Act. Generally, the choice to incorporate under one or the other act is left to the developer and the counsel at the time of the Public Offering Statement.

The Corporations and Associations (Non-Profit) Act

This act is the most commonly used corporate act for associations in Washington. You can read it here:
     http://app.leg.wa.gov/RCW/default.aspx?cite=24.03

The Non-Profit Miscellaneous and Mutual Corporations Act

Some associations are incorporated under this statute. You can read it here:
     http://app.leg.wa.gov/RCW/default.aspx?cite=24.06

Please be aware that some associations are incorporated as for-profit operations. You can find the specific statute referenced in the Articles of Incorporation for that association. As well, there are associations that are unincorporated, which means their governance may be limited to the governing documents prepared for that association.

You can read more detail in the following categories:

·         Finances, Paying, Saving, Accounting

·         Governance, Boards, Meetings and Minutes

·         Association Operations

·         Checklist – What Do You Want?

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Finances: Paying, Saving, Accounting

Introduction

The heart of any association is its money. The board is responsible for all monies involved with an association, and work entirely with Other People’s Money in this regard.

Assessments

Income for an association comes from assessments, paid by owners and investors, and based on an annual budget. Budgeted items may include master insurance policy premiums, utilities, grounds and building maintenance and so forth. A contribution to the reserve account is also suggested, but not required under state law. Governing documents may require an annual budget line item as a contribution to reserves.  

Reserve Study

The reserve study is a financial planning tool that itemizes each real estate asset, its age, its useful life, and its estimated replacement cost. A target replacement period is also included. This means that the board can budget reserve contributions in order to fund the reserve account at a level that is financially comfortable for the association’s owners and investors.

Reserves

Reserves are deposited into a separate bank account, where the association holds funds until reserve expenses are to be paid. Reserves can assemble tens – even hundreds -- of thousands of dollars, and wise treasurers protect this cash with principle-preserving investments, such as CDs, and minimize the number of signatories on this account.

Financial Reports

As with any organization, regular financial reporting occurs in common interest community associations. Balance sheets state assets and liabilities, and an income/ expense statement shows those details for the past month. Often the income and expense statement numbers are paired with budget numbers, including month-to-date and year-to-date totals in each budget line item or category. Financial reports are made available to every owner, sometimes by request.

Budgets

The budget process is an annual event, so that usually in the fourth quarter of the year, the next year’s expenses have been estimated and the proposed budget details sent to all owners. State laws and governing documents give boards the process to ratify the budget, with options available to owners who want to reject it.

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Governance, Boards, Meetings and Minutes

Introduction

Associations are operated by volunteers, elected to the board by owners’ votes. Initially, directors can be appointed by the developer. Once the association is ‘turned over’ to the owners, they elect directors.

Board work happens behind the scenes and in board meetings, and all official transactions must be transparent. Associations are multi-million dollar real estate investments, communities and homes to residents and owners. The state law that governs the type of common interest community – HOA, condominium or co-op – sets out parameters for boards, and since associations are usually non-profit corporations, one of those statutes also dictate some elements of boards and board service. Unincorporated associations follow their governing documents in these matters.

Boards

The board of directors is generally made up of owners and is usually an odd number of members, to eliminate tie votes. All board members are Directors in the corporation, and depending on their agreement, different roles within the corporation are served by these directors. President, Vice President, Treasurer and Secretary are common titles given to directors, and those roles define the service they provide to the association. Corporate statutes may also dictate separations of duties.

Board Meetings

The association’s governing documents and the state laws dictate the frequency of board meetings. Meetings can be open – recommended for transparency -- and are best announced to owners in advance of the meeting. The meetings typically follow an agenda, and can be conducted effectively using Robert’s Rules of Order. Depending on the association, owners may or may not be allowed to participate in meetings. Note, however, that an Owner Forum item on the meeting agenda can indicate a more transparent attitude from the board.

Board Meeting Minutes

Minutes are the official business history of the association. Motions, seconds and votes are recorded in the minutes. Complete sentences in motions are always appreciated by follow-on readers. There are required details to be included in lawful minutes, as outlined in the state laws and the association’s governing documents. Minutes – once approved -- must be signed in order to be valid. The association can keep a book of board meeting minutes, for easy reference by future boards. As well, copies are made available to every owner, sometimes by request, and may be made available to prospective buyers.

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Association Operations

Associations essentially ‘take care’ of real estate assets, being chartered with protection, preservation and maintenance of these assets owned in common. This may be the most individual of the lessons you can learn here, because you are best advised to learn from your community, and not from a Web site.

Operations are the day-to-day tasks that include mowing the lawn, washing the windows, inspecting the exteriors, roofs, garages, attics, crawl spaces and so forth. Irrigation systems, utilities coordination – rubbish, electricity, water – and amenity upkeep are all part of operations.

Boards establish use options that address such elements as road speed in the community, leash requirements, quiet hours, interior plumbing inspections and reports, resident maintenance requests, association activism and philanthropy.

Checklist – What Do You Want?

Depending on your role as you access these resources, here are a few recommendations that we make so that you can ask for the appropriate details in order to complete your due diligence. These recommendations are minimums – you can ask for more, and you may or may not be given access to them.

Prospective Buyer, request:

·         Current-version copies of all governing documents

·         Current copy of master insurance policy

·         Past three years of financials

·         Past three years of budgets

·         Past three years of board meeting minutes

·         Resale Certificate

·         Reserve Study

New Board Member, request:

·         Current-version copies of all governing documents

·         Current copy of master insurance policy

·         Past three years of financials

·         Past three years of board meeting minutes

Realtor, Insurer,  request:

·         Resale Certificate, and explanations

Lender, request:

·         Past three years of financials

·         Past three years of board meeting minutes

·         Reserve Study

·         Current copy of master insurance policy

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