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?
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A newly elected board member?
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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?
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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
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Reserve Study
·
Current copy of master insurance policy
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