Vetoed bill affecting HOAs could survive

EDITOR'S NOTE: This is the second column of a two-part series on a proposed bill, which could affect state homeowners associations.

Gov. Jim Gibbons vetoed AB396 after the 2007 Legislature had adjourned. Because the bill was vetoed after legislators were dismissed, the Assembly and the Senate will have to vote to either sustain the veto or override it in one of the first actions of this upcoming session. This column will highlight some of the proposed changes.

Homeowners not responsible for delivery or service vehicles

The first proposal is that a fine may not be imposed against an owner, tenant or guest for a violation that involves a person operating a vehicle that is delivering goods or performing services for the unit owner, his tenants or her guests. Perhaps you remember the news story about one association where a homeowner was fined because of a speeding food-delivery service employee.

Association board members should be in good standing

Another proposed change is that a delinquent board member cannot participate in any hearing, or cast any vote relating to a fine.

First, most association boards know, and are very sensitive, when one of its board members are in violation, or is delinquent. The question that needs to be asked is, why did the Legislature not propose bills that would allow an association the right to deny these homeowners to be eligible to run for the board position in the first place?

The law requires a board candidate to disclose whether he or she is a member in good standing, which is defined as a member who is not delinquent in any assessments or construction penalties.

The only proposed change to this current provision is that the Legislature added another definition to what constitutes a member who is not in good standing -- an owner who has unpaid fines that are 30 days or more past due.

If the Legislature thinks board members must be held to higher standards than association members (and most boards and community managers would agree), then stop playing around with this section, and make a requirement that a homeowner cannot be a board candidate if he or she owes any assessments or fines and is not in compliance with the association's governing documents.

Where does the money go?

NRS 116.310315 pertains to the priority of payment of assessments and fines. The current law states that money is to be applied to assessments, fines or other charges only upon written authorization of the owner.

The proposed change would change that to allow payments without written instructions to be first applied to past and current assessments, and the remainder to be applied to past due fines and the cost of collecting the fines. This change would make more sense in the business operation of the association.

Board members' term limits could increase from two to three years

Another proposal would increase a board member's term from two to three years, with the exception of board members appointed by the developer.

This change does have some merit. For those of us who are community managers, it has become extremely difficult in finding volunteers who want to serve on boards. The current process of sending candidate applications, mailing ballots, enclosing secret ballot envelopes and sending pre-stamped envelopes to homeowners is costly, especially when the number of candidates on the ballot is often less than the number of vacancies. This change could eliminate some of the election costs.

For some homeowners, this is not a change that they would want, especially in cases where homeowners believe that a director is abusing his or her position.

Clarifying home developer's roll

NRS 116.31038 pertains to the requirements of the home developer. The proposed change would clarify the existing requirement for the accounting of money and the audited financial statements for each fiscal year and any ancillary period from the date of the last audit of the association to the date the period of the developer's control ends.

The home-building company would be obligated to pay the cost of the ancillary audit, which must be delivered within 210 days after the termination date of its control.

Meetings could be held quarterly

NRS 116.31083 would be amended to read that the board must hold a meeting at least once a quarter (as opposed to once every 90 days, yes, there is a difference) and not less than once every 100 days.

Defining when to use a CPA

NRS 116.31144 pertains to the requirement of an association to provide financial statements or audits each year performed by an independent certified public accountant. The proposed change would allow an association to have "a person deemed qualified" to conduct an audit once every four years if the annual budget of the association is less than $75,000.

Associations with budgets more than $75,000, would still be required to have financial statements and audits be prepared by an independent CPA.

The proposed modification is not a good one and the Legislature should leave this section alone.

First, the proposed law does not even state that the "qualified person" be independent. Under the proposed change, a board treasurer could possibly be a "qualified person" (let's even assume that he or she is a CPA), but is not independent. It is an oxymoron, as the primary purpose of an audit is to have an independent person reviewing financial records.

To pass such a change not only will require a definition by the commission as to what constitutes "qualified." This will only add to the list of homeowner complaints, state ombudsman's intervention cases, arbitrations, mediations and investigations by the Nevada Real Estate Division for alleged financial misconduct and tainted financial statements and audits.

Not enough time for audits

One change that is proposed is that the required audit or financial statement of the association be completed within 180 days after the end of the fiscal year. This is not enough time to prepare accurate documents.

The local and state CPA organizations need to quickly survey their membership for recommendations to the Legislature of a more realistic deadline.

Board could impose assessments to fund reserve

A controversial proposed change pertains to the establishment of adequate reserves under section NRS 116.3115.

It basically states that the board may, without seeking or obtaining approval of the owners, impose any necessary and reasonable assessments that are made in accordance with the findings of the reserve study to ensure enough cash reserves are available for the next five years to replace or repair major components of the common elements of the association.

A little history is required. The original laws basically stated that associations should have reserves that are regularly funded, period. During the early 1970s, many associations were passing major capital improvement assessments through a very long and cumbersome process.

Many older governing documents required 90 percent approval to pass a special assessment. For those associations that could not obtain the required approval, necessary restoration of the community, such as the replacement of roofs, were not made due to lack of funds.

Homeowners complained to the Legislature, not only about the lack of capital improvements, but also about special assessments to fund them. These special assessments were burdens, such as paying $2,000 or $3,000 per unit, often due within a short period of time. In some cases, older associations were passing multiple special assessments over a number of years.

The concept of saving money each year for that "rainy day" and paying it each month through monthly assessments made sense. In 1999, the Legislature made significant changes to reserve requirements, requiring studies and funding policies.

Why now did the Legislature add such language if the authority already existed by the boards? There were homeowners who questioned the authority of the boards to "override" the homeowners in passing increases in their monthly assessments in order to fund the reserves.

The concept of the funding of the reserves based upon a reserve study is a prudent, financially sound practice.

The problem the Legislature may not have anticipated was that when the law was first passed and the first reserve studies completed, too many of the older associations did not have the proper reserves, and had to play catch up in order to meet the current funding requirements of existing components that were substantially older. (Some associations are still playing catch up.)

What happened? Major increases in association fees were passed as well as the special assessments in order to fund the reserves. Looks like, we may have come full circle on this law.

Reserve studies regulated

Another proposed change to the reserve study law would affect associations that have 20 units or less and are located in a county where the population is 45,000 people or less. In these cases, the reserve studies could be conducted by "a person deemed qualified" by the board.

This proposed law is discriminatory in nature and is purely political. Does the Legislature think that reserve studies cost less money for associations of less than 20 units in sparsely populated counties? Not really.

The same possible after-effects mentioned previously with the proposed change in audits and financial statements of "qualified people" also will happen if this change is approved. It will create more litigations and complaints.

Fuzzy on recovering foreclosures

A major proposed change pertains to the sale of a unit as a result of a foreclosure. Simply stated, if an owner lost his or her home due to a foreclosure, before the title could be transferred to the purchaser, the unit could be redeemed within 120 days, as long as certain requirements were met, such as the repayment of the amount of the sale to the purchaser along with the repayment of property taxes, assessments, etc. Once again, this is an example of a proposed law that sounds to be a fair one, allowing an owner to recover his or her lost home. But there is a problem. With all of the foreclosed properties on the market, how many prospective buyers could afford to wait 120 days to see if they have title of the home?

During the 120-day waiting period, the buyers would be paying mortgage payments each month (unless purchased the home for cash).

The proposed law does not specifically state that the former owner would have to repay the buyer any mortgage payments that he or she had to make during this period. The proposed law does not specifically state that the former owner would repay the buyer for any improvements that had to be completed by the buyer because of the non-compliance of the former owner.

Giving equal space to issues

Another proposed change would require the association to allow for equal space in any of the association's official publications on issues that may be voted upon by either the board or by the membership. The proposed law does not address limitations on the space that needs to be provided by the association if there were multiple owners who wished to comment on any specific issue.

Again, parking issues

Every legislative session seems to have more regulations pertaining to parking. The proposed change would prevent an association from prohibiting a person from parking a utility service vehicle that has a gross vehicle weight rating of 20,000 pounds or less, parking a law enforcement vehicle or emergency service vehicles.

For community managers and for management companies, there are some significant proposed changes that would provide for the issuance of a temporary certificate of a one-year period.

Get involved in your community

As board members, homeowners and community managers, now is the time to contact your Assembly and Senate representatives and to ask them to either vote to sustain or override the governor's veto. Take the time to comment about those proposed changes that interest you. It is important for the legislature to hear all view points. Be involve in the legislative process; let your voice be heard.

In my opinion, the Legislature should uphold the governor's veto because there are too many sections in the proposed changes that would not benefit associations, boards, members or community managers.

Barbara Holland, certified property manager, broker and supervisory certified association manager, is president and owner of H&L Realty and Management Co. Questions may be sent to Association Q.&A., P.O. Box 7440, Las Vegas, NV 89125. Her fax number is 385-3759, or she can be reached by e-mail at support@hlrealty.com.