A time for action

The Iowa Common Interest Ownership Act, Senate File 493, is stuck in the Iowa House of Representatives. The bill is languishing on the unfinished business calendar. (The bill history is here.)

This bill is a good, balanced bill that protects both homeowner associations and provides owners with appropriate access to meetings and records of common interest communities. The amended bill came out of the House Judiciary Committee with a recommendation for passage.

Although the SF 493 has been on the House debate calendar several times, the Republican caucus, which, of course, holds the majority in the Iowa House of Representatives, unfortunately has been unable to develop a consensus to bring the bill to the floor. It sounds to me as though the bill is likely to remain in its current purgatory.

Oddly, the legislature seems to have a tin ear on this. I noted at least five bills in the 84th session (SF 297, SF 336, HF 213, HF 350, HF 440) to address the governance of condominium, cooperative, and other forms of homeowner associations. Legislators have been getting an earful from unhappy constituents who cannot seem to get their HOA boards to act responsibly. The main issues seem to be along the lines of open meetings and open records. The time is right. Hopefully, legislators will hear more from constituents about this and, finally, get this bill to the floor where it will, without doubt, pass easily.

House Judiciary Committee approves common interest bill

On March 15, the House Judiciary Committee reported the Iowa State Bar Association’s common interest ownership bill, Senate File 493, to the House with a recommendation for approval. The bill would be significantly amended. It does, however, retain its essential character as a consumer’s/owner’s rights bill, guaranteeing access to meetings and records of common interest communities. If approved in the House of Representatives, the bill would go back to the Senate for concurrence in the amendment.

The amendment primarily strips the bill down to bare essentials for open meetings and open records. The Uniform Common Interest Ownership Act on which the bill is based is an expansive proposal that regulates the formation and operation of common interest communities. Common interest communities include condominiums, cooperative housing, town home associations, and homeowner and other types of associations where groups of owners are required to contribute to the upkeep and maintenance of common facilities.

Court of Appeals nixes HOA

In a ruling issued on February 29, 2012, the Iowa Court of Appeals ruled that a homeowners association created by covenants is invalidated after 21 years under section 614.24 of the Code of Iowa. See Chipman’s Subdivision Homeowners Association, Inc., v. Carney, No. 1-867 / 11-0545.

Section 614.24 limits the effectiveness of a covenant to twenty-one years unless a “verified claim” is placed of record. In the Chipman’s Subdivision Homeowners Association case, the Court ruled that various filings did not amount to a verified claim.

Real Estate Section Legislative Update

Fellow attorneys Walter Conlon, Jim Nervig, Ron Fadness, and I are scheduled to present the Real Estate Section’s legislative update at the Iowa State Bar Association’s Annual Meeting. This is a part of the Commercial & Bankruptcy/Real Estate Track on Wednesday June 22. I am planning to present on HF 243 “Relating To Instruments Used To Update The County Transfer Books And Index Maintained By The County Auditor” and SF 493 “An act relating to the operations of certain common interest communities.”

As the legislative session has gone into a stall, so has the progress on what remains of the affirmative agenda for the real estate section. Here is a quick recap of the affirmative agenda of the real estate section of the Iowa State Bar Association:

SF 244 Judgment Lien Release Bill — Approved; effective July 1. (1) Amends Iowa Code § 624.23(2)(c) to allow alternatives to filing a bond with the clerk; (2) amends Iowa Code § 624.37 to specify a motion procedure in a case reduced to judgment to obtain a satisfaction, allows for remittance to State Treasurer for missing creditors, and increases penalty for wrongfully withholding satisfaction; and (3) amends Iowa Code § 631.1 to provide small claim jurisdiction to accomplish certain releases.

HF 565 Service on Foreign Corporations in in rem Actions; Revised LLC Act Corrections — Approved; effective July 1. (1) Amends Iowa Code § 490.1510 to allow serving process on a foreign corporation of an in rem action if it does not have a certificate of authority, and (2) amends Iowa Code § 489.1103 to allow a professional LLC to use “professional limited company” or “P.L.C.” as under the previous law.

HF 243 Change of Title Bill — Approved; effective July 1. Rewrites section 558.66, Code of Iowa, to provide update of county auditor’s records on filing of an affidavit or articles of merger, consolidation, or name change with specified information and legal description.

SF 493 Common Interest Ownership — Passed Senate 50-0; Alive, but stalled in House. (1) repeals 2010 G.A. ch 1080 (SF 2224), now paragraph 2 of Iowa Code section 499B.15 (2011); (2) adds new open meetings, open records, and notice requirements for all types of property owner associations; (3) adds a new provision for “as built” certificates for buildings constructed after the filing of a declaration in horizontal property regimes. This bill (or whatever may be left of it) is still stuck in the Iowa House of Representatives. Certain special interests believe that the bill adds costs to their process and are unconvinced that it will provide the relief to property owners that they want, especially when the project is still under construction.

HF 539 Mineral Rights Bill — Dead for 2011 session. Generally would allow dormant mineral rights to be extinguished in favor of the fee owner of the surface unless preserved by recording a notice of claim.

SF 494 Foreclosure of Real Estate Mortgages (“White Knight”) Bill — Dead for 2011 session. Would amend Iowa Code § 654.5 to allow a successful bidder at a sale to elect to receive, in lieu of sheriff’s deed or certificate of purchase, an assignment of the judgment creditor’s interest in the judgment, and any policies of title, property and similar insurance or guaranty owned by the judgment creditor in respect of the property. This bill passed the Senate 50-0, but the House Judiciary Committee did not act.

Common interest ownership bill passes Senate

The Iowa Senate passed the ISBA’s Common Interest Ownership bill (SF 493) on a 50-0 vote. This House Judiciary Committee already approved the House companion bill, HF 564. The bill will be attached to HF 564 on the House Calendar.

Common interest ownership update

Senate Study Bill 1160 is now Senate File 493. This bill has cleared the Senate Judiciary Committee by a vote of 12-0-1. The companion House Study Bill 165 is now House File 564.

Common Interest Ownership

I had the unique experience yesterday of appearing at an Iowa Senate Judiciary subcommittee meeting. The meeting was to consider Senate File 297 and Senate Study Bill 1160. I appeared in my role as a member of the legislative subcommittee of the Iowa State Bar Association’s Real Property Committee. I was there as the principal author of SSB 1160 to support passage of SSB 1160, which is a part of the Real Estate Section’s affirmative legislative agenda.

Interestingly, bills have been popping up all over the legislature – five or six of them by my count (SF 297, SF 336, HF 213, HF 350, HF 440) – to address the governance of condominium, cooperative, and other forms of homeowner associations (HOA). Legislators have been getting an earful from unhappy constituents who cannot seem to get their HOA boards to act responsibly. The main issues seem to be along the lines of open meetings and open records.

Last year, the legislature approved a measure SF 2224 that changed the governance of horizontal property regimes (commonly known as condominiums). The law declared that the meetings and records of condominium boards of administration had to be open to its owners and that actions taken at meetings not properly noticed were void.

The law was well meant, but it was off target in a couple of respects. While it changed how condominiums are governed, it did not address the untold number of other HOA entities out there. One constituent who had fought for the change simply found out that her town home was not a part of a condominium and that the law had no effect. Many in the legal community felt that the law lacked important flexibility (such as the ability to act in an emergency) and safeguards (privacy exceptions for records and attorney-client privilege).

We in the Real Property legislative subcommittee set out to correct changes to the horizontal property regime law last fall.  Fortuitously, we selected the Uniform Common Interest Ownership Act (UCIOA) as a basis for the proposed amendments. The National Conference of Commissioners on Uniform State Laws is the author of UCIOA. After approval by the ISBA board of governors of our proposal, the legislative subcommittee learned that there were to be additional efforts at amending the condominium statute and the relatively new Revised Uniform Nonprofit Corporation chapter to address these widespread HOA concerns. We, therefore, proposed to put a large part of the UCIOA into a separate chapter of the code – it would be chapter 499C – to take a comprehensive approach to all forms of HOAs.

The Iowa version of UCIOA currently embodied in SSB 1160 contains the critical governance provisions. The bill finds that it is the public policy of the State of Iowa, regardless of when or how these HOAs were formed, to have a baseline level of management with meetings and records that are open to the owners. To that end, the bill mandates notice of meetings for both boards and management, and puts the burden of proof on the HOA to show that notice was properly given.

SSB 1160 repeals the changes made in SF 2224. The bill provides clear exceptions for notice in emergency situations. There are clear and limited exceptions to the openness requirements for personal health and financial information, matters in disputes, and commercial transactions under negotiation.

There clearly will be some additional burdens placed on homeowners associations by SSB 1160. This train, however, had clearly left the station and had a substantial head of steam by the time the Bar Association weighed in with this proposal. Given that it is has been vetted as a model act and has rights and remedies for both the HOAs and the unit owners, it should be a good compromise and an improvement to Iowa law.

Additional notes (9/18/2011):

There are plenty of problems out in the field. There are good HOAs and bad HOAs. I sat in a committee meeting with one home owner who has been fighting for a couple of years to get into meetings and records. The base problem is that property owner associations are creatures of contract. It is the developers and their legal counsel that create these associations. Consequently, there are as many different sets of rules as there are associations in Iowa. Moreover, the folks that set them up generally do not have to live under or apply the rules after they are done setting them up.

I do not doubt that there are corrupt or bad HOAs out there. There are also plenty of good developers who are running HOAs in a decent and upstanding way as long as they need to and want out as quick as they can.

The proposed legislation (any legislation) can only do so much with respect to human relations and human institutions. Unfortunately, if the HOA board members are corrupt or inept, a layer of additional rules is not going to change that. Additional rules might make it a bit easier to get to the bottom of what is rotten about the particular board and to get rid of corrupt or inept management.

Clearly, there is plenty of interest in the topic both by the public and by legislators. The existence of at least nine separate bills in the current legislative session shows that the legislators do care about rascally property owner associations. It is the real estate section of the Iowa State Bar Association that is attempting to help set up a fair system that is functional and fair for both the owners and their association.

These associations are created by contract and this is an innovative thing for the State to be creating more rules and regulations. Part of the problem for homeowners is that it is a difficult thing for them to understand the contract, especially when they hardly know it is a contract that they are signing on to. Enacting this type of legislation really could be a significant set of new consumer protections.

These are not cities, though they may seem like little quasi-governments. Before buying a home, you need to read the covenants, investigate the common interest community, and understand what you are getting into. You don’t have to live in a common interest community that has rules or governance practices that you don’t like.

The bill actually does do more than open meetings and open records, and if it were to become the law of Iowa, there are more governance provisions in the model act to be reviewed and potentially added to the law.

(P.S. There have been a couple of unpleasant comments here, so I just decided to get rid of all of them. I have to say, though, I don’t really understand the reasons for the vitriol. I have been a volunteer putting in a lot of (uncompensated) time on an effort to make the system work better.)