Governance Status Q & A

Posted April 25, 2019, updated May 15, 2019

Introduction: An Okanogan County court decision in 2018 called into question the ability of LRAA to file liens against and foreclose on a member’s property in the event that member failed to pay dues, fees, and assessments on time. At the Annual Membership Meeting this May, the Board will lead a discussion on this topic and make recommendations on how to respond to that decision. This discussion will include a proposed amendment to the LRAA Finance Policy and two longer-term options for governing our Association. There will be several votes.

Because of the the court decision the Board will propose Finance Policy amendments that would add demand letters, sent by a law firm retained by the Association, to possible lien filing. It would also add personal legal actions against the delinquent member to foreclosure actions. More information will be available at the meeting and is included in the Q&As below.

The recent litigation and other issues that have arisen in the past, have caused the Board to look for other ways to govern our Association. Although our options are somewhat limited, two possibilities have been identified. One would ask each member to sign an agreement with the Association, which would be recorded in Okanogan County property records. The other would ask the members to approve being governed by the new Washington Uniform Common Interest Ownership Act. Again, more information will be available at the meeting and is included in the Q&As below.

A tremendous amount of time and effort has gone into researching the implications of the court decision and the options that are available to LRAA. Clearly the Association needs to collect dues, fees, and assessments so it can continue to provide services to members. Because the court questioned the lien and foreclosure process, the Board is proposing to amend the Finance Policy at the May meeting. At that meeting, the membership will also have the opportunity to consider and decide which of the longer-term options is a better way to govern the Association.

In summary, at the 2019 Annual Meeting, the members will

i) have an opportunity to learn more about these topics;

ii) vote to approve or reject the Board’s proposed amendment to the Finance Policy;

iii) vote on whether to implement one of two longer-term governance options; and if the majority of members present are in favor,

iv) vote on which of the two longer-term governance options the membership would like the Board to pursue.

Once this membership direction is determined, the Board can begin the necessary legal work required to pursue the preferred governance approach. In either case, preparations will take a year or more, with a further vote to be taken at the 2020 Annual Membership Meeting.

The Board has put together the following Q&As to help the membership understand the situation we currently face and the responses your Board has identified, in advance of the 2019 Annual Meeting.

Section I. The Court Case

Q1: Why was LRAA in court?
The Lost River Airport Association has operated as a homeowner association under the Washington Homeowner Association Act. For years the LRAA Board has been directed by its membership to pursue members who fail to pay dues, fees, and assessments on time. The Board has done that, and the number of delinquent members has been significantly reduced. However, one member retained an attorney and questioned the way in which the Association sought to enforce payment of dues and fees.

The case was argued in an Okanogan County court, and the judge rendered what he called a “divided decision.” While the judge required the member to pay for services provided by the Association—services the member had received and from which the member’s property had benefited—the court had trouble establishing the lien and foreclosure process as it may have applied to that member’s property. As a result, LRAA’s ability to enforce payment of dues, fees, and assessments through the lien and foreclosure processes was brought into question. The questions raised by the judge may also hinder the Association’s ability to enforce other rules and restrictions desired by the membership.

Q2: What does the court decision mean?
The Association’s lien and foreclosure process has been questioned.

Q3: What’s the difference between a lien and foreclosure process and a demand letter and personal judgment action process?
In Washington, homeowner association dues are both a lien against the property and a personal obligation of a homeowner. The Association can pursue either or both simultaneously. A lien is a statement of the amount due that is recorded against title to the property, like a mortgage. It can be foreclosed just like a tax lien. Alternatively, the Association can sue an owner personally on the amount due. The result is a money judgment, which can be collected by garnishing bank accounts or wages, or by attaching property.

Q4: I thought LRAA was a homeowner association (HOA). Isn’t it?
The Lost River Airport Tracts Association (which we’ve long called the Lost River Airport Association, or LRAA) was formed as a Washington Corporation in 1973. Since that time, it has operated as a homeowner association, based on rights and obligations contained in a variety of documents recorded in Okanogan County land records. However, the developers of Lost River never created and recorded the kind of document that is usually associated with a development such as Lost River. That document, called Covenants, Conditions & Restrictions (CC&Rs), is the place where you find the authority of a homeowner association along with a description of the rights, powers, and obligations of that association. The court decided the absence of that document raised a number of questions about the process used by the Lost River Airport Association to file a lien and foreclose on a delinquent member’s property.

Q5: Where does LRAA authority come from?
Authority comes from the rights and obligations found in a variety of recorded documents including the original plats, the original airport easement agreements, and the original sale agreements. One inherent problem is those old documents would have to be accessed and reviewed in each case, which is costly and complicated by the fact that such documents are often difficult to find.

Q6. Can we “do nothing” at this time?
Yes, we could do nothing. However, because the court made it clear LRAA can pursue delinquent members through personal judgment actions and obtain money damages, the Board recommends against doing nothing.

Section II. Amending the LRAA Finance Policy

Q1: Why is the Board proposing to amend the Finance Policy?
The court’s decision raised questions about the Association’s process for enforcing payment of membership-approved dues, fees, and assessments using a lien and foreclosure. The court did, however, require the member to pay for services provided by the Association. In effect the court allowed pursuing delinquent members through legal action against that member, so the Board is proposing to add that enforcement mechanism to the Finance Policy.

Q2: What “services” is LRAA required to provide?
Under the Articles of Incorporation that formed the Lost River Airport Tracts Association as a Washington corporation, the Association is required to:
i) maintain and improve the landing field, taxi-ways, roadways, pathways, recreational facilities and other areas and facilities of use common to the members of the Association as owners of lands;
ii) provide for snow removal, collection and disposal of refuse, and provide other services necessary to the enjoyment of the properties of the Association and its members;
iii) establish, operate, maintain expand and improve a system to furnish adequate water for the Association; and
iv) make provision for the prevention and suppression of fires.

The Association can’t do any of those things without money, and it collects that money from its members. Enforcing payment of dues and fees is difficult if there is a question about the Association’s ability and right to place a lien on a delinquent member’s property. Keep in mind that those dues and fees are based on a budget presented to and approved by the membership each year at the Annual Membership Meeting. You can read the Articles of Incorporation in their entirety at: https://lostriverairport.com/about-lraa/articles-of-incorporation/

Q3: What’s the difference between a lien and foreclosure process and a demand letter and personal judgment action process?
A lien is a statement of the amount due that is recorded against title to the property, like a mortgage. It can be foreclosed just like a tax lien. In a personal judgment action, the Association sues an owner personally on the amount due. The result is a money judgment, which can be collected by garnishing bank accounts or wages, or by attaching property.

Q4: Will the new process have the same dollar and time triggers as in the current Finance Policy?
Yes.

Section III. Longer-Term Options

Q1: Why are you calling these “longer-term options”?
Because either will take a year or more to implement after the membership agrees that’s the governance approach we want to pursue.

Q1: What would this involve?
Each member would be asked to sign an agreement with the Association stating, among other things, that the Association has the right to lien and foreclose on that member’s property in accordance with our Articles of Incorproation, Bylaws and applicable policies if the member fails to pay on time. The agreement would also give the Association the authority to enforce other rules and requirements passed by the membership in accordance with the Articles, Bylaws and applicable policies. Signed agreements would be filed on the title of each member’s property and would be binding on subsequent owners and assignees of that property.

Q2: How will we pay for recording the agreements with Okanogan County?
The Association will pay the recording fees associated with filing the agreements with Okanogan County. We will use funds that have accumulated over recent years from the successful collection of delinquent dues and the sale of both the Unimog and one parcel that was deeded to the Association (in place of payment of past dues), as well as excess funds from the meter project.

Q3: What if not all members sign the proposed agreement to be bound by LRAA’s Articles of Incorporation and Bylaws?
It is the Board’s hope that most members will understand the benefit of being a community and will agree to support the Association by paying on time. The Association will take steps to encourage delinquent members to pay, as it has in the past. Failing that, if the membership has agreed to amend the Finance Policy, LRAA would have the option to file personal legal actions against delinquent members. If multiple members fail to pay, legal fees and court costs will increase. Obviously, the Board will take such actions only in accordance with the guidance and direction of the membership.

Q4: What will happen to the agreement once it is signed?
It will be recorded in Okanogan County land records and be associated with the parcel or parcels of land that member owns in Lost River. It will be binding on subsequent owners and assignees of that parcel/those parcels.

Q5: What if I don’t sign the agreement?
That’s your choice to make. If you or a subsequent owner of the parcel(s) you own fails to pay dues, fees, and assessments, invoiced in compliance with the LRAA Articles of Incorporation, Bylaws, and policies, the Association will take those action(s) directed and approved by the membership or as allowed or required by law.

Q1: What is the Washington Uniform Common Interest Ownership Act?
WUCIOA is a new law passed by the Washington State legislature that became effective on July 1, 2018. It is modeled on similar laws passed in nine other states. WUCIOA combines laws that were applicable to different types of common interest communities—condominiums, cooperatives, homeowner associations, plat communities, and others. A “common interest community” (CIC) refers to real estate where a person’s ownership of a parcel obligates them to pay for a share of expenses related to common elements of that real estate. Prior to the act’s passage, these forms of ownership were governed by different regulations and statutes and were treated differently as a result.

Q2: Is LRAA required to be covered by the new law?
No. WUCIOA is required to apply only to common interest communities created after July 1, 2018. However, a common interest community created before July 1, 2018, can agree to be covered by the new law if a sufficient number of its members participate in the process and vote in favor of doing that.

Q3: What do we have to do to be covered by the new law?
First, the membership would have to decide that this is the governance approach they want to further pursue. RCW Section 64.90.095 describes the steps that must be followed in order for a common interest community to agree to be covered by the new law. Those steps are:

(a) The Board would propose an amendment in a written notice to the owners at least 30 days in advance of a meeting to discuss the proposed amendment. Potentially, discussion of such an amendment could take place during the May 2020 Annual Meeting.

(b) Thirty days after the meeting in which the amendment was discussed, written ballots would be sent out.

(c) Under the law, the amendment would be deemed approved if owners holding at least 30 percent of the votes in the Association participate in the voting process, and at least 67 percent of the votes cast by participating owners are in favor of the proposed amendment.

Board Recommendation

Q: Which option does the Board recommend?
The Board believes that it would be in the best interest of our Association to agree to be covered by WUCIOA.

Individual Member Action

Q: What can individual members do?
Individual members are encouraged to read this document, attend the Annual Meeting, ask questions, and vote. Additionally, members can use the “Contact Us” form on the LRAA website to ask questions about this topic (“LRAA Governance Status”).

(Disclaimer: The Board has attempted to explain a very complicated issue. Any errors are unintentional.)