The Committee on Judiciary was called to order at 8:20 a.m., on Friday, May 14, 1999. Chairman Bernie Anderson presided in Room 3138 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Bernie Anderson, Chairman

Mr. Mark Manendo, Vice Chairman

Ms. Sharron Angle

Mr. Greg Brower

Ms. Barbara Buckley

Mr. John Carpenter

Mr. Jerry Claborn

Mr. Tom Collins

Mr. Don Gustavson

Mrs. Ellen Koivisto

Ms. Sheila Leslie

Ms. Kathy McClain

Mr. Dennis Nolan

Ms. Genie Ohrenschall

Senator Michael A. Schneider, District 8

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Chairman Anderson informed the committee today’s agenda had been revised. The Assembly Committee on Judiciary would be hearing S.B. 451, not two bills. An agreement was reached, and the second bill was removed from the agenda. Chairman Anderson thanked the Assembly Committee on Commerce for expeditiously processing the S.B. 451. The chair wanted a motion on the bill today. If the committee did not complete the processing of the bill this morning, the committee would recess and reconvene after the floor meeting of the Assembly.

Chairman Anderson had received a conflict notice for S.B. 61. The bill had been placed on the Chief Clerk’s desk. The bill had a substantive conflict with S.B. 121. The Secretary of State had requested the bill be removed from the Chief Clerk’s desk and moved to the floor. A new amendment may be needed to S.B. 61 to resolve the conflict with S.B. 121. The conflict was between the second reprint of S.B. 61, page 3, lines 24 through 27, and the second reprint of S.B. 121, page 87, lines 22 through 30.

ASSEMBLYMAN MANENDO MOVED TO AMEND S.B. 61 PAGE 3 LINES 24 THROUGH 27 TO RESOLVE THE CONFLICT BETWEEN S.B. 61 AND S.B. 121.

ASSEMBLYWOMAN BUCKLEY SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

Chairman Anderson opened the hearing on the second printing of S.B. 451.

Senator Michael A. Schneider, District 8, sponsored S.B. 451. This bill revisited S.B. 314, the ombudsman homeowner’s association bill, from the 1997 Legislative session. S.B. 314 was the most requested bill in the state. The ombudsman was hired and began her employment in August 1997. She had received an average of 500 phone calls a month from around the state while resolving problems for homeowners’ association. Senator Schneider had listened to homeowners and managers of homeowners’ associations during the interim to make adjustments on this previous ground breaking legislation. In April the Texas Senate passed a bill modeled after the S.B. 314.

Ivan R. Ashleman, II, representing Southern Nevada HomeBuilders Association testified for S.B. 451.

Chairman Anderson suggested Mr. Ashleman walk the committee through a couple of sections of the bill and allow the committee to ask question. He mentioned Assemblywoman Buckley was familiar with the bill since the Assembly Committee on Commerce and Labor had previously heard the bill.

Mr. Ashleman agreed with Chairman Anderson. He stated he would group the sections of the bill by concept. He began with page 3 of the bill detailed the daily operation of the budget had to contain and what was required to be in the budget reserves. The advanced notice requirements were spelled out on page 3.

Homeowners’ associations were required to budget reserves, estimated replacement costs, remaining life, useful life of each major component of common elements, current amount of cash reserves which were necessary, and current amount of accumulated cash reserves set aside to repair, replace, or restore the major components of the common elements. The executive board would decide the levy of one or more special assessments to repair, replace, or restore common element or provide for adequate reserves for that purpose.

Mr. Ashleman explained there were many homeowner associations in the state with under funded reserves. Many had never analyzed their reserves was the main reason for the under funded reserves. Numerous homeowner associations did not have access to experts. This bill would guide the homeowner associations to properly fund their reserve accounts.

He reviewed section 4 covered the responsibilities of the homeowners association executive board. The executive board was responsible to review the reserves at least once every five years. The results of the study were to be reviewed annually to determine if the reserves were sufficient and make adjustments. A person qualified by training and experience, a member of the executive board, and a unit owner or property manager would be the third person on the committee annual review of the five-year study. On page 3 line 16 and 17 stated the administrator would adopt by regulation the qualifications required for conducting an annual review of the study. The qualified person could be an accountant, a manager, or a knowledgeable board member. He wanted as many people qualified as possible to save money for the smaller homeowners association. Homeowner association money could not be withdrawn from homeowner association account without the signature of two members.

Assemblywoman McClain asked if the ombudsman would be training the qualified person to review the study. Mr. Ashleman responded the bill did not contemplate the training. The department had the authority and had several training sessions a year. The objective was to identify the factors that would qualify a person to annually review the study. He felt there were a number of qualified people in the state with the appropriate regulations.

Mr. Ashleman walked the committee through section 6. The executive board must meet at least every 90 days or sooner. The secretary of the executive board shall give at least a 10-day notice of an executive board meeting. The secretary may send a letter or circulate a newsletter to each owner. In an emergency meeting, if mail delivery were not practical, the notice of the emergency meeting would be hand delivered. The notice of an executive board meeting was required to state the time and place for the meeting with a copy of the agenda or where homeowners could conveniently obtain the agenda. Each paid up member of the association had a right to receive the minutes. The 1997 legislation was burdensome to the smaller associations notifying their members of executive board meetings. This bill lessened the burden for the smaller associations.

Page 4, lines 11 through 17, required a time devoted to comments by the members at the beginning of the executive board meeting. Some executive board meetings would not allow comments from the members until the end of the meeting. Mr. Ashleman mentioned boards would drag meetings to 1 a.m. to wear out the members who wanted to make comments.

Mr. Ashleman mentioned in subsection 6, on page 4, every 90 days the executive board had to pay bills, reconcile their bank account and their reserve account, the status of any civil action or claims submitted to arbitration. This section was to guide the associations not professionally managed. The four reason for an emergency meeting:

• "Could not have been reasonably foreseen;

• Affects the health, welfare and safety of the units’ owners of the association;

• Requires the immediate attention of, and possible action by, the executive board; and
• Makes it impracticable to comply with the provisions of subsection 2 or 5."

Chairman Anderson was concerned about small homeowner association and small developers. He asked Mr. Ashleman how this bill affected an association of six or seven members. Mr. Ashleman responded the bill would not apply to groups of 12 or fewer members.

Mr. Ashleman continued with section 7. He explained registration with the ombudsman and information required on the registration form. Section 8 dealt with subpoena power of the ombudsman for required information from the association. Section 9 explained the information the executive board must supply to a member upon request. A member was allowed to review general information about the books and records of the association, and the member’s own person records, but not any other member’s personal record. If the executive board refused the information to the homeowner, the ombudsman would subpoena the records for the homeowner.

Assemblyman Collins stated a homeowner would request the information, request the ombudsman to obtain the information, the ombudsman would request the information, and the ombudsman would subpoena the general information or the homeowner’s private information. He asked if he understood the correct order. Mr. Ashleman responded the ombudsman requested a member of the real estate commission to issue the subpoena. He stated Mr. Collins correctly stated the procedure.

Assemblyman Collins asked how often could a homeowner request information. Mr. Ashleman responded in theory, the ombudsman could ask for a subpoena every day. Most associations were becoming comfortable with an ombudsman and complied with the requests.

Mr. Ashleman stated sections 10 and 11 were deleted. Section 12 dealt with any change in the governing documents required the homeowners’ association secretary to notify the members by mail or hand delivery. Section 13 required the executive board to maintain financial records, budgets, and the study of the reserves of the association and to supply the same information to the ombudsman while not charging more than $.25 per page.

Mr. Ashleman described section 14 new duties of the ombudsman. The ombudsman would compile and maintain a registration of each organized association: including, names, address, and phone numbers of the associations, property managers, executive boards members with their mailing addresses and phone numbers, the declarant, number of units in the associations, and total annual assessment made by each associations. The compiled information by the ombudsman would resolve a number of disputes. The information would arrive, as homeowner associations renewed their annual dues would take about a year to complete the information on every association.

Chairman Anderson asked if the gathering of information would have a potential cost to state government. Mr. Ashleman responded the information would be mailed to the ombudsman. He understood there would be no additional state expenses.

Shirley Petro, Acting Deputy Administrator, Real Estate Division, Department of Business and Industry responded to Chairman Anderson’s question. The bill would require an added expense to redesign the registration form to obtain the data. Chairman Anderson asked if this bill had to pass through the Assembly Committee on Ways and Means. Senator Schneider responded he had a bill requesting the money for the registration form in the Assembly Committee on Ways and Means. The funds generated by the office of the ombudsman would cover their expenses.

Mr. Ashleman stated no money from the general fund would be needed for the redesign of the registration form. Section 15 on page 7, lines 17 and 18, if there were excess fees collected by the ombudsman. The excess would be used to defray or pay for a mediator or arbitrator to resolve disputes. The fee was $3 per unit. The drafters avoided the duplication of fees.

Mr. Ashleman stated section 16 contained the language as to whom the bill applied to in Nevada Revised Statutes (NRS) 116.1203, and who was exempt. The bill did not applied to landscaping associations, facilities for flood control, or a rural agricultural residential common-interest community (a large community in Elko) all commercial associations were left out of the bill unless there were residential units associated with the commercial. In Lake Tahoe there was a condominium development where the downstairs units were commercial, and the upstairs units were residential units. The bill covered the residential units. Common-interest communities located outside of this state were not covered. Common-interest communities created before January 1, 1992 were exempt. "The administrator shall establish, by regulation, the criteria for determining whether an association is created for the limited purpose of maintaining the landscape of the common elements of a common-interest community, maintaining facilities for flood control or maintaining a rural agricultural residential common-interest community." Associations with 12 or fewer homeowner units would be exempt.

Under current law, homeowner associations with dues $500 or less a year were exempt. Homeowner associations with dues of $500 or less a year were included in this bill. The reasoning for the change was some of those groups had many units with low assessments. Secondly, there were groups with less than $500 annual dues with control over the aesthetics of the community caused a number of disputes.

Mr. Ashleman stated section 16.5 used the law to cause the associations’ bylaws to confirm. The purpose was to save the associations attorney fees to change their bylaws, articles of association, and rules and regulations.

Assemblywoman Buckley commented on section 16 was changed to include homeowner associations formed before January 1, 1992 and homeowner associations with dues under $500 a year. The bill placed a lot of requirements on associations. She asked if a bifurcated approach to the bill was considered, and what was Mr. Ashleman’s opinion of the ability of the smaller associations to follow the newer laws and regulations.

Mr. Ashleman responded a lot of thought was given to those issues. The smaller associations, 12 or less homeowner were excluded. The $500 threshold was the real area for debate. There were a large number of associations with low assessments who had large amounts of money with a number of units. Many of those associations had architectural control over the homeowners. There was a definite need for homeowner associations with large reserves and many units to be included in the bill as opposed to bifurcating the bill. He suggested not including homeowner associations with dues less than $200 a year per unit or an annual budget of less than $100,000 a year.

Senator Schneider worked on developing this bill over the interim. There had been proliferation of homeowner associations over the past 30 years. Many of these associations had been mismanaged with loosely written codes covenants and restrictions (CC and R). He discussed a mismanaged association in his Senate district of Las Vegas, Bradford Place Condos. The streets were dirt because there was no money to maintain the streets. The roofs were given back to the owners because there was no money to repair the roofs of the association. The reason for including the mismanaged associations was to bring up the property values at the request of the members. Originally, he thought if the association dues were less than $500 a year dues, the association was a landscaping association. He was informed of a large association in Pahrump with dues under $500 a year. The homeowners association virtually controlled the members’ lives. Senator Schneider received many requests from members to have their association included in this bill.

Assemblywoman Buckley was not concerned if the homeowner associations were accountable to the ombudsman and had to pay the $3 fee. Her concern was the smaller homeowner associations being burdened with the paperwork requirements of NRS 116, would they have to spend money on the expense of a lawyer as opposed to fixing the roof.

Mr. Ashleman responded associations would not need lawyers to rewrite their documents. The documents would be automatically amended with this bill, avoiding any legal expenses. The only expense the associations would have with this bill would be to pay a person to analyze their reserve account. If the association did had a member who qualified and was willing to analyze the reserve account, there would be no additional expense to the association. Mr. Ashleman suggested if the annual budget was under $100,000 a year, your association may be exempt.

Senator Schneider hesitated to suggest if the majority of homeowners felt their small association should be exempt, request the ombudsman to be exempted. The ombudsman would have the authority to exempt a small association. He felt the ombudsman would be the person to make the best decision for the small association rather than wording the legislation for every contingency.

Chairman Anderson assumed the person sitting to Senator Schneider’s right was the ombudsman. Senator Schneider stated she was not the ombudsman and would let her introduce herself.

Pamela Scott, Property Manager, Summerlin, The Howard Hughes Corporation stated over the past 18 years she had managed homeowner associations from 7 units to 20,000 units. She was concerned with abuse in the homeowner associations, large and small. Every member of an association had the right to see the records of their association.

Chairman Anderson stated Nevada had homeowner associations of various sizes. He wanted the associations to be able to maintain their identity. He did not want the bill too restrictive to the associations. He did not want to be accused of doing to the small homeowner associations what Nevada accused the Federal Government of doing to Nevada, "one size fits all."

Ms. Scott appreciated Mr. Anderson’s comments. She stated the largest burden was on the large associations to comply with noticing the members with this bill. Associations with 50 members would have an easier time than associations with 20,000 members to notify of a meeting or a change in the meeting.

Chairman Anderson mentioned the burden was all relative to the size of the association.

Assemblyman Collins felt the homeowner associations in his district would need a full time accountant to handle the financial reports along with a lawyer on retainer. He asked if the changes in this bill were really needed.

Mr. Ashleman responded the Senate hearing rooms were filled with homeowner association problems when the bill was heard by the Senate and teleconferenced with Las Vegas. A number of the people who testified represented large groups of homeowners. There was a definite need for reform. There were a number of associations were under reserved with the possibility of their buildings falling down if the buildings were not maintained. There was a definite need for reform. He agreed there were expenses to notify each homeowner in the association, but the expenses were relative to the size of the association. The other expense was the reserve studies. Reserve accounts and financial accounting reports were where numerous abuses had occurred. His concern was if associations were wholesale exempted from the bill this would leave a number of homeowners with the financial affairs of their association unresolved.

Assemblyman Collins was concerned with the homeowner associations that were under funded for a number of years with regard to their reserve account. He wanted to know what the impact was going to be on the associations now. Were the associations going to get hit with a big assessment.

Ms. Scott responded Senator Schneider, Mr. Ashleman, and her realized the older associations needed time to increase their reserve accounts. The bill did not tell associations how quickly to increase their reserve accounts. The bill forced the older associations to examine their needs and to plan responsibly for those needs.

Assemblyman Collins responded a number of people purchased homes in a homeowners association as their retirement house with a fixed income. Mr. Collins asked what would to be the financial impact on those older homeowners when they cannot sell their unit.

Senator Schneider responded the problem began when a prospective buyer looked at all the paperwork before buying their home in a homeowners association. After the buyer was in their home for 90 days, the homeowner received a $5,000 assessment for roof repairs. The homeowner bought the unit and paid their $100 monthly association dues and thought everything was going to be taken care mowing the lawns and etcetera. The homeowner did not know the association reserve accounts were "in the red." The older homeowner associations especially needed to be accountable to avoid the unexpected large assessments. Senator Schneider wanted the money correctly funded in the reserve accounts. The new homeowner associations had properly funded reserve accounts to repave the streets or replace the roof in 20 or 30 years. He stated there were some associations in his district had no value. The homeowners would be better off to bulldoze the buildings and sell the land. He was trying to prevent the problems of the under funded associations. Senator Schneider stated, "This is a consumer protection bill."

Assemblyman Manendo stated he did not live in an association. He asked if a homeowners association operated under NRS 116 or did the existing CC and R take precedence.

Mr. Ashleman responded there were several adjustments in the bill. Generally, the homeowner associations followed the CC and Rs unless the CC and Rs conflicted with NRS 116. The bill followed the fundamentals of democracy, a secret ballot to vote, this bill and state law. The bill clearly stated the association had to look at their budget and look at your costs. The bill did not state the association had to assess the homeowner.

Assemblyman Manendo referred to page 8, line 39 "operation of law." He asked what was the meaning of the phrase. Mr. Ashleman replied because this bill was enacted every homeowners association CC and Rs would automatically be rewritten to save the associations the expense of requiring lawyers to rewrite the CC and Rs for each association.

Assemblyman Manendo received a fax from a constituent and had a phone conversation with the same constituent. The constituent was unable to understand this bill as written. His constituent felt the need to hire an attorney to interpret the bill to homeowners in his association. Numerous association members had the same concern.

Senator Schneider responded the ombudsman would review the bill with the homeowners. There was no need to hire an attorney.

Ms. Scott stated there would be educational publications provided through the ombudsman’s office for the association members. In addition there were private organizations had collected 20 to 30 years of information regarding homeowner associations for board members of associations.

Assemblyman Manendo thanked Senator Schneider for the number of hours he spent in meetings with homeowners of associations to request there input for the bill. Senator Schneider thanked Mr. Manendo. He stated 60 percent of the population in Clark County lived in a homeowners association. 20,000 residential units being built a year in the county. In the last five years 100,000 residential units were built. Almost all of those residential units were in a homeowners association. He was aware of the construction of numerous homes in the north with many homeowner associations.

Chairman Anderson mentioned he had chaired the Sparks Charter Committee for 15 years before he was elected to the Assembly. He tried to write the language so the average person could read and understand the law. He was concerned with the expenses for the reports for older associations. If the older associations dissolved, the cities would not appreciate the added expense to have to pick up paving roads and widening streets.

Assemblywoman McClain stated she lived in an older 500 unit homeowners association with poor organization. Her association had mimeographed CC and Rs from the early 1970’s. She thought the bill was good except for section 16.5. She did not want to see a lawyers hired to explain the bill to each association. Ms. McClain wanted the ombudsman to explain the bill to the association.

Senator Schneider responded the ombudsman would work with the Attorney General to have a pamphlet to explain the bill in easy to understand language.

Mr. Ashleman asked the committee to turn to page 10. On page 10, line 4, made a correction in an omission in the law inserting the phrase, "except as otherwise provided in NRS 116.31031." The change was a meaningful change, but not a change in policy.

Mr. Ashleman moved on to section 18. On page 10, lines 26 through 43, and page 11, lines 1 through 12, changed amount of the fines. The testimony from homeowners was $50 was not a high enough fine. People would pay $50 and continue violating the rule.

Assemblyman Manendo asked if the paying of the fine and continued the violation was from one homeowners association or only in Clark County.

Senator Schneider responded the paying the fine and continuing the violation was in the higher income homeowners associations. A $50 fine was nothing to a millionaire. In fact a $50 fine was nothing to some to the middle income homeowners.

Assemblyman Manendo asked if there would be a problem in the lower income homeowner associations with the $100 fine. Mr. Ashleman stated the $100 was the maximum fine, not the minimum. Those lower income associations would still be able to charge the same minimum fines they were charging before the bill. He had heard complaints from homeowners from all economic levels and all parts of the state.

Mr. Ashleman stated section 19 dealt with the term of office and elections. A member could serve for only 2 years on the executive board. A member could be elected to succeed himself. There was a problem with the same people serving on the executive board of the homeowners association for years and years. If the nominating committee did not nominate a new person, the new person would not possibly be elected. A homeowner could nominate himself while bypassing the nominating committee to elect new members on the board. The homeowners received their ballots by mail from the executive board. The ballots were returned by mail for a secret ballot. Subsection 6, of section 19, gave each member of the elected board 30 days to certify in writing that he read and understood the governing documents. Page 12, line 12 added the phrase, "to the best of his ability."

Assemblywoman McClain inquired if the election of the executive board would not rule out proxy votes. Mr. Ashleman responded the voting would only be done by secret ballot. Everyone would receive one ballot to vote and would return it by mail. There would not be any proxy votes.

Assemblyman Gustavson asked if the mailing of the ballot would create an added expense to the homeowners association. Ms. Scott responded Summerlin had obligated her to mail a proxy vote to each of her 20,000 homeowners to elect the executive board.

Assemblyman Gustavson mentioned that not all homeowner associations had proxy votes. Some associations would post a notice to attend a meeting to vote. Mr. Ashleman responded under the current law all associations were required to give a notice of an annual election of officers. Every corporation in Nevada was required to have an annual or a periodic election of officers. There would be no additional burden to the associations.

Assemblyman Collins asked if the homeowners could mail their secret ballot or if they could hand delivered the ballot. Senator Schneider responded yes.

Mr. Ashleman moved on to section 21. If a replacement roof would cost $300,000 over a period of 30 years the declarant would have to deposit his share of the amount when he gave up control of the reserve account. The declarant would have up to three years to pay his share to the reserve account. The association would disclose in writing the amount the declarant had subsidized the association dues. He wanted the association dues to be accurate and not a "low ball" figure. Time-shares or time-share projects were exempt from the bill because the real estate division supervised them.

Mr. Ashleman moved on to section 23 which covered annual meetings of the homeowners association. Some associations never had an annual meeting. A copy of the minutes would be available upon request. The executive board would decide the charge for a copy of the minutes of the annual meeting. An emergency meeting was defined on page 15, lines 23 through 31.

Chairman Anderson referred to page 14, and read lines 14 through 17. He wanted to know if the homeowners association had their last meeting on May 14, 1998, would the association have to have their meeting every May 14 from that time forward. Mr. Ashleman replied no, the annual would not have to be on May 14 forever. The annual meeting could be scheduled before May 14, 1999. An annual meeting date could not be more than a year.

Assemblyman Brower stated he still read lines 14 through 17 the same way Mr. Anderson read the lines. Mr. Ashleman read line 16, "a meeting of the units’ owners must be held." He offered to have the question clarified.

Chairman Anderson stated if he held a homeowners association meeting on May 14, 1998, he could hold the annual meeting on February 1, 1999 because February was less than a year from the previous meeting. Mr. Ashleman agreed.

Chairman Anderson asked Ms. Lang for her legal opinion. Ms. Lang responded the homeowners association would not have to be on the same date. He could change the meeting date on his governing documents.

Mr. Ashleman explained with section 24. Section 24 spelled out the topics to be discussed at an executive session of the executive board. The topics were consult with their lawyer, personnel matters, and the violation of governing documents. Financial disputes with a unit owner were to be held in executive session. A unit owner could have an open meeting with the executive board to dispute a financial matter if the unit owner wanted the open meeting. The homeowner would not be present during the deliberations of the executive board in executive session. He called the last provision, page 16 lines 5 through 13, "the fist fight provision." This was to avoid altercations.

Chairman Anderson wanted to know if the homeowner with a financial dispute was allowed to present their argument and leave or could the homeowner stay for the board’s deliberations. Mr. Ashleman responded the homeowner would have to leave for the deliberations. The bill was written to allow the executive board to freely deliberation the issues of the dispute.

Chairman Anderson referred to the Assembly Committee on Judiciary method of conducting a meeting. The committee would present an opinion at their meetings. The committee would receive feedback from the opposing viewpoint. The committee would be allowed to counter the opposing viewpoint in a public forum. He was concerned about the creation of a "quasi-governmental body judicial process". Mr. Ashleman responded arbitration and mediation were an option available to the homeowner. He wanted personality conflicts set aside to resolve the dispute between the two sides. In comparison to other similar situations he stated this bill was more liberal and less restrictive.

Mr. Ashleman explained page 16, lines 35 through 37 were the "Goldwater amendment" dealt with electing a member of the executive board and determining a quorum. Page 17 dealt with the matter of proxies to correct some of the abuses of proxy votes. He related the story of a person who was not a homeowner in the association gathered enough proxy votes to be elected to the executive board. The proxy had to be dated and be held by a relative or a tenant of the owner. The election of the executive board was by secret ballot including proxy ballots and the votes had to be counted in public.

Chairman Anderson asked if he lived in a homeowners association and was going to be on vacation when the voting for the new executive board member would be conducted. While he was on vacation his good friend, Ms. Buckley would be house sitting his unit. Could he have Ms. Buckley vote for him. Mr. Ashleman responded Ms. Buckley was a tenant and could vote. Chairman Anderson asked if Ms. Buckley was a relative, could she gather other owner’s proxies. Mr. Ashleman answered she would not be able to gather any other proxy votes. Ms. Buckley could be a resource person to inform the homeowners at the meeting.

Mr. Ashleman reviewed section 26. Section 26 allowed an association to hire a property manager and set standards of practice with disciplinary action for the property manager. There were exemptions in the bill for the association who were pleased with their property manager who did not comply with the standards of practice.

Mr. Ashleman stated section 27, lines 26 through 32 had some important language pertaining to the assessment of the unit owners. "The association shall establish an adequate reserve, funded on a reasonable basis, for the repair, replacement and restoration of the major components of the common elements. The reserve may be used only for those purposes, including, without limitation, repairing, replacing and restoring roofs, roads and sidewalks, and must not be used for daily maintenance." He stated if the reserve was under funded, this allowed the association some flexibility to reasonably bring the reserve fund to a responsible amount to cover the projected expenses. On page 20, lines 9 through 11, there was an exception for the older associations to assess the declarant for a vacant lot located within the community.

Mr. Ashleman introduced subsection 9, on page 20. This subsection dealt with civil action by the association. A vote or agreement of a majority of the owners was required to ratify a civil action within 90 days. On page 20, line 37 after the phrase, "seek to dismiss the action without prejudice," add "for that reason." The reason for inserting the phrase was if the association members did not ratify the civil action, the members had to decide at the same meeting if they did not want to proceed with the civil action. He explained this would save the association money from allowing a civil action to linger for 6 months of litigation expenses only to decide against continuing the civil action.

Subsection 10 dealt with disclosure. Mr. Ashleman explained at least 10 days before the ratification vote on a civil action; the association had to disclose the estimated costs of the civil action including attorney’s fee, the benefits and adverse consequences. The seller was to disclose any deficiencies upon the sale of the property.

Mr. Ashleman reviewed section 28. He noted the fee was limited to $3 per unit. Subsection 3 was for homeowners who were in an association and in a master association. The homeowner would not end up paying $6, $3 for each association. Between pages 21 through 28 were only technical changes.

Mr. Ashleman referred to page 29 lines 11 through 15 dealt with excess unit fees. The ombudsman was to use excess fees for a mediator or arbitrator to settle disputes. An arbitrator could issue an injunction to enforce the claim. There were complaints concerning the length of time to have a decision enforced. The bill shortened the arbitration times to eliminate the lag between a decision and action on that decision. He stated the remainder of the changes was technical in nature.

Chairman Anderson appreciated Mr. Ashleman leading the committee through the bill was second printing yesterday, May 13, 1999. He thanked Mr. Ashleman for all of the information he gave the committee this morning. He noted a number of questions pertaining to section 16 existed. Chairman Anderson asked if anyone else wished to give testimony for or against S.B. 451. None of the people who signed the committee list to testify wished to testify.

Assemblywoman Buckley suggested an amendment for section 16. "For those homeowner associations with budgets under $100,000 a year would be exempt from provisions except for paying the ombudsman $3 per unit." She agreed with Senator Schneider concerning the problems in the smaller associations. She was concerned with the paperwork of the reserve account. She stated she could be persuaded either way.

Senator Schneider responded to Ms. Buckley’s concerns. First, usually associations with budgets under $100,000 were under funded. Secondly, reserve analysis could be completed for $500. If associations with budgets under $100,000 were left out of the bill and continued to under fund their reserve account without a reserve analysis this would mean future buyers of those homes in the association were not receive full disclose of the reserve accounts upon the purchase of their home.

Mr. Ashleman suggested if some homeowner associations were exempt from this bill he suggested to disclose at the time of sale, "No analysis of the reserve account had been done."

Assemblyman Claborn referred to page 21, line 7, "All disclosures that are required to be made upon the sale of the property." He wanted to know if the disclosure covered defective problems.

Mr. Ashleman responded currently if the homeowner was aware of a defect, the homeowner would have to disclose the defect. If the homeowner repaired the defect, the repair would not have to be disclosed.

Assemblyman Collins mentioned two associations, Rancho Atamira and Nara, represented 3,000 home owners had voiced strong opposition to this bill in his district which was in Senator Schneider’s district. He asked if Senator Schneider had talked with the two associations about the amendments. His second question was if the committee would meet "behind the bar" later today to vote on the bill.

Senator Schneider responded Nara was an informal group and exempted from the bill. Rancho Atamira’s board did not want to conform to this bill. People do not like to change anything in their lives. He offered to go with Assemblyman Collins to explain the bill with the homeowners in Rancho Atamira.

Chairman Anderson responded to Assemblyman Collins’ second question. He asked Mr. Collins why he needed more time at this late date in the session. Assemblyman Collins answered Rancho Atamira sent a letter stating they read the bill with their attorney and could not understand it. He thought the Rancho Atamira board with the amendments could understand the bill. Mr. Collins did not know if the board would be able to read the amendments with their attorney in a couple of hours. Mr. Collins mentioned Senator Schneider had joined him in the past to talk with the homeowners of Rancho Atamira and maybe the committee should vote on the bill and not delay the bill.

Chairman Anderson stated the committee would take a motion today because of the deadline for all Senate bills to be out of committee today. The bill drafter could examine the amendment next week. If an amendment were needed, the committee would be able to correct the problem.

Senator Schneider stated if any assemblyman had a homeowners association in their district with concerns, the senator would make arrangements to accompany the assemblyman to meet with the association.

Assemblywoman Buckley stated Senator Schneider spent most of his free time over the past four year meeting with homeowner associations. She noted if there was a problem with the smaller homeowner associations, the assemblymen and women would be informed by their constituents during the interim.

Chairman Anderson referred Mr. Ashleman to page 7, lines 37 through 40. He asked if those lines were about time-shared communities. Mr. Ashleman responded the time-shared communities were exempted from the bill. Page 7 applied to homeowner associations outside the state. The bill exempted them from all of the requirements except from the disclosure requirements for a fair sale to the residents of our state.

Chairman Anderson closed the hearing on S.B. 451.

ASSEMBLYWOMAN MCCLAIN MOVED TO AMEND AND DO PASS S.B. 451.

ASSEMBLYWOMAN OHRENSCHALL SECONDED THE MOTION.

Chairman Anderson asked Ms. Lang to write the amendment to insert the phrase "for that reason" on page 20, line 37.

THE MOTION CARRIED UNANIMOUSLY.

Chairman Anderson assigned the bill to Ms. McClain to defend on the floor of the Assembly.

Chairman Anderson recessed the committee at 10:30 a.m.

RESPECTFULLY SUBMITTED:

Ken Beaton,

Committee Secretary

APPROVED BY:

Assemblyman Bernie Anderson, Chairman

DATE: