MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-First Session
April 19, 2001
The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 8:12 a.m., on Thursday, April 19, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Senator Randolph J. Townsend, Chairman
Senator Ann O’Connell, Vice Chairman
Senator Dean A. Rhoads
Senator Mark Amodei
Senator Raymond C. Shaffer
Senator Michael A. (Mike) Schneider
Senator Maggie Carlton
STAFF MEMBERS PRESENT:
Scott Young, Committee Policy Analyst
Laura Adler, Committee Secretary
OTHERS PRESENT:
Sydney H. Wickliffe, C.P.A., Director, Department of Business and Industry
Michael E. Buckley, Lobbyist, Chairman, Planning Commission, City of Las Vegas
Tami DeVries, Legal Administrative Officer, Real Estate Division, Department of Business and Industry
Karen D. Dennison, Lobbyist, Lake at Las Vegas Joint Venture
William A.S. Magrath II, Member, Board of Directors, Caughlin Ranch Homeowners Association
Karen J. Brigg, Resident Agent, Eugene Burger Management Corporation
Pamela J. Scott, Lobbyist, Senior Property Manager, The Howard Hughes Corporation
Eldon Hardy, Ombudsman, Ombudsman for Owners in Common-Interest Communities, Real Estate Division, Department of Business and Industry
Pat Coward, Lobbyist, Nevada Association of Realtors
Shari O’Donnell, Lobbyist, Community Associations Institute
Linda Hoy, Concerned Citizen
Mark H. Gunderson, Attorney
Joanne Young, Concerned Citizen
Senator Townsend opened the work session on Senate Bill (S.B.) 421.
SENATE BILL 421: Makes various changes to provisions governing common-interest communities. (BDR 10-446)
Senator Schneider stated he still believes the ombudsman is the critical office in the process around the bill. He thinks blending the ombudsman into the commission is a good idea. He pointed out it would be a part-time commission, but the ombudsman would be a full-time person. He emphasized the person in the ombudsman position should be a strong person with very good people skills, especially in the area of mediation. He mentioned an oversight in the previous arrangement was not getting into the educational aspect, and with the new commission it should be easy to set up a lot of education opportunities for homeowners throughout the state and for professionals in the industry.
Senator O'Connell stated that the type of person she has in mind would have the skills to run the office, set up meetings, oversee the education programs, and someone with a strong enough personality to determine those things they can handle, and that do not need to go before the commission.
Senator Townsend commented an important point was the ombudsman’s arbitration skills. He stressed this person has to be able to use “tough love” to keep problems from going to the next level.
Sydney H. Wickliffe, C.P.A., Director, Department of Business and Industry, stated the ombudsman was hired a little over 3 weeks ago. She pointed out the ombudsman has strong arbitration skills, and is certified with the Better Business Bureau, and with an arbitration and mediation service. She agreed arbitration skills was a primary qualification when they were looking for the ombudsman.
Senator O'Connell asked for an update on the budget as to how much was collected to address the issues.
Ms. Wickliffe conveyed she was not present for the hearings held last week and earlier this week for real estate. She elucidated there was some discussion about raising or lowering the present “$3-a-door” fee. She acknowledged the program has been slow in getting started, and the money has been building within the account, causing talk of lowering the fee from $3 to, perhaps, $2. She added that Joan Buchanan (Administrator, Real Estate Division, Department of Business and Industry) has done some research on fees in other states, like California and Florida, and Nevada is in the middle. As for the ombudsman’s salary, Ms. Wickliffe said it was around $45,000 a year. She contended there were not a lot of candidates for the position.
Senator O'Connell stated she thinks it is very important to have the information about budgets, salaries, and expenses on the record, because homeowners are expecting a service for the fee they pay. She said the homeowners are expecting a lot more service from that office than they have received in the past. She posited, in the past, the real estate office claimed it never had much of a budget to do anything. She stressed she did not want that type of situation to continue another 2 years, that it needs to be taken care of now. She remarked if the real estate office needs help in getting the money to perform the expected services, then everyone needed to act now.
Ms. Wickliffe countered the problem now is not so much money as it is personnel. She explained when the office was originally put in place, there was only the ombudsman and one clerical staff. She stated the Interim Finance Committee did authorize the hiring of two additional people for the program, and they were hired around September or October of last year bringing the work force up to four people. She claimed the four people are a much more dynamic force through which a momentum has been started, such as an aggressive education program, and an outreach program to the homeowner association (HOA) boards to assist them in their understanding of the statutes and regulations for HOAs. Responding to a question, Ms. Wickliffe stated there is no attorney on staff, but one of the deputy attorney generals is assigned to them.
Senator Schneider surmised the deputy attorney general was assigned to the real estate division, and that person only slips over to pick up some ombudsman work. He insisted HOA issues were a lot different than general real estate issues, and the budget of almost $800,000 would allow for having counsel for a least three-quarters of the time, if not full-time.
Senator O'Connell stated the attorney could even be from outside the attorney general’s office. She clarified this person should have enough knowledge of the law, that when they speak, “it can be taken to the bank.”
Senator Townsend requested fiscal provide a copy today of the real estate commission’s recent budget. He directed everyone to turn to tab A in the “Work Session Document” binder (Exhibit C. Original is on file in the Research Library.), regarding the proposed amendment prepared for Senator Rhoads on behalf of Humboldt River Ranch Homeowner’s Association, April 5, 2001.
Senator Rhoads commented the amendment is still being drafted, and he expected it to be completed later that day or by the next morning.
Responding to Senator Townsend’s reference to a constituent letter from Mr. Plimpton, Senator Rhoads explained the problem was that the HOA is by Rye Patch Dam where there is a huge subdivision, but with few residents, and it cost about $8000 every time the HOA needs to do a mailing to homeowners.
Senator Schneider explained the problem with the proposed amendment is in common-interest communities more than 60 percent of the members are non-residents of the state. That means the affected areas would include Lake Tahoe, the new high-rise towers in Las Vegas, and other areas.
Senator Townsend added at Lake Las Vegas only 30 percent of the members are full-time residents, and the issue will be addressed so that it does not affect all these different places. He moved on to tab B (Exhibit C), and clarified those present were the people referred to in the “4/05/01 Working Group Revised Proposed Changes” document. He noted section 2 of the bill is to remain, because it requires the newly created Commission for Common-Interest Communities (CCIC) would handle those functions previously delegated to the real estate commission.
Michael E. Buckley, Lobbyist, Chairman, Planning Commission, City of Las Vegas, stated the initial proposal was not to have a commission, but to have an interim study group. However, he said, after last week’s meeting, the group worked on language for a commission, which is attachment A, under tab C (Exhibit C). He said, in section 6, the only thing it did was to put the commission within the Department of Business and Industry so it was tied into the ombudsman and the real estate division. He voiced subsection 3 requires three of the commissioners to be from Clark County, and two commissioners from other counties.
Tami DeVries, Legal Administrative Officer, Real Estate Division, Department of Business and Industry, stated she pulled some of the language for section 7.1 regarding meetings and election of officers from S.B. 310, a bill by Senator Schneider.
SENATE BILL 310: Creates commission to review constructional defect claims and revises various provisions governing actions resulting from constructional defects. (BDR 54-448)
Mr. Buckley testified the original format of the commission was perceived as a body which would punish board members and would hurt volunteerism. He said the solution was to expand the role of the commission to gather information and issues about common-interest communities. Continuing, he said, the commission would recommend and approve accreditation programs for education, adopt various regulations, and prepare guidelines for HOAs. Further, he conveyed the commission would be the body to set policy guidelines for the ombudsman.
Senator Townsend asked his colleagues if they saw the ombudsman answering to the common-interest communities commission, as it is with the contractors’ board and other boards. The other committee members affirmed that was how they envisioned the relationship. He continued; traditionally, boards have provided guidance to their executive directors, which in this case would be the ombudsman. He expressed concern that whoever answers the phone would be equipped enough to competently deal with the callers and their situations.
Mr. Buckley responded, originally, the commission would go right to a complaint. He explained now a person would file an affidavit with the ombudsman, who would investigate, and if there was cause, then it would become a complaint with the commission. Referring to the new section 9, he noted before filing an affidavit, the person must submit evidence they notified the person being complained about.
Karen D. Dennison, Lobbyist, Lake at Las Vegas Joint Venture, stated she had pulled language from S.B. 310 requiring the claimant to send two notices to the contractor. She conceded it might be too much in this instance, but she did not want to change language too much at this time. She indicated there would be no problem in lowering the requirement.
William A.S. Magrath II, Member, Board of Directors, Caughlin Ranch Homeowners Association, pointed out not all the language has been transferred, such as, in paragraph 4, where “claimant” should read, “aggrieved person.” He voiced concern that section 8 is not relating complaint time to board time. He said a board would serve for 2 years, and if someone had up to 2 years to file a complaint, then the board dealing with the complaint, would no longer be there, and the continuity and history could be lost. He suggested 90 days or 6 months would be a better length of time for someone to file a complaint.
Karen J. Brigg, Resident Agent, Eugene Burger Management Corporation, commented the complaint would have to be after discovery. She explained that a lot of times issues are uncovered after the person no longer sits on the board.
Mr. Buckley pointed out it has now been provided for an investigation by the ombudsman, and no one knows how long it might take. He added it may not just be board members, but also declarants who did not do a reserve study where the length of time would be important.
Mr. Magrath stated he did not disagree with the comments. He said if someone takes the step to go to the ombudsman, that should toll the time the complaint was filed. He expounded the complaint should be filed within a certain number of days of discovery, and, again, providing for the tolling provision.
Ms. DeVries clarified, currently, the ombudsman’s office would assist in resolving complaints. She explained the way it is structured, the affidavit would go to the ombudsman for assistance to reach a resolution. She continued, if a resolution could not be reached, then the ombudsman would forward the affidavit to an investigator specifically assigned to the commission. She surmised the ombudsman’s office should not handle investigations in order to keep the office as neutral as possible. She articulated the fiscal note allows for the addition of an investigator team, which includes a full-time deputy attorney general.
Senator Townsend agreed with the goal. He explained many complaints are opinions, and the ombudsman’s office should be able to handle most of them, but not be judge and jury. He agreed there should be an investigator to report the findings to the commission, who makes a ruling. He emphasized the party filing the affidavit should be informed of the process. Senator Townsend expounded if the investigation is found to have merit and is taken to the board, then “9 times out of 10” the subject of the investigation knows they are not going to win. He declared such action sends a very clear message to the contractor of a community that they do not want to make too many mistakes, and the ultimate goal is to change behavior and improve the line of communication.
In response to Senator Townsend’s question, Ms. DeVries stated the fiscal note may not be in the workbook, but she did submit it through the proper channels. She stated the bottom-line of the budget for the cost of the commission, which covers monthly meetings, three new staff members, full-time deputy attorney general, office space, hearing space, furniture, office equipment, et cetera, for the first year is $220,670.
Senator O'Connell suggested using the meeting room in the Grant Sawyer Building in Las Vegas, for the monthly board meeting, since there is no charge.
Ms. DeVries acknowledged they have used the meeting room on several occasions for real estate and appraisal commissions hearings. She explained the commission could be superceded after setting and mailing agendas by the Legislature. She expounded there is not always a lot of advanced notice, sometimes only days in advance.
Senators O'Connell and Townsend stated they would check on the room use policy, because everyone has similar public notice requirements, and a schedule for that room should be able to be worked out for this commission’s use, also. Senator Townsend stated the public should be able to count on a time, day of the month, and location, should they choose to attend a meeting.
Senator Townsend stated the tolling issue, in section 8, needs to be clarified as to when the time starts. He posited the time could start when the problem is filed with the ombudsman, or it could start when the complaint is filed with the commission after an investigation.
Mr. Magrath responded the language could be fine-tuned once direction is provided by the committee on the time frame after the tolled period. He surmised after discovery, 90 days would seem appropriate. He said if a complaint is filed with the ombudsman, and an official response has been made, then 90 days after the response would also be appropriate; that way problems can be fixed without letting them linger for 2 years.
Mr. Buckley stated the group in Las Vegas, comprised of managers, attorneys, and others, were leaning more towards 1 year. Referring to section 6 of the bill, he proposed the commission have a sunset. He explained it was tied into the idea of an interim study group, in which there would be a report to the committee next session on whether it is working or not working.
Senator Townsend commented the committee has enough experience over the years to know whether the commission is working or not working. He clarified this committee was not enthusiastic on sunsets, because the committee has no qualms about ending something that is not working.
Mr. Buckley surmised if history is any indicator, then there will be a bill on HOAs next session. He pointed out that section 10 is where the procedure is fine-tuned for the real estate division.
Ms. DeVries explained the reason it is being changed, is because the investigator would be a staff person in the division.
Mr. Buckley stated section 10 is basically a procedure. He said Ms. DeVries incorporated the language following along the same lines as the procedure for real estate licensees used by the real estate commission. He contended it does address the filing of a complaint, the service on the other party, how to serve, and the filing of an answer. Noting section 12, he stated the commission has 20 days to issue a final decision, and 60 days to issue the written decision including findings of fact, and conclusions of law. Regarding section 13, Mr. Buckley said it is now set the commission would hold a hearing and issue a fine. He conveyed the update would be the hearing held by the commission, and if a violation has been determined, the commission would issue a cease and desist order or issue an order to take affirmative action to correct the conditions. He continued, after the order has been issued, if the person did not follow the commission’s order, then the fine would take place.
Mr. Magrath stated this section resolves the big concern he had about volunteers on the HOA boards. He expressed by fining only if the order was not obeyed would eliminated the fear he and others would have of being personally fined for volunteering to serve on a board.
Mr. Buckley opined he thought the commission wanted to add language to section 13 where the commission would have disciplinary authority over the common-interest community managers.
Ms. DeVries commented it would be addressed when the real estate division is removed from chapter 116 of Nevada Revised Statutes, which says the real estate division has the authority over managers.
Mr. Buckley stated there was a new section 14.5 added to the bill. He said the commission is in addition to whatever rights and remedies a person would have under contract law, tort law, or whatever else may be around. He said the language in the section is not intended to affect other rights. He called attention to section 33.3 that would amend NRS 116.1201, to clean up the language. He said section 33.5, changes the name from the ombudsman fund to the common-interest communities fund for a broader picture. And, he said, paragraph 4, would provide for some of the fees to subsidize mediation and arbitration proceedings.
Senator Townsend queried Mr. Magrath, who is an attorney, living in a single family residential community, and sits on the HOA board, which is a little different from others in attendance, as to the general types of complaints he receives.
Mr. Magrath answered that dogs are the major complaint. He added there are also a lot of complaints about maintenance of yards. He elucidated Caughlin Ranch is an upscale common-interest community with homes ranging in price from $250,000 to several million dollars. He remarked Caughlin Ranch does not run into the normal day-by-day problems that Senators O’Connell and Schneider hear about from constituents. He mentioned there are architectural control issues where new construction begins, or an addition is started to an existing structure, without architectural approval from the HOA.
Senator O'Connell inquired of Ms. Scott, who represents an area with master associations, sub-associations, multi-million dollar homes, condominiums, and so on, as to what is the average complaint she receives.
Pamela Scott, Lobbyist, Senior Property Manager, Howard Hughes Corporation, replied, “parking.” She expounded parking complaints involve private and public streets, which deal more with the governing documents of an HOA. However, she maintained, the most common complaint related to chapter 116 of NRS, has to do with lack of access to association records.
Senator O'Connell articulated, from what she hears, it is the records and then it is being allowed to speak at meetings.
Ms. Scott remarked that last session, the speaking at meetings was addressed with an open session prior to the meeting. She conveyed it does not work as well as it should, because the real problem is that board meetings are business meetings of the board of directors. She explained once the comment section of the agenda has been passed, it becomes difficult for homeowners to make comments on other items during the board meeting, because, technically, it is not a homeowner meeting.
Senator Townsend asked how often homeowner meetings are held. Ms. Scott answered there is the annual meeting where the board is elected and the budget is set and accepted. She voiced at her HOA there is a monthly delegate meeting, because of delegate districts, plus a monthly homeowners meeting, the monthly board meeting, in addition to the annual meeting. She emphasized communication is the key.
Ms. Brigg stated she has seen a variety of problems ranging from proper funding of reserves, and having reserve studies done. She said, for example, in the case of a declarant responsible for having a reserve study done if the boards are not educated on how to read reserve studies, it could come back only 50 percent funded. She explained homeowners who do not understand might not see the ramifications for 10 years, when it is realized the reserve funds have been under-funded, which can run into shortfalls of thousands of dollars. She contended those are some very important reason why a commission is needed.
Ms. Brigg elaborated there have been board members who refused to sign they have read chapter 116 of NRS; because it has no teeth; they do not think they have to abide by the statute. Continuing, she said, when asked if there was a problem with putting a commission in place with fines for not abiding by chapter 116 of NRS, a majority of the boards were for that action. She explained many expressed chapter 116 of NRS helped them as board members and it helps the managers, when boards do not want to listen to the managers, because they can cite chapter 116 of NRS as the reason for the action.
Ms. Brigg averred the Reno office has used a neighborhood mediation center which produced a 100 percent success rate in getting the parties together without attorneys. She articulated the issues seemed to resolve themselves. Further, she stated she had no problem with setting fines. Getting the parties to communicate was the biggest problem.
Mr. Magrath stated the bigger associations use some different methods. He said, at Caughlin Ranch, they had open meetings even before the law, where members are encouraged to attend and speak. He noted there is also a neighborhood advisory board with a person assigned as their local representative. He claimed that is a major distinction between big associations and the little, less responsive associations, which he thinks are triggering much of the legislation.
Ms. DeVries elucidated at the September 26, 2000, committee meeting conducted by Senator O'Connell, the ombudsman’s office presented a document listing the complaints they received, of which 80 percent were issues regarding boards of directors. She said the document prioritized the complaints as general complaints, selective enforcement and retaliation, assessments, fines and leans, and removing board directors. She pointed out the top four complaints related to boards and boards of directors. Answering a question, she said the commission receives around 8000 complaints a year, and they are projecting more for this year.
Mr. Buckley remarked during last week’s meeting, Ms. Brigg drafted some language included in this work session. He said he wanted to cover tab B, section 5 dealing with the licensing and regulation of community managers, and sections 3 and 4 which deal primarily with terminology changes, and adding definitions to chapter 116 of NRS. He expounded section 5 deals with licensing someone, equivalent to a broker, someone with the company, so the company is responsible and not just the individual managers. He opined an interim study committee was not needed, if there is a commission that would do the same things. He asserted that sections 15-22, regarding licensing of community managers, are no longer necessary if the common-interest communities commission is created.
He said the essence of section 23, is the association cannot respond to a complaint until a board meeting occurs. To handle the time, he said if there is a complaint against an association, someone will respond to the complaint within 10 days, and it will be on the next agenda for the board. He said the new section 24 deals with no retaliation. He suggested “shall not harass,” be taken out, because it can be a vague term. Mr. Buckley opined, in section 25, if there is proper disclosure and the board member does not vote on it, that can be appropriate at times. For example, he said, in small associations a relative may be providing a service to the association.
Responding to Senator Townsend’s question regarding section 25, Ms. Brigg stated she has seen a number of instances of abuse by board members regarding taking advantage of their position of knowing what the other bids are coming in. She expounded she did not see where it benefited a large or small association, because bids should be done in a proper manner, and not be opened up to board, because it fosters abuse.
Mr. Buckley commented most likely the bid situation would not be found in the larger associations; therefore, the prohibition most likely would not affect larger associations.
Eldon Hardy, Ombudsman, Ombudsman for Owners in Common-Interest Communities, Real Estate Division, Department of Business and Industry, stated he did not have the information about the ombudsman portion of the budget with him. Responding to Senator Townsend’s question, he said he was in Carson City last week, and heard the testimony.
Senator Townsend stated a clean copy of the proposed bill and amendments would be sent to Mr. Hardy in Las Vegas, and then they would walk through it tomorrow, April 20, 2001.
Mr. Buckley called attention to section 26 of S.B. 421, as the section would provide forms everybody could use. He stressed everybody agreed this would not work.
Senator O'Connell mentioned the need for uniformity for the purpose of better understanding was one of the major complaints heard at the September 26, 2000, meeting. She speculated if it should be done for associations under 100. She said many people in an association are not familiar with the language of most association covenants, conditions, and restrictions (CC&Rs) after they read it. She said many asked for something more uniform and in plan language for the average person to understand. She surmised about 50 percent of the things mentioned at the meeting were about the CC&Rs, so she would like to have a little more time to contemplate how best to respond to those concerns.
Mr. Magrath remarked section 26 of S.B. 421, currently states the administrator would provide standard forms for declaration of covenants, conditions, bylaws, and rules. He suggested to make the forms available and to charge a reasonable fee. He noted there is no provision in section 26 requiring associations to adopt the CC&RS. In his opinion, it was simply an obligation of the real estate commission to develop a suggested form. He surmised, based on the value of the units being constructed, some of the CC&Rs would be very specific, while others do not need to be as specific. He speculated the drafting of these forms would put a burden on the real estate division, and be something not many people would use.
Senator O'Connell commented an index and/or a summary would be helpful so people can easily find the section they need. She emphasized in the smaller associations, such as the one she lives in of 33 homes, ranging from $200,000 and up, the people have no clue as to what is in their CC&Rs.
Ms. Brigg expressed it is true the governing documents are tailored for each association. She pointed out that many of clauses in the governing documents, be it the articles of incorporation, the bylaws, or the CC&Rs, are pretty generic, and are used from one association to another. Therefore, she said, those who would be drafting the governing documents could use generic language for those standard clauses used throughout the industry.
Senator Townsend stated most association documents are large enough to be put in a ring binder and indexed so people can find them. He suggested a cover page strictly about fines might be of some additional help.
Ms. Dennison stated the various ranges of associations make it nearly impossible to do a one-size-fits-all. She claimed chapter 116 of NRS is very detailed, and one of her colleagues developed a set of CC&Rs that are close to the statute. She said the statute has spelled out a lot of the provisions that used to be only in the CC&Rs. Since new communities have to comply with that statute, she thinks just understanding chapter 116 of NRS would help the people who administer the associations to better understand what is required of them. Ms. Dennison contended chapter 116 of NRS is a confusing statute, but perhaps the community manager or someone else could provide a digest. She expounded it was something a board could request of its community manager to provide them with a simple outline of what the board needs to do, and where it would be found in the governing documents.
Senator Townsend echoed the sentiments of others indicating anything to help in the understanding of the CC&Rs would make it easier. He asserted it would help people a lot if they read the CC&Rs before they purchased, but most people do not read through the important documents. He elucidated most people are not lawyers or certified public accountants (CPA) to get into the CC&Rs documents. He said this information should be made easier for the average person to get through, more user friendly.
Mr. Magrath commented, regarding chapter 116 of NRS, someone suggested the real estate division assemble a list of key items, such as, fines, assessments, notices of meetings, that could easily be referred to by managers and the boards. He added he would also like to see the same division put together a guideline to chapter 116 of NRS. He stressed chapter 116 of NRS is the most complex statute in light of recent legislation.
Ms. DeVries stated the ombudsman office has taken a lot of the suggestions from previous meetings, and is proposing guidebooks on reserve studies, CC&Rs, and others to prepare and distribute.
Mr. Buckley stated since section 27 of the bill deals primarily with construction defects, which are covered in other bills, the committee decided to set that section aside for now.
Mr. Magrath mentioned within section 27, there is a portion which attempts to remedy the issue of lawsuits, and the ability to bring lawsuits. He stated over the last two legislative sessions the law has changed in the sense of requiring a 50 percent majority in certain types of lawsuits.
Senator Townsend interjected he would like to finish on the other aspects of the bill before taking up the subjects of construction defects and lawsuits.
Mr. Buckley called attention to section 28, dealing with the fair housing laws, and the Nevada exception to the federal fair housing laws. He stated the working group recommends section 28, subsection (b) of the first reprint be removed. He explained the concern is if there are a number of exceptions, because of this section allowing a greater percentage of under age 55 or under age 62 to live in the community, then the community could lose its exemption under federal law, because there cannot be any discrimination under federal law.
Senator Townsend recited if an individual who inherits property, does not meet the age standard, then the community would be in jeopardy under the fair housing act.
Mr. Buckley clarified the federal requirement is up to 20 percent of the residence can be under the minimum-age requirement. He expounded if the housing development does not enforce that requirement, then it cannot be an age-restricted community.
Mr. Buckley stated section 29 of the bill covers advertising, which would have to disclose the residence is in a common interest community. He maintained this requirement is already covered through the public offering statement, through the resale certificate, and through other requirements under chapter 116 of NRS and chapter 113 of NRS. He stated to make this disclosure in advertising could be a problem.
Senator O'Connell, referring to section 28, asked if people generally know what the federal law is regarding age-restricted communities. For example, she said would Carol Rogers, whose mother died, have been aware of the age law.
Ms. Scott responded she lives in the same age restricted community as the person mentioned. She stated the age restriction is made very clear to people wanting to move into an age restricted community. She claimed the issue was not ownership, because any person of any age could own property, but the issue is who actually resides in the home. She said she was under the age minimum, but her husband was not, so she qualified as a resident because of him. She claimed the issue was not ownership, because any person of any age could own property, but the issue is who actually resides in the home.
Senator O'Connell commented if Ms. Scott’s husband died while Ms. Scott was still under the minimum age limit, the association would require she move out of the home.
Ms. Scott replied only if they already had their 20 percent under federal law, then they would have had to ask her not to reside in the house any longer, but they could not force her to give up her ownership rights. She would have the option of leasing the home to someone who did meet the age-restricted requirement under federal law.
Senator Schneider commented a group in Las Vegas wanted it advertised in the newspapers the home was part of an association, so the potential buyer would know right away what type of home it was. He elucidated some associations are not gated communities, and they are not forthcoming with the information to a perspective buyer.
Senator Townsend questioned whether the requirement was already in the real estate disclosure act.
Ms. DeVries clarified in chapter 113 of NRS, the seller is required to disclose it in a seller’s property disclosure statement. She said she was not familiar with any laws requiring disclosure in advertising.
Pat Coward, Lobbyist, Nevada Association of Realtors, confirmed age restriction is required to be disclosed. He added it is also covered in other areas of the law. He opined the associations are not opposed to disclosure, but they also look at the cost of advertising, the issue of discrimination, and requiring more information of the people living in the planned communities. He surmised this might be going farther than needed.
Senator Townsend expressed the issue would be taken up later, because it is an important point. He maintained the committee would like to solve everyone’s problems, but there is a certain responsibility on the buyers to do the appropriate amount of investigation.
Ms. Dennison stated before anyone signs a purchase agreement, the developer of a new home is required to give a public offering statement. She said if it is a resale, the seller is required to give an information statement containing disclosures about the common interest community, the fact there are assessments and the property owner could lose the home if they do not pay the assessments. She claimed the issue is adequately addressed prior to the time the buyer actually signs to buy a house.
Mr. Buckley said the collections activity in section 30, would require compliance with federal law. He said the committee suggested this section be deleted and let the federal law speak for itself. He said technical corrections only were made to section 32, to leave commissions, and that commissions would refer to the common-interest communities commission. As for the subpoenas, he said, let them speak for themselves.
Referring to section 34, subsection 2, paragraph (a), Mr. Buckley stated if the association approves something, then they cannot unapprove. He said this paragraph requires the approval also be put in writing. He stated paragraph (b), which generated a lot of discussion and concern, would prohibit the association from preventing owners from making their homes safe and secure. He elucidated the language of feeling safe and secure in their homes, are protecting and caring for themselves, is very vague and could cause a lot of problems once it is subject to interpretation, and, therefore, the language should come out. He noted that paragraph (c) dealing with putting solar screening or solar energy devises on the house, shutters, additional locks, ramps, railings, et cetera, cause concern among the working committee. He explained the concern was if the architectural restrictions were removed, and allowed people to add whatever they wanted to their homes, everyone else’s property values could be affected. Therefore, he said, it is suggested it comply with the architectural approval requirements.
Senator Townsend commented in the larger master planned communities, whether a person is building a new home, buying a new unit, or buying a pre-owned unit, they seem to better understand the reasons behind the rules and the rules themselves. He expounded in some communities there has not been a clear understanding regarding architectural requirements, so when someone makes changes, the problems start.
Ms. Scott remarked the provision came from Summerlin, a large community, based on a rolling shutters issue where the homeowner wanted to install them on the side of the home that faces the street. She said the architectural committee denied the request, because the shutters would cover over the architectural details around the windows, which would have changed the look of the neighborhood.
Shari O’Donnell, Lobbyist, Community Associations Institute, stated another issue the language addresses is condominiums, where installation of rolling shutters, awnings or other window apparatus, would actually involve the taking of common area, because these items would be on the exterior of the structure. She added it would not be an issue if shade-producing items were installed on the inside of windows.
Senator O'Connell raised the issue of a homeowner whose balcony is coming apart. She said, although the association documents clearly state it is responsible for the repair and maintenance of the outside, the association maintains they are not responsible for making repairs to the balcony. She posed the dilemma if the homeowner is prevented by association rules from doing anything to the outside, then the question is who is responsible for outside repairs.
Ms. O’Donnell replied it is the association’s responsibility to maintain the exterior of the building. She said in a condominium, the unit space is generally defined as the interior. She pointed out this is the kind of issue where the ombudsman and the commission could really help with a resolution.
Ms. Scott remarked there might be a clarification in the CC&Rs, because very often balconies and patios outside a condominium unit are limited common area, and the documents do say, as it is exclusive limited common area, the owner of the unit is responsible for the repairs.
Senator Townsend stated the situation would be checked on and figured out.
Mr. Buckley stated the working group recommends, as presently written in statute, that section 35, paragraph 1, subsection (a), subparagraph (1), remain as is. He said, currently, the statute allows an association to exclude someone who is not paying their dues, or is in violation of the documents, from serving on the board, and this bill would remove that restriction.
Ms. Brigg surmised the restriction stemmed from an annual meeting where a board stopped an individual from voting because of fines. She claimed that is usually where such issues arise, and the voting privilege is taken away. She added sometimes these issues occur when trying to remove a board.
Continuing with section 35, Mr. Buckley stated the working committee proposed the fine limit be increased to $1000 a year.
Senator Schneider questioned if the $1000 a year was per incident or per year, because the present cap is $500 for each fine.
Ms. Scott asserted that he continuing fine language caps it at $1000 per calendar year. She expressed the real concern for raising the fine is because many people buy their violations, and the issues take longer and longer to resolve. She pointed out in many areas it is cheaper to pay a $500 fine than to pay storage for their boat.
Senator Townsend noted in smaller communities $500 is a lot of money for someone, who may receive a fine because their lawn was not mowed while they were on vacation, or not there to pick up trash cans.
Ms. Scott remarked there is still a $100 limit on the violation itself.
Mr. Magrath interjected the current limit is $100 for each violation. He said his concern is if there is a one-size-fits-all bill, in the larger associations, there will be people buying their violations, and the associations would not have any remedies.
Senator Townsend agreed with the problem, but said there was no answer at this time, because a balance has to be figured out.
Ms. Scott commented the fine has nothing to do with the size of the association, it is the economics of the association when you have million dollar homes in some associations, and the people can afford to buy their fines.
Senator Schneider said he wanted to relate a story about his brother who owns many homes, townhouses, and commercial properties, and just purchased a condominium. He said it took 4 months for them to bill him for the association dues, and he paid the $1000 for the 4 months, but not the late fee, because it was not his fault he was not provided with the information of where to send the dues. He said his brother debated the issue back and forth, and then came a notice of foreclosure from a California company who was foreclosing on the house for not paying the fine of a late fee. He added this happened with a professional property management company in Las Vegas.
Mr. Buckley stated section 8 of the proposed changes in tab B, clarifies meetings. He said section 41 deals with minutes in which members wanted to put whatever they wanted in the minutes, and this section allows boards to put reasonable limitations on these requests.
Mr. Magrath pointed out onerous people would want to attach a box of documents to the minutes, and this section addresses reasonable limits, to curb that type of action.
Senator O'Connell inquired if there was a tape of the meeting so there would be a full record of the meeting, if the minutes are brief.
Mr. Magrath replied he was not aware of any law requiring association meetings to be taped. He added some associations use a tape recording to help make the minutes, and there is no requirement the tapes should be retained.
Mr. Buckley pointed out the change in the fine cap would cause a financial burden on small associations. Continuing, he stated section 49, required the ombudsman had to approve foreclosures. He maintained the real estate division did not want the responsibility of being involved with foreclosures, and has proposed a form be designed for associations to fill out, saying they have complied with the statutes. He articulated everyone agreed section 54, which said no one could be represented by an attorney in arbitration, should be deleted. He said section 58, said an association has to amend their CC&Rs after a change, and it was thought they should not have to do so. Mr. Buckley noted in large communities of around 2000, delegate districts have proven to be more efficient and a preferable way to encourage involvement by homeowners. He said it is being proposed to give voting privileges to delegates in larger communities where secret ballot voting is required.
Commenting further, Mr. Buckley stated the working committee proposed construction fines, tied into starting construction or completing construction of the home, be specifically permitted so they are not subject to the $100 limitation. He conveyed the working group is not in unanimous agreement on this issue, but speaking for Howard Hughes group, they are content to limit it in just the declaration, where it would be spelled out, and recorded. He explained some members think if it is in any governing document, it would be all right.
Ms. Dennison contended she liked the original language for the construction fine, which stated the construction fines could be in any governing document. She said, normally, construction fines apply to very sophisticated buyers of custom home lots. Those buyers are well aware of when they have to build, and of the “does and don’ts” of construction. She insisted that because of the length, the construction fines language is not put in the declaration, since they are already long enough. She said the construction fines are usually put in with the design guidelines as part of the design guidelines. She asserted design guidelines are part of the “governing documents,” and that is why the words, “governing documents” should remain in the bill. Ms. Dennison opined if the wording was limited to the declaration, then, possibly, up to 95 percent of the construction fines would be cut out, because they would not be found in the declaration. She expounded the construction fines would have to go back to the $100 limitation, and the affluent homeowner would simply pay the fine, and thumb their nose at the association.
Mr. Magrath stated he supports Ms. Dennison’s comments. He elucidated the governing documents include many documents, such as, improvements agreements. He said if a homeowner agrees to build in a year or 18 months, and exceeds that time, the ability of the association to enforce with a fine is hindered, if it is only in the declaration.
Ms. Scott acknowledged it was originally submitted to say declaration, and it was altered to say “governing documents.” She pointed out governing documents can include rules and regulations, not just design criteria, and the only document requiring homeowners to vote on the issue is the CC&Rs. She stated if the fine information is in the declaration, then the buyer knows about it up front. She expressed concern there not be any abuse of fines. She asserted a declaration could be amended, giving the homeowners an opportunity to vote on the issue of fines.
Senator Townsend commented the buyer should know up front about construction fines, and certainly be aware of them after purchase. He agreed there should not be any abuse of the fine system.
Senator Schneider commented in Las Vegas, they had set the fines and the caps, but had never addressed custom lots. He said, as a result some fines were in excess of $25,000 to people who did not build on their lots within the specified time frame. Senator Schneider conveyed the subjects of the fines came back with chapter 116 of NRS, which stated the fine was $100, with a cap at $500. He noted statutes do override other documents. He expressed he was glad the issue of fines and caps are being addressed in order to resolve incidents like the following example. He expounded one of the people who was fined was a single-practice attorney who got cancer, which took all his money, so he could not build. When he finally recouped and was ready to build, he discovered the $25,000 worth of fines, and when he appealed to the association, they hammered him and would not talk to him. Senator Schneider encouraged developers to consider extenuating circumstances when it comes to fines, and we need to do something at this end to address these situations.
Mr. Buckley explained the reduced quorum language is a separate provision. He said this deals with a circumstance with a declaration that was pre-1992 and has a 50 percent quorum instead of the 20 percent. He expounded this provision in the bill would allow such an association, if they could not get a quorum of the members, to adjourn, and continue the meeting at a different time with a reduced quorum. He added this is a way to have a members meeting with a reduced quorum that meets chapter 116 of NRS.
Mr. Buckley stated, in response, one idea is, instead of saying imposed by the governing documents, perhaps, imposed by the governing documents in place at or prior to the time of the sale.
Senator Townsend stated it could be said the fines are in the documents. He said to forget chapter 116 of NRS, the papers are what the buyer signed. He continued, if the buyer did not play by the rules, but upon a hearing, the board could reduce the fine under circumstances meeting the board’s approval, which might accommodate such people as the cancer patient who wanted to build, but experienced extenuating circumstances beyond his control.
Mr. Magrath interjected, due to good leadership Caughlin Ranch already has due process. He said before any fine can be imposed there has to be a hearing. He elucidated his board has improvement agreements with developers regarding days and times they can build, with substantial fines, otherwise the developers would continue to build beyond those hours, violating the agreement, and all anyone could do is fine them $100.
Ms. Dennison stated she and Mr. Magrath agree the governing documents should control rather than limit the declaration. She said in the majority of cases construction fines are not in declarations.
Mr. Magrath asserted he likes the existing language using the words, “governing documents,” which is broader than the word, “declaration.”
Ms. Dennison pointed out there are due process requirements already in chapter 116 of NRS that could take care of part of the issue. She surmised the rest of the issue could be addressed by adding hardship exception language to the bill.
Senator Townsend cautioned the hardship exception should not include business failure, because just about anybody could get around a fine. He concluded the language not be too tight, so HOA boards would be able to make the final decisions on a case-by-case basis.
Mr. Hardy remarked he has been listening to the hardship and fines issue. He stated he receives a lot of complaints on this issue. He opined it would be possible to establish a grievance or waiver allowance committee within the HOAs that could look at the specific circumstances and make decisions to allow waivers or adjustments regarding the imposed fines.
Senator Townsend responded the intent is to take the construction fine issues out of chapter 116 of NRS, and place them in whatever portion of the HOA agreement everyone decides on, and then there could be a normal due process outside of chapter 116 of NRS. The other chapter 116 of NRS issue is about fine caps, and per incident, per year. He insisted due process is covered in NRS 116 and everyone should be adhering to. Mr. Buckley answered that there were.
Continuing, Mr. Buckley said if an association is a nonprofit under chapter 82 of NRS, and there are conflicting provisions under chapter 116 of NRS versus chapter 82, then chapter 116 of NRS governs, not chapter 82.
Ms. Brigg emphasized the main thrust was to see the commission established now rather than go into a 2-year review of it, and she thinks the committee has done that. She called attention to section 38, where is says, the bylaws will outline election procedures, and noted it was changed to special meeting procedures. She said elections could be held by secret ballot. She explained the reason to define election procedures, for example, is Rainbow Bend. She said they went into an election, and it was no longer declarant controlled, but the declarant still had voting rights. She continued, prior to the election, Rainbow Bend annexed a huge section to obtain more votes, and because it was not addressed in procedures, they encountered problems, and had to be helped through the situation. She maintained if election procedures on how things would be handled are done in the bylaws, it would assist. As for section 38, Ms. Brigg stated to leave the language in the bill, and if it is desired to add special meetings procedures, they can be outlined in the bylaws.
Mr. Buckley interjected neither he nor anyone else objected to leaving the language in.
Linda Hoy, Concerned Citizen, stated she and her husband were the original developers of Rainbow Bend. She articulated she was taking for granted Ms. Brigg’s statement dealt with an election held at Rainbow Bend in March 2000. She asked if that was correct.
Ms. Brigg responded this was not the place to just hear Rainbow Bend issues; it was to hear the bill and address issues in the bill.
Ms. Hoy remarked she thinks Ms. Brigg’s statement was incorrect, because Rainbow Bend has always held elections under chapter 116 of NRS.
Senator Townsend asserted he understood Ms. Brigg to say if there was annexation that added voting rights, that was not spelled out in the appropriate documents. Ms. Brigg acknowledged that is what she said. Senator Townsend clarified there was no assertion that anything was done improperly, only that something occurred, and it was not clearly stated in the document. He added if there is a vote on an occurrence, but there is nothing in the document that makes it clear there should be a vote on that issue, then that creates a vagueness in the law all parties to the issue would have questions about.
Ms. Hoy stated she was confused by the term, annexation, because there has never been any annexation.
Senator Townsend conveyed the point is if there is something not specified in all the documents, and then there is a vote taken, how do the homeowners know whether the issue should be voted on or not voted on, how does the developer know, how does the board know, they are all without direction. He surmised Ms. Brigg would like clarification on things not in the documents to which all the parties have agreed, how does anyone vote on something like that. He expounded as a property manager, Ms. Brigg has to face that problem, and decide how to advise the board that hired her as their manager. He said this points up the issue of do boards have discretion relative to voting to solve the issues, if it is not outlined in their appropriate documents.
Ms. Brigg noted the need to clarify election procedures on how different committees, who are asked to count ballots, handle the setting of standards for counting ballots. She asserted it would help to outline in the bylaws what would make a ballot acceptable or not acceptable.
Senator Townsend asked for an explanation of the balloting procedure, such as mailing them, in person balloting, or some other method.
Mr. Magrath responded at Caughlin Ranch the procedure is to mail the ballots with a description of all the candidates, having previously given notice everyone is eligible to run. He said a double envelope system with a detailed description is used. He said the envelope is then mailed directly to an accounting firm with a description of the eligible homeowners. Inside the envelope is another envelope titled “ballot envelope,” which protects the secret nature of the ballot. He affirmed an independent counts with everyone present who wants to be there at the time the ballots are opened.
Mark H. Gunderson, Attorney, stated he was representing the Glenbrook Homeowners Association. He commented the issue came up at Rainbow Bend as to what constituted a secret ballot. He said the issue came up in a context that cannot really be legislated. He said this was one of those situations in which the board had to use their own discretion in deciding how various issues come up. He explained this was a unique case in that a developer, Rider Homes, wanted to vote a number of lots. He said there was a great deal of discussion between Ms. Dennison and himself over how to accept secret ballots from a California developer, because the double ballots, counted by CPAs, was not part of Rainbow Bend’s procedure, and they came up with a procedure to handle it. He contended Rider Homes did not follow the procedure, and as a result the board exercised its discretion and rejected Rider’s ballots, because they were not secret ballots. He maintained that was a classic case of the board doing its job, doing it in good faith, making a reasonable decision, and coming up with a resolution. He averred Rider Homes accepted the board’s decision, and chastised themselves for failing to follow procedure. He said there were a few residents of Rainbow Bend, who did not like the decision, and the ombudsman got involved and affirmed the decision of the board, and that ended it. Mr. Gunderson remarked this was the kind of situation, that if there were a commission, it would never have gotten that far. He claimed this situation was the classic example of allowing the board to do what it was authorized to do. He insisted that trying to redraft the language to come up with all these new rules would really help. He affirmed there is already a system in place that has worked in the past, and would work in the future. He asserted the commission and the ombudsman would work.
Senator Townsend affirmed there has to be flexibility for issues not addressed, so a board can work through them for the benefit of their members. He added, in Rainbow Bend’s case, the board was able to work through the issue and find a resolution.
Mr. Gunderson concurred that was right. He elucidated there were some members who did not like the decision, but the entity affected, Rider Homes, agreed with the decision that it was reasonable and rational, and put the issue aside. He concluded there are times when the board should be allowed to do their job, and to over regulate does not support the process.
Joanne Young, Concerned Citizen, stated she was a homeowner in Rainbow Bend. She testified the incident discussed occurred in March 2000. She said, from what she understands, the ballots went out late, and Rider Homes faxed back their ballots under their name. Because the ballots were not returned sealed, the board threw them out. She insisted there were homeowners who were not happy with that decision, because it completely changed the election. She explained this year no ballots were mailed, they were either hand delivered or the homeowner could vote in person at the clubhouse. She said the real estate division intervened with procedure, and there was a mailing with the double envelopes, and the voting was done by secret ballot. She concluded assurance of a proper secret ballot should be included in the bill.
Ms. Brigg summarized all that is wanted is election procedures to be defined in the bylaws.
Senator Townsend announced the issues of NRS 116.31083 and NRS 116.31115 will be among the items regarding S.B. 421 to be discussed when testimony resumes at 8:00 a.m. tomorrow, April 20, 2001. The meeting was adjourned at 10:24 a.m.
RESPECTFULLY SUBMITTED:
Laura Adler,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: