MINUTES OF THE

SENATE Committee on Commerce and Labor

 

Seventy-First Session

April 11, 2001

 

 

The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 7:07 a.m., on Wednesday, April 11, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada.  The meeting was video conferenced to the Grant Sawyer Office Building, Room 4401, Las Vegas, 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

Jude Greytak, Committee Secretary

 

OTHERS PRESENT:

 

Hoyt Suppes, Lobbyist, Executive Vice President, Nevada Association of Realtors

Melody Luetkehans, Lobbyist, Nevada Association of Realtors

David R. Walker, Deputy Administrator, Real Estate Division, Department of             Business and Industry

Wm. Patterson Cashill, Lobbyist, Nevada Trial Lawyers Association

Robert C. Maddox, Lobbyist

Michael E. Buckley, Lobbyist, Community Associations Institute

Tami DeVries, Legal Administrative Officer, Real Estate Division, Department of             Business and Industry

Karen D. Dennison, Lobbyist, Lake at Las Vegas Joint Venture

Pamela J. Scott, Lobbyist, Howard Hughes Corporation

William A.S. Magrath ll, Member, Board of Directors, Caughlin Ranch             Homeowners Association,

Mike Trudell, Manager, Caughlin Ranch Homeowners Association

Donald Minoli, Concerned Citizen

Joanne Young, Concerned Citizen

Joy Foreman, Concerned Citizen

Robert Fuller, Concerned Citizen

Robert C. Maddox, Representing Nevada Trial Lawyers Association

 

Senator Townsend began the hearing with Senate Bill (S.B.) 418

 

SENATE BILL 418:  Makes various changes to provisions governing sale of real property. (BDR 54-159)

 

Senator Townsend disclosed his spouse is a real estate broker, licensee, and property manager.  He said he would participate in the proceedings.

 

Senator O'Connell disclosed her husband is a real estate broker, although he does not participate in management of properties.  She said she will also participate in the proceedings. 

 

Hoyt Suppes, Lobbyist, Executive Vice President, Nevada Association of Realtors, stepped up to testify.  He stated Nevada Association of Realtors sponsored S.B. 418 to benefit consumers.  The goal of the legislation, he continued, is to improve the professionalism of the real estate industry and improve the knowledge of the new real estate licensees in Nevada.  He expounded, by requiring new real estate brokers to take 30 hours of continuing education after their first licensure, the real estate sellers and buyers will be working with better-informed licensees.  He urged support for S.B. 418 on behalf of the Nevada Association of Realtors.

 

Melody Luetkehans, Lobbyist, Nevada Association of Realtors, stated S.B. 418 has three purposes: to clean up existing statutes to reflect the current industry changes, to establish buyer’s agents parameters in Nevada, and to establish stricter educational requirements.  She continued, the bill only modifies two sets of statutes: chapter 645 of Nevada Revised Statutes(NRS), which is the agency chapter; and chapter 133 of NRS, which regulates the sale of real property.  She explained the sections of S.B. 418, beginning with section 1, which amends the existing statutory duties of a real estate agent.  She said it provides that a licensee is not responsible for independently verifying the accuracy of statements made to a client or other third party, such as a loan officer or a building inspector.  Nor, she added, is the agent required to conduct an independent inspection of the financial conditions of the parties.  She asserted the licensee should not be reviewing tax returns, bankruptcy documents, or credit reports.  

 

Senator Townsend interrupted Ms. Luetkehans, asking her why she had only discussed the financial condition and why paragraph (a) of subsection 4 of section 1 of S.B. 418 was necessary. 

 

Ms. Luetkehans explained the key word in that portion of the bill is “independently.”  She gave the example: If a building inspector or certified property inspector makes a determination there is no problem with the roof, it would not be the licensee’s responsibility to double-check the information.  She added this does not remove the existing statutory requirement that the real estate licensees disclose a known defect or a material item to the real estate transaction.  She elucidated, real estate licensees have the duty to disclose what they know, but it is not their responsibility to independently investigate the statements of third parties or their clients. 

 

Senator Townsend commented, he did not “buy” what Ms. Luetkehans just said.  He pointed out how much time the committee has devoted to hearing testimony from people with problems.  He stated he could support paragraph (b) of subsection 4 of section 1 of S.B. 418, but did not like subparagraph (1) of paragraph (a) and subparagraph (2) of paragraph (a) of subsection 4.

 

Ms. Luetkehans noted chapter NRS 645.259 states an agent is not responsible for misrepresentations of a client.  Senate Bill 418, she reiterated, would remove the requirement that an agent double-check everything their client says.

 

Ms. Luetkehans continued, stating section 2 establishes a minimum standard of care by which a real estate licensee must deal with their public.  It also, she said, limits civil liability to 1 year after the transaction ends.  In 1995, she explained, the common law of agency was replaced for real estate licensees.  However, she added, there is no minimum level of competency established, and this would rectify that omission.  She stated they also sought to establish a definite end to a relationship with a client to eliminate future conflicts of interest and protracted litigation.  She noted subsection 2 of NRS 645.254 requires a real estate licensee to keep the confidences of their client for 1 year after the transaction ends.  This, she stated, is why they chose 1 year to end the relationship in S.B. 418.  Section 3, she continued, amends the license law to correspond to NRS 113.130 by insuring it is the sellers and not the agents duty to fill in the mandatory Sellers Real Property Disclosure Statement. 

 

Ms. Luetkehans continued, in paragraph (a) of subsection 2 of section 3, where a buyer and seller hire a certified inspector, the agent, should not be doing the inspector’s work.  In paragraph (b) of subsection 2 of section 3, she explained, a real estate licensee should not be held liable for nondisclosure of public record items that the seller must provide or are readily available to the buyer.  She reiterated these statutes do not relieve an agent from nondisclosure or misrepresentation of a known material fact.  She added there is existing statutory law, which they adhere to strongly under NRS 645.252, which states an agent is always responsible for their statements.  These statutes, she continued, do not relieve an agent of liability if they voluntarily or recklessly state an opinion about something outside their knowledge.  She stated they believe these statutes set boundaries for real estate agent’s expertise, so the public and the agents know where those boundaries are.  She said nothing in this provision alters the Real Estate Division’s ability to discipline an agent for a breach of regulations.  She reiterated the Real Estate Division’s statute of limitations remains in full force and effect. 

 

Ms. Luetkehans continued, section 4 of S.B. 418 puts into existing statute, the real estates practice.  She interjected, there is an error in the language they would like corrected: subsection 4of section 4 should read “a salesman-broker or broker-salesman shall renew his license with the division within 1 year immediately after initial licensing;” instead of, only “a salesman,” which is the way it reads now.  She explained they want to require any new salesman, salesman-broker, or a broker, coming into Nevada, to take the initial 30 hours of continuing education; to insure that within their first year of practice, they are in compliance, and understand the unique properties of Nevada real estate law. 

 

Senator O'Connell asked if the purpose of this language is to require a new licensee coming into Nevada to get 30 hours of training, and where would they go to immediately get this training?

 

 

Ms. Luetkehans answered the training is constantly offered at this time.  She added, she believes the Greater Las Vegas Association of Realtors holds an approved class at least once a week.  She also added the Reno Sparks Association of Realtors is active in providing education, as well as private education vendors for real estate licensees.

 

Senator O'Connell asked if this education requirement would significantly add to the time it would take a new realtor to get a license and begin earning a livelihood.

 

Ms. Luetkehans clarified this would only shorten the time in which an initial licensee will be required to get their 30 hours of continuing education, from 2 years after they are licensed to 1 year after they are licensed. 

 

Ms. Luetkehans continued, indicating section 6 is a housekeeping section, clarifying that a buyer’s agent may have an exclusive representation.  She said this would be an addition to the existing statute, which only includes exclusive agency through the seller.  This reflects, she added, a change in the industry, which now provides specialized buyer representation.  The final section, section 7, she continued, amends chapter 113 of NRS, which states that a seller’s statutory obligation is for full and complete disclosure.  She explained this section balances the seller’s duties with a statement of the buyer’s obligations in real estate transactions.  She added there is a modification they would request on page 2, section 2, line 32, to include NRS 645.345.  She explained NRS 645.343 only deals with salesmen-brokers and brokers, and NRS 645.345 includes the educational requirements for salesmen as well.

 

David R. Walker, Deputy Administrator, Real Estate Division, Department of Business and Industry, testified the Real Estate Division reviewed all the proposed changes and supports S.B. 418.  He noted the language on page 2, line 13, does not exempt agents from being honest and truthful and revealing all the known facts; and it is their opinion that the agents will still be held to the same standards under their duties owed and their fiduciary responsibilities.  He added on page 2, lines 33-35, does not remove agents liability to the commission; it only applies to their civil liability.  Relating to page 3, lines 11-15, he pointed out, there are several schools available both in the north and south operating year-round, and also correspondence, continuing education, and computer courses, which would satisfy these requirements.  He urged support of S.B. 418 on behalf of the Real Estate Division.

Senator Townsend asked what the current law’s time limit is for action brought against a licensee in reference to subsection 4 of section 2 of S.B. 418.

 

Mr. Walker answered, “3 years.”

 

Ms. Luetkehans stated, currently, the civil liability is based on statute of limitations, so it is 2 years based on contract, and 6 years based on oral agreements.

 

Senator Townsend asked, what is the point of shortening it to 1 year?

 

Ms. Luetkehans answered, to bring into line with existing statute of limitations regarding confidences, and also to create a definite end to the relationship between an agent and a client.  She added, Mr. Walker was referring to the Real Estate Division’s ability to discipline a licensee who is in breech of one of their regulations.

 

Wm. Patterson Cashill, Lobbyist, Nevada Trial Lawyers Association, came forward in opposition to S.B. 418.  He stated, specifically, on page 2, subparagraph (1) of paragraph (a) of subsection 4 of section 2, would eradicate the common-law rule, enunciated by the Nevada Supreme Court, 30 years ago, in a case entitled, Nevada National Bank v Gold Star Meat Company.  He explained this stands for the proposition that even if one does not have a duty to speak, once a person responds to an inquiry, that person must respond accurately, candidly, and truthfully.  The case, he continued, involved a banker who had no responsibility to a noncustomer who inquired about a customer of the bank.  The banker had no duty to speak, but he did speak, and negligently misrepresented the financial condition of the customer; the bank was held liable.  Mr. Cashill stated, what they are concerned about is this section would seem to immunize a broker who either has enough information to be able to make a representation, or who knows nothing yet makes a representation to the detriment of the person to whom he speaks.  Also, he continued, they are concerned about the shortening of the statute of limitations on page 2, line 34.  He stated the statute of limitations under NRS 11.190, for negligence is 2 years, for fraud is 3 years, for breech of fiduciary duty is 4 years, for breech of a written contract is 6 years, and oral contracts generally have a statute of limitations of 4 years.  He added in cases of fraud, misrepresentation, and negligence, the statute of limitations does not begin to run until the person who has been victimized by the wrongful act, either knew or should know of acts which constitute the wrong.  This section would throw out the time-honored and long-standing provisions of the statute of limitations, which are in place for the protection of people.  He expressed this would not be sound social legislation.

 

Robert C. Maddox, Lobbyist, Representing, Nevada Trial Lawyers Association, asked the committee to compare section 1, subsection 4 of S.B. 418 to NRS 645.252, which says, “the licensee . . . shall disclose to each party . . . any material and relevant facts, data, or information which he knows, or which by the exercise of reasonable care and diligence he should have known, relating to the property.”  He gave the example: A home had a basement, which has flooded in the past, and the flooding has caused damage, but the seller remodeled so the damage was hidden.  He continued, the agent had experiences in the neighborhood, and had a reason to suspect there may be damage, but the seller told the agent the basement had never flooded.  Mr. Maddox asserted subsection 4 of section 1 would exempt the agent from investigating or revealing a suspicion of a problem, because the seller had told him otherwise.  He expressed that would be bad public policy.

 

Senator Schneider stated Mr. Maddox would be putting the realtor into the role of an inspector or appraiser and would be holding the agent liable for information which is out of their field of expertise.

 

Senator Townsend clarified page 2, line 44 of S.B. 418, “failure of a seller to make disclosures required by NRS 113 . . . .” or “if the client engaged the services of an inspector certified pursuant to chapter 645D of NRS or another appropriate licensed or certified expert; or (b) The information that would have been disclosed . . . .“  He stated it is becoming more common to use an independent inspector.  He said he personally had hired an inspector several years ago, and had discovered what they thought was a perfect home turned out to have several flaws, which they, as the sellers, were required to fix.  He stated the inspectors have an expertise a broker would not have.  In turn, he said, he also had a prospective new home professionally inspected, and that home also had flaws.  He stated when you talk about an action brought to enforce the provisions, which cannot commence after a year, the issue becomes, What is the definition of a licensee?  He said if their role is to handle the transaction, which is, in essence, a paper exchange, that is different from a 2-, 4-, and 6-year responsibility on something that might be wrong with the home.  He added he is not trying to protect anyone; however, if they do their job under the current law, then this does not seem to be an issue, because the transaction is, in essence, only paper.  He said he believed an inspector who does not find a defect should be the party that should have the extended timeframe of liability.  He noted Ms. Luetkehans had made the point that the reason to change to 1 year is to end the responsibility to the client.  He said he is concerned every licensee could be brought into court for every defects case.  He added if they have a responsibility, they should be held responsible, but if they do not, he did not know why a year would not be adequate.  He said he did not like some of the language, but wanted to understand their objection to the 1-year limit on liability. 

 

Mr. Maddox responded the 1 year runs from the date of recordation of the transaction.  He stated there could be many things, which would not be discovered within 1 year.  He added the usual rule for statute of limitations is a time which runs from when the injured party knew or should have known of the injury.  Consider, he suggested, an undisclosed easement or something both the seller and seller’s agent should have known, which was not disclosed to the buyer.  He continued the holder of the easement may not make the claim until after the first year, and suddenly the buyer discovers the problem.  He asserted 1 year is far too short a time in which to cut off the buyer’s rights.

 

Senator O'Connell asked Mr. Maddox how they determine “should have known.”  She continued, if the party is not familiar with certain situations or areas, would they be held responsible to know?

 

Mr. Maddox answered, the language, “knew or should have known,” is in many statutes and in case law.  He explained the concept is if the law is limited to what is actually known, and then if a person said they did not know, the inquiry would end.  He said judges and legislators have felt if it is something a person should have known in terms of the facts which have been available to that person, then they would still be responsible.  He pointed out, these cases are difficult to prove and are based on circumstantial evidence.  He said, in court it can only be shown through a preponderance of circumstantial evidence, a person should have known and is only saying they did not know to avoid culpability.

 

Senator O'Connell asked why he thought the fault should not be with the seller instead of the agent selling the home.

 

Mr. Maddox gave an example of a 20-year-old home built on unstable soil; this fact was not disclosed by the seller or the seller’s agent.  The case against the agent, he continued, was based upon the number of other homes in that neighborhood where the broker had knowledge of the unstable soil conditions.  Mr. Maddox said the agent had conducted transactions for properties on both sides of this home where the soil was unstable.  He said neither the seller nor the broker disclosed the information.  He continued, the case against the broker was based on circumstantial evidence he should have known, and there should have at least been an inquiry to determine if the home was on unstable soil. 

 

Senator O'Connell asked Ms. Luetkehans, if they discuss these issues in the continuing education courses, which realtors are required to take.

 

Ms. Luetkehans answered, in 1997, the law was established which requires the seller to disclose any major defects, and removed the liability from the agent who is not a property inspector.  She noted in the case Mr. Maddox mentioned where the seller had remolded the flood-damaged basement, the buyer’s recourse would be to come against the seller.  At no point, she added, had they attempted to remove the liability from the agent for misrepresentation or negligent misrepresentation upon which there are damages to a potential buyer.  She asserted a real estate licensee should not be liable for independent investigation of the physical qualities of a property.  She stated NRS 113.150 provides the buyer the ability to go after the seller for misrepresentation.  She continued the reason they had asked licensees to complete 30 hours of classes in the first year is to make sure new licensees in Nevada understand our disclosure laws.  She added, Graduate Real Estate Institute (GRI) classes require the licensee to understand all the ramifications of disclosure.

 

Senator O'Connell asked if the agent representing the buyer also has responsibility.

 

Ms. Luetkehans answered, one of the reasons they are asking to change NRS 645.635 is to add a client’s exclusive representation.  She said this would acknowledge the change in the industry where there is more and more buyer representation.  This includes, she added, reasonable disclosure of anything the buyer’s agent knows about the property.  She reiterated both the seller’s agent and the buyer’s agent will now be held responsible for disclosure on known information.

 

Senator O'Connell asked if, in Mr. Maddox’s example of the remodeled flood‑damaged basement, both agents would have been involved with the case.

 

Mr. Maddox answered, if there was evidence to support the contention, both agents should have known of the condition, then they both would have been brought into the case.  He added this was an actual case, and in this case the buyer’s broker was not brought into the case, because there was no evidence the buyer’s broker should have known.  He continued it was the seller’s broker who had conducted the transactions on adjoining parcels where there was disclosure.  He added the seller’s broker had actually owned and developed one of the parcels and had to hire engineers to design special systems to deal with the unstable soil.  He stated those were the circumstances supporting the contention the seller’s broker should have known, but there were not circumstances which supported the concept the buyer’s broker should have known.

 

Senator O'Connell asked Ms. Luetkehans if she agrees with what Mr. Maddox says, does she see the same flaws in the language as he does.

 

Ms. Luetkehans answered she does not see the flaws he does.  She said what they are addressing is not the intentional misrepresentation of an agent.  She stated the case to which he referred was probably heard before 1997 when the seller’s real property disclosure statement became mandatory.  What S.B. 418 does, she continued, is to cap the representation of a client at 1 year, which is in line with existing laws in regard to keeping a client’s confidences for 1 year, and to stop conflicts of interest.

 

Senator Townsend closed the hearing on S.B. 418 and opened the work session on S.B. 421.

 

SENATE BILL 421:  Makes various changes to provisions governing common-            interest communities. (BDR 10-446)

 

Senator Schneider played a country western music tape, which is a parody on the housing problems in Las Vegas.

 

Senator O'Connell offered for viewing a file of a representative sample of the complaints and problems she has received from constituents in her district regarding condos and homeowners associations.  She said she had many more but was unable to carry them all.  She added she hoped the amendment presented by the group (Exhibit C) would address the concerns of her constituents.

 

Mr. Walker asked if those complaints had been submitted to the ombudsman’s office.  Senator O'Connell answered, “Probably about 4 or 5 times.”  Mr. Walker asked if the people were dissatisfied with the decision of the office.  Senator O'Connell replied the constituents had called and given the information to the ombudsman’s office, but there has been no action on the complaints.

 

Mr. Walker suggested the complaints be resubmitted, because they appointed a new ombudsman the first of April.  Senator O'Connell commented, it is unfortunate the law is not sufficient to support action by the ombudsman.

 

Michael E. Buckley, Lobbyist, Community Associations Institute, stated he has been involved in chapter 116 of NRS since 1991.  He said about ten or twelve people, including property managers, home owners, developers, attorneys, state representatives, John Meder (Committee Policy Analyst, Research Division, Legislative Counsel Bureau), and a representative from the attorney general’s office met following the committee meeting the week before.  He stated Tami DeVries from the Real Estate Division was given the task of compiling the consensus of the group (Exhibit C). 

 

Mr. Buckley presented an explanation of their work document (Exhibit C) to the committee.  He began, stating the commission for common-interest communities should not be created to punish volunteer board members.  His group, Community Associations Institute (CAI), had proposed a broader commission, which would have education and the supervision of licensees as its goal, rather than a disciplinary body.  He stated the consensus of the group was to fund an interim committee to study the problem.  He said they would like a technical committee, which would be representative of the various participants in common-interest communities, including associations, managers, the title industry, developers, lenders, local and state government, and real estate brokers to gather data and also to survey the people who participate in homeowners associations.  He noted the legislation impacts all different kinds of associations from a twelve-unit condominium, to a housing division that has 10,000 units.  He reiterated the consensus of the group was they did not like the way the commission was proposed.

 

Mr. Buckley continued, sections 3, 4, and 5 of the bill are new definitions.  He stated the group proposes using the term “community managers.”  He pointed out, this terminology can be found in the Nevada Administrative Code (NAC).  He stated these definitions may be a technical correction which would bring them to the front of chapter 116 of NRS.  He said the study group suggested the function of the community manager’s company appears not to be covered under existing legislation.  He stated the group suggests deleting sections 6-14, which deals with creation of a commission and the group suggests instead creating a study group.  He added there is a new ombudsman, as Mr. Walker had stated, and there was a request to give that ombudsman an opportunity to resolve some of the problems before a commission is created.

 

Senator O'Connell stated she was told the ombudsman’s office receives approximately 1000 calls per month.  She asked how a person who has no authority to fine can be effective.

 

Tami DeVries, Legal Administrative Officer, Real Estate Division, Department of Business and Industry, replied the ombudsman’s office receives approximately 8000 calls per year.  She added those calls include multiple calls from the same person and simple clarification questions. 

 

Senator O'Connell said she had contacted the ombudsman’s office and requested a breakdown of the areas from where complaints were being received, to try to identify trends.  She said she had also asked the complaints be categorized, and has never received any information from the office.  She stated they need to know, specifically, what they are addressing.  She cited the meeting she and Senator Schneider attended, where there were many similarities in complaints.  She stated she, personally, has received more than 500 constituent complaints in her office alone.  She asked if the ombudsman’s office has identified trends that would help identify problem areas.  She repeated she has never received the information she has requested from the ombudsman’s office.  She added when she speaks to the ombudsman’s office, they tell her there is nothing they can do about these complaints. 

 

Ms. DeVries stated the ombudsman’s office did not have a mechanism by which they could gather the information requested.  However, she added, in the past 2 months, a program has been implemented which can now filter the information, and data will be collected sometime in the near future.  She stated this is the reason they had asked for an interim committee, which could assist them in understanding where the problems are and how they can correct them.

 

Senator O'Connell asked where the money being contributed by the home owners has been spent.  She suggested it would be valuable to try to identify trends and to categorize complaints.  She added there also should be a better accounting of how the people’s money is being used.  The people who are paying for some protection or relief are “infuriated” when they have to leave a message at the ombudsman’s office and never get a response.  She said, the people call their representatives, who are unable to show a law which protects them, though they contribute money. 

 

Ms. DeVries agreed the problem is frustrating.  She offered a memorandum (Exhibit D) listing eleven new programs, which will be implemented by the ombudsman’s office, using the homeowners associations’ funds.  She suggested these programs will provide immediate assistance to home owners, boards, and to managers.  She said the programs were modeled after programs implemented by the State of Hawaii.  She added it took Hawaii 4-5 years to develop these programs.

 

Senator Townsend asked why the new ombudsman was not present at the hearing. 

 

Ms. DeVries answered the new ombudsman, Mr. Hardy, was at the previous hearing, but because he is new to the position, they felt they were better qualified to present a historical background and the other information needed.  She added they felt Mr. Hardy could better serve by staying in the office and work on implementing the new programs and the new data system.

 

Senator Townsend inquired why the questions asked by Senator O'Connell and Senator Schneider remain unanswered after 2 years, and why there is still no data gathered.

 

Ms. DeVries answered there is some data which was presented at the September meeting, but the new computer program has just been initiated and that filtering process will be able to collect data soon.  Before this, she explained, the calls were logged to a word processing document, which could not separate statistical data for this meeting.

Senator Townsend stated home owners are frustrated, and 2 years have passed, and there is still no progress.  Ms. DeVries responded, that appears to be so.

 

Senator Townsend asked what the budget is for the ombudsman’s office.

 

Ms. DeVries replied she does not have the budget with her and said she would get it.  She stated the reserve funds are around $680,000.  She said that is the money they would use to fund the interim committee, and to implement the eleven new programs. 

 

Karen D. Dennison, Lobbyist, Lake at Las Vegas Joint Venture, responded to Senator O'Connell’s comment regarding the lack of laws to protect home owners.  She stated this is the reason the group proposed the interim study.  She said one of the functions of the office of the ombudsman is to assist home owners in filing mediation and arbitration proceedings under chapter 38 of NRS, which covers governing documents.  She cited this as an example where the laws currently exist to protect home owners.  She added, some problems about which home owners have complained such as, violations, and failure to enforce the governing documents, would not be covered; but most of the complaints against executive boards involve failure to enforce covenants, conditions and restrictions (CC&Rs).  She said home owners could go through the ombudsman’s office and proceed with mediation or pursue arbitration. 

 

Senator O'Connell suggested some of the people do not have the money to go through the arbitration process.  She stated they feel they are paying their dues to have an office to help them, and they were not expecting to have to pay extra for the arbitration process.  She added some are senior citizens who are being intimidated or harassed by the board.  She maintained the people are extremely distraught because they already pay money to the ombudsman’s office, and they do not have more money to go to arbitration to resolve the problem.  She cited a person who threw rugs over a balcony when they were vacuuming, and a board member said they would be fined $50 for the violation and there would be interest on the fine until it was paid.

 

Ms. Dennison stated she understands there needs to be better legislation, and that is why the group recommended the interim study.  She cited an example from the work session, where an owner got himself elected to a dysfunctional board to try to initiate improvements.  She suggested if the majority of the owners do not approve of a board, there is a removal process by which a board member can be replaced. 

 

Senator O'Connell stated her district has more condominiums than any other area.  She said the reality is not that simple.

 

Ms. DeVries stated the law allows for subsidized mediation using the ombudsman fund.  She suggested it may be possible to use those funds for subsidized arbitration if they would choose to add that to the bill.  She added they would need to establish criteria for who would qualify for subsidized arbitration.

 

Mr. Buckley returned to further discuss the proposed changes from the working group (Exhibit C).  He stated the group believed section 23 was problematic, because it required a response by the board to a complaint within 10 days, even if the board had not met.  He suggested a change to section 23, requiring an acknowledgment by the board within 10 days, but a response would only be due after the board had met.  Subsection 2 of section 23, he continued, was redundant, and would be addressed by the suggested new language for section 23.  He explained, section 24 is a prohibition against retaliatory conduct by a board against someone who has made a complaint.  He said the group felt stating the board could not “harass” was too vague, and created a problem with interpretation.  He suggested the language in section 24 should simply state “the board will not take any retaliatory action,” which would be more effective.  He pointed out attempting to serve a process could be interpreted as harassment.  Also, he suggested, in section 24, the complaint in subsection 1 should refer to an “alleged” violation, because it would not have been determined at that point if it were an actual violation or not.  He recommended the language, “in good faith” be added to subsection 2 of section 24, so the unit owner himself would be reviewing the books for legitimate purposes.  Section 25, he continued, prohibits any contract with an association, where a board member had an interest.  The group suggested this language be changed to allow a board member who had an interest to be required to disclose that information, and then that member would not vote on the contract, but the rest of the board could take action.  He noted chapter 78 of NRS permits a contract with an interested board member if the stockholders approve it; and the group would also like to add the language if the unit owners approve the contract, it would be allowed.  He stated they also made an acceptation for declarant contracts, which is also covered in chapter 116 of NRS.

Mr. Buckley went on to describe further proposed changes recommended by the working group.  He suggest section 25 of the bill which allows associations to pay salaries to board members, was thought by the group to be a positive addition to the law and may encourage more participation and help retain better board members.  He said all the people in the working group agreed section 26, requiring the Real Estate Division to prescribe a standard for CC&Rs, was impossible; and this should be removed.  He stated the working group would propose changing section 27, which deals with construction defect lawsuits.  As chapter 116 of NRS was originally enacted, he explained, the board was given approval over lawsuits, and the group would like to restore that board approval for lawsuits, with an exception for construction defect lawsuits.  He added the group believes the issue of construction defect lawsuits will be better addressed in another bill.  He suggested adding the language, “subject to the provisions of the bylaws of the association . . . the executive board of the association may exercise all authority of the association with respect to litigation or administrative proceedings,” would eliminate exceptions other than construction defects.

 

Senator Carlton asked what is in NRS 40.615.  Mr. Buckley answered NRS 40.615 is a definition of a construction defect.

 

Senator Townsend asked Mr. Buckley to explain why they would want to change section 25.  He asked why they would allow even a perception of impropriety by a board.

 

Mr. Buckley answered, in smaller complexes, there may be a situation where someone’s relative is providing accounting services at a good rate for the board, and if that is disclosed and the interested member does not vote, then that should be an option available.  He noted, this is permitted under corporate law, and the group had adopted the language from chapter 78 of NRS. 

 

Mr. Buckley continued his explanation of the proposed changes.  He said section 28 of S.B. 421, which deals with inheriting a unit, could cause problems with the community adhering to federal law in some instances.  He stated by the federal Fair Housing Act, a community is only allowed to be age-restrictive if it is set up under federal law where not more than 20 percent may be outside the required age group.  If an inheritance should significantly alter the ratio, then the community could be placed in jeopardy of losing its exemption.

 

Pamela J. Scott, Lobbyist, Howard Hughes Corporation, answered a question posed by Senator O'Connell last week, stating the lawsuit against Sun City was dismissed by federal court, because there were no grounds for a federal case.  She added the court said there may be state issues, but Ms. Scott believed it has not been resolved yet.

 

Mr. Buckley continued, saying the group felt section 29, which requires disclosures in advertising, was overly broad.  He said it would require disclosures in printed ads, television, and signs; and this information is already required to be included in a public offering statement, and in the seller disclosure.  He stated section 30 should be deleted, because it is already covered by federal law.  Section 31, he said, is a technical section and will depend on any new definitions which may be added.  He stated the group proposes technical corrections to section 32.  He said on page 9 of S.B. 421, line 12, where it states, “any member of the real estate commission can issue a subpoena,” should be changed “to any member issued on ‘behalf’ of the commission.”  Also, he continued, line 16 should be deleted, because subpoenas could have different time limits depending on what is required.  He stated in line 22, the response should be within 10 days after service, rather than from the date of the order.  He explained in section 32, the subpoena itself would tell you when you have to respond. 

 

Mr. Buckley stated section 34 gives a unit owner the right to do anything they want so they might “feel safe and secure” in their home.  The group felt this would allow home owners, for instance, to put barbed wire around their home without standards.  The group proposes restoring the architectural approval, and to clarify, these improvements can be made inside your home, but not outside without approval.  He added, he was the City of Las Vegas Planning Commissioner for 7 years and property values were of great concern to home owners.  He believes section 34 would allow people to ignore architectural restrictions and would negatively impact property values.

 

William A.S. Magrath ll, Member, Board of Directors, Caughlin Ranch Homeowners Association, stated although it sounds reasonable to be allowed to protect your home, he said he is concerned the breadth of the language in section 34 would allow a person to install a chain link fence, with barbed wire along the top, around their home.  The bill, he added, would eliminate CC&Rs, which protect property values.

 

Ms. Dennison recommended a language change from the working group’s suggested changes for paragraph (a) of subsection 2 of section 34 of S.B. 421, found on page 6 of Exhibit C; the words “in good faith” should be followed by “and in writing”, so it is clear the approval for an alteration was made.  Also, she said, on page 7 of Exhibit C in subsection (b) the term “unit”, as defined in chapter 116 of NRS, includes the land and structures, whatever is singly owned by a unit’s owner.  She suggested they replace the terminology “in a unit” to “within a dwelling unit.”  She continued NRS 111.239 already forbids any CC&Rs from unreasonably restricting the owner from obtaining solar energy.  Because of this, she suggested striking the language on line 38 of page 10, in regard to the use of solar energy; but leave the language dealing with screening for protection against solar energy.  She continued subparagraph (1) of paragraph (c) of subsection 2 of section 34 should be deleted, because this protection is guaranteed in the Fair Housing Act.  She suggested, subparagraph (3) of paragraph (c) of subsection 2 of section 34 was too vague and should be changed to say, “could install shutters or additional locks,” which was the original intent.  Also, she stated, the word “unit’ on line 46 of page 10 of S.B. 421, should be changed to “dwelling unit”, to designate the interior of a home.  She added, in the suggested changes, on page 7 of Exhibit C, the word “alterations” is misspelled.

 

Mr. Buckley continued, the bill purposes to eliminate a provision which prohibits someone from voting who is delinquent or in violation of their assessments.  He stated the group would like to retain that provision.  He said the group would like the fine of $500 per year, which is mentioned twice on page 11 of S.B. 421, to be increased to $1000 per year.  He suggested, in some cases, it is more economical for a unit owner to violate a CC&R and pay the penalty.  He gave the example: It would be cheaper to pay the fine to park a boat or Recreational Vehicle in violation of the CC&Rs, than to rent a storage unit.  He stated the real estate commission recommended the deletion of subsection 4 of section 35, and the group concurred.  The group, he stated, would like to replace that section with suggested language from page 8 of Exhibit C, which would permit penalties for people who do not complete their homes within the time required.  This exception to the limitation on fines, he added, would be spelled out in the declaration. 

 

Ms. Scott said she believed this provision should be stated in the declaration when a purchaser buys.  She added this provision could be changed by the design review committee if it were only in the design criteria, and that does not offer adequate protection to the home owners who come in afterwards.  She noted a declaration would require a super-majority to amend the declaration, and existing home owners would probably have to be “grandfathered in.”  She suggested, if you put this in the declaration, rather than the overall governing document, which could be changed without a vote of the home owners, it would prevent abuse.

 

Senator O'Connell asked if there had been discussion in the group regarding putting a cover page or index on CC&Rs to aid home owners in finding information.

 

Ms. Scott replied many homeowners associations already produce an index for their CC&Rs, and some homeowners associations also produce an abridged version for the convenience of their members.  She said she supports a simplified document for home owners and said many larger complexes already provide one, but suggested it may not be economically feasible for smaller associations.

 

Senator O'Connell asked if they had discussed separating the larger homeowners associations from the smaller ones in a two-tiered system, because, she suggested, they are quite different.

 

Ms. Scott agreed there is a great difference, and said she had attempted to have a study group investigate this after the 1999 session, but the money was never allocated.  She added that is why she believed it would be valuable for a interim study group to examine the differences and determine what a master association is, as opposed to a small condominium or a small custom home neighborhood, and to determine what their different needs are.  She noted it could be 5 years before people build their homes in a costume home neighborhood, and yet, the law has put requirements on absentee owners.  In a large association, she continued, there are quorum issues, and districts must be delegated.  She suggested the law is written for the 150-unit condominium, which she understands is where a lot of the abuses lie.  However, she added, it is getting more complicated for everyone to try to fit themselves into the law.  She reiterated, a true study of the differences of these types of associations would be a tremendous value to the citizens of Nevada.

 

Mr. Magrath stated he agreed with Ms. Scott, adding Caughlin Ranch has 2200 members, a professional staff, a manager, and maintenance crews; and he feels the condominium complex, where they do not have professional staff and good managers, experience different problems.  He suggested the laws they are proposing may cause volunteers on larger homeowners association boards to quit their positions, and make it more difficult to find qualified board members.  He cited the previous testimony of the 15-unit association in Lake Tahoe of mostly seniors where none of the members would sign the agreement to participate on the board because the document of CC&R’s and accompanying laws was so large.  He stated the purpose of making these laws was to try to get better, more responsible boards to protect the interest of the home owners, and, in fact, it may be doing the opposite.  He concluded he supports the concept of funding a study group to try to create some differentiation between the super‑associations and smaller associations.  He restated he fears the bill may cause board members to quit.

 

Mr. Buckley said, in response to Senator O'Connell’s statement regarding fines and disclosures, in 1991, when chapter 116 of NRS was drafted, the uniform act had many disclosures.  He said, then, the consensus of the State Bar study group was they did not want a disclosure document that was almost as long as the CC&Rs, but more user friendly.  He suggested the proposed study group could determine what should be added to a disclosure statement.  He noted in some states, a board must publish a policy regarding fines every year.

 

Senator Townsend commented Senator O'Connell and Senator Schneider represent people from the bulk of these associations, and the statistics are poor, so they do not know if these complexes are 200 units or less.  He stated, in his opinion, a person who buys a home in Caughlin Ranch, or Summerlin, or Lake at Las Vegas is buying into a lifestyle rather than just a home; and they would be more likely to read all the documents.  He noted when he recently visited Lake at Las Vegas, the licensee did not know there was a separate subassociation fee.  He said he had to drive the licensee to an interior gate of a subassociation and explain to the licensee they charge a separate fee.  However, he continued, other people who are simply buying a home do not have the time, or necessarily care, to read the CC&Rs and the laws governing homeowners associations.  He said, he believed, most of the problems in the complaints are probably from smaller associations.  He stated this legislation is geared toward them.  He said he had watched the 8-hour tape of the testimony presented to Senator O'Connell and Senator Schneider, and he believes there is a serious problem, which needs to be addressed. 

 

Ms. Scott responded she has a 90-unit subassociation, an 11-unit subassociation, $90,000 condominiums, and $9 million houses, and she needs to protect all of them.  She urged the committee to legislate them differently.  She also added, in regards to Senator Townsend’s remark regarding the agent who did not know about a subassociation fee, she feels strongly the interim study group should be investigating the education requirements of real estate agents.  She said the educational requirements for the certificate holder and the permitee of a licensed real estate agent for property management are vastly different.  She stated a certificate holder must have a lot more hours of training.  She noted in Summerlin they created their own school for training their agents. 

 

Senator Townsend asked from where Ms. Scott thinks she gets the most complaints.  She answered, “the people, the pools, the pets, parking.”  She stated it does not matter how big the association is, there will always be problems with neighbors.  She noted this is not the fault of the association; her mother does not live in an association and she has bad neighbors too.

 

Senator O'Connell noted board members have been murdered over the frustration of a home owner.  She reiterated this is a very emotional issue for people and they call her office, and are hysterical.  She cited a constituent who has a secret code with the utility companies to keep her neighbors from having her utilities disconnected.  The same woman, a senior citizen, Senator O'Connell continued, has realtors constantly coming to her home saying they are responding to a call saying she is interested in selling her home.

 

Mr. Magrath responded he did not know how any homeowners association could remedy that kind of situation.  He noted many of these residents who purchase condominiums have previously lived in single-family homes and the close proximity is difficult to adjust to.  Most of the units in Caughlin Ranch are very expansive single-family homes, but they also have neighbor disputes.  He cited meetings where the board discusses dog control, noise, and lawn maintenance; and the board is being threatened for not doing something about these problems.  He suggested the interim study committee would be a good way to investigate the differentiations and the levels of problems.  He stated if a law is created to solve each of the problems Senator O'Connell has encountered, it would solve the individual problems, but prevent associations from enforcing other CC&Rs.

 

 

Senator O'Connell responded, they need to find a way to prevent frivolous fines, as in the case of the person who temporarily draped their rug over the railing.  She noted the person who needed the secret codes to prevent their utilities from being disconnected is the president of their board.

 

Mr. Magrath suggested, as a former prosecutor, there should be a criminal complaint filed.  He restated they cannot legislate for each complaint.  He gave the example: in Caughlin Ranch contractors are not allowed to work on Sundays.  He continued, if the new law restricts the ability to charge a fine, then, if contractors work on a Sunday, the association’s alternative is, to sue the contractor, let him work, or bring a complaint against the home owner to the Real Estate Division.  He stated the purpose of a fine is to get a home owner to do something, because the fine would be an inconvenience, rather than the much more time consuming, and possibly, expensive alternatives.  He noted his association rarely fines.  He stated the remedy to every one of the home owner’s problems could dilute the ability of his board to create the environment their home owners want. 

 

Senator O'Connell stated she lives in a home in an association, and she wrote their CC&Rs.  She added she must be responsive to the constituent complaints before it builds to a situation where someone gets murdered.  She said, in networking across the country, she has found every state has this problem, and they do not know the answers either.  She commented there should be some common sense to a board’s response to complaints.

 

Senator Carlton stated she does not live in an association, but lives in a neighborhood.  She commented people who live in associations who have problems do not have to talk to their neighbors, but talk to the association, because the association put it in the CC&R’s.  She noted when she has a problem with a dog next door, she knocks on her neighbor’s door, and asks them to be sure they close the gate.  She said the next-door neighbor’s home is for sale, and prospective buyers come to her house to talk to her about the home.  She said when she tells them the neighborhood is not part of a homeowners association they are glad.  The CC&R’s, she declared, are creating their own problems.  She said, she believes, if there were no homeowners associations, people would be forced to work out their problems directly with their neighbors.  She added if it is a health issue, or life threatening, or a dangerous dog, then she can understand the board should be asked to step in, but if it is a dog visiting the front yard, or a rug on a banister, or the music is too loud, then neighbors should talk to each other.  She stated if the CC&Rs were changed, and people were forced to communicate with each other, a lot of their problems would disappear.

 

Ms. Scott agreed people should speak to each other, and noted, through state law, before a fine can be issued, the first step in the procedure for resolving disputes involves a hearing, where the parties discuss the issue.  She remarked although she does not believe the CC&Rs can be abandoned, there are some rules which are unenforceable, and should be removed.  Unfortunately, she added, so many of the CC&Rs are plagiarized from other documents, and do not necessarily apply to the particular community. 

 

Mr. Buckley continued, saying section 36, lines 5-9 on page 12 of S.B. 421 should be eliminated, which would allow a governing document to prevent someone who is delinquent in paying assessments from serving on the board.  He stated in section 37, the study committee proposes retaining NRS 116.31036 as it presently reads.  He explained for an officer to be elected to a board, a quorum does not need to be present; but on the removal of an officer, the outcome depends on two-thirds of a quorum; this insures a small group cannot remove an elected officer.  In section 38, he continued, the group would like to delete subsection 4, which is a reference to the commission.  He stated, also in section 38, the group proposes to amend the new language to correct the references to special meetings in subsection 8.  He said, in section 36, the group would like to address the problem regarding if an association tries to hold a meeting, but cannot get a 50 percent quorum.  They propose, he said, the meeting could be adjourned, and the second meeting could hear the issue with a reduced quorum.  He noted this is standard corporate procedure. 

 

Ms. Scott explained many documents already have reduced quorum requirements for second or third meetings.

 

Mr. Buckley continued, in Exhibit C, on page 10, there is a section indicating the provisions of chapter 116 of NRS would prevail over chapter 82 of NRS in cases of conflict.  He explained some associations are set up as non-profit organizations, which are governed by chapter 82 of NRS.  He noted there can be conflicts between these laws, and the group would like S.B. 421 to clarify the hierarchy.  He continued, stating the Real Estate Division had asked the group to delete section 40 entirely, which deals with the Real Estate Division adopting regulations defining emergencies, and the working group had no objection to that. 

 

Mr. Buckley commented the working group discussed the new language in section 41 for over an hour.  Their goal he stated, is to retain the open meeting law language for board minutes, but the problem with a volunteer board is they do not have a counsel present to interpret the open meeting law, so the group suggests trying to make the bill less broad regarding what should be included in the minutes.  He said the group proposes adding a provision to subsection 4 of section 41, providing the executive board may establish reasonable limitations on materials, and remarks to be included in the minutes.  On page 17 of S.B. 421, he continued, they suggested language be removed to require the Real Estate Division to adopt regulations regarding emergencies.  He stated the group would also like to clarify the law to say the only thing that can be discussed in an executive board meeting would be matters relating to the employees of the association.  This, he added, would exclude a management company from being discussed in an executive session. 

 

In section 46, Mr. Buckley continued, the group suggests the language in NRS 116.31139 reference elections and not removals.  He explained this provision says whatever votes are returned are counted for electing a member, but the group believes this is not appropriate for removal of a board member.

 

Mr. Magrath expounded Caughlin Ranch has 2000 members.  He said they send out 2000 ballots and get around 800 ballots back.  He explained that is not a quorum, and this new language would simplify the process.  He suggested crossing out the language in Exhibit C, “determining whether a quorum is present for,” and then subsection 3 of section 43 of S.B. 421 would read, “for purposes of the election of any member of the executive board.”  He suggested, then inserting the words, “a quorum shall not be required,” and the rest of the text remains as, “and only the secret ballots that are returned to the association may be counted.”

 

Ms. Scott interjected the way the language reads on page 18 of the bill, if you simply remove the words ”or removing”; that would also work.  Mr. Magrath agreed with Ms. Scott’s comments.

 

Mr. Buckley continued, noting section 45 requires a board to repair damage to the association property within 10 days, and the working group believes that is unreasonable.  He explained the original intent of section 45 was to deal with a major destruction, and not with construction defects.  He said it was meant to address whether you keep the community going after a major destruction or pay out the money to the home owners, and the reference to a 10-day repair is inappropriate.  He stated the changes to section 46 are to correct reference from “property manager” to “community manager”, and change references from the “Real Estate Commission” to the “Division”.  He stated also in section 46 on page 20, lines 48 and 49, the exception for an employee of a corporation who manages only the property of the corporation, was not intended to be for the association unless the corporation is also an association. 

 

Ms. Scott explained in the last session there was concern about “grandfathering in” persons who had been managing for a long time.  She said in doing this, they took out an exception for an on-site manager.  She suggested it was their intent to have an on-site manager be required to get certification, or be a permit holder.  However, she continued, most on-site managers are employees of corporations.  She said they need to clarify, if the corporation is an association, they still must be a permit or certificate holder.

 

Mr. Buckley stated the group proposes deleting lines 8-43 on page 22 of the bill.  He noted their written proposal for changes (Exhibit C) is incorrect on this.  He said NRS 116.3115 is the beginning of the sections dealing with assessments.  He continued since there was a provision requiring 21 days for approval for special assessments, the language for lawsuits was inserted.  He stated the group suggests taking out all of the provisions dealing with lawsuits from this assessment section and put them in a separate section.  He said, then, it would be left to the board to decide, except where there is construction defect litigation, which must be approved and disclosed as the group and the committee agrees. 

 

Senator Townsend asked if Mr. Buckley means they would not change any of the requirements to commence civil litigation under the current statute.

 

Mr. Buckley answered they would change it slightly.  He stated, the way the law is presently written, there are still some types of lawsuits that deal with violations of the CC&Rs, which need unit-owner approval.  He said the group proposes they change the law from listing all the exceptions to homeowner approval to saying the board can approve lawsuits, and list the exceptions to those.

Mr. Magrath stated the original law was written to deal with assessments.  He said, as the law changed and people have become concerned about construction defect litigation, additional requirements have been added.  Now the law requires a majority vote of the owners for any lawsuits to be filed, except in certain circumstances.  He said his board was still able to sue through the exceptions in the law over failure to pay an assessment or failing to comply with CC&Rs.  The current bill eliminates these exceptions and requires a 50 percent majority of the home owners to bring any action.  He asserted if the board wants to sue a home owner for failure to pay an assessment or for failure to comply with CC&Rs, it is unworkable for an association the size of Caughlin Ranch to get 1100 votes.  He stated the group would like to reinstate the corporate power of the board to commence lawsuits except in certain circumstances.  This, he said, would simplify the bill. 

 

Ms. Scott directed the committee to page 5 of Exhibit C. She stated the group suggests returning litigation decisions to the board, where they have been in the past.  She said the group recommended NRS 116.3102 be restored to the original language, and then spell out the exceptions, such as construction defects.  Mr. Buckley added the board should also have the power to sue a landscape contractor without the approval of the unit owners.

 

Ms. Dennison stated owners would still be protected from an abusive board, because CC&Rs require owners to vote to enact any special assessment.  She noted NRS 116.3115 requires owner approval for special assessments.  She said the proposed change would only return the power to the board to act on routine issues, such as CC&R violations. 

 

Mr. Buckley said the group suggests deleting the requirement for ombudsman approval for any foreclosures.  He noted there was no standard for this approval.  He recognized Senator Schneider’s original intent was to include an advocate in the process.  Mr. Buckley stated the group proposes the association or the person conducting the sale would certify to the ombudsman on a form, which the Real Estate Division prescribes, and the law would also retain compliance with the notices provision and any other requirements for foreclosing.  He said the ombudsman would have an opportunity to review the form, and intervene if he or she felt it was warranted, but he or she would not be required for approval.  He added the Real Estate Division was in favor of this approach.

 

Mr. Magrath added, the ombudsman’s approval would be a burden on their office.  He said if the association is required to certify to the ombudsman and they have complied with every requirement on the Real Estate Division’s form, then the ombudsman would have the opportunity to become involved, but not the obligation.  He stated the group is concerned, if the ombudsman were required to approve a foreclosure, then the state may become liable if the ombudsman has erred. 

 

Tami DeVries noted she believes this reporting system would be a good opportunity for the Real Estate Division to collect data regarding foreclosures.

 

Mr. Buckley continued, stating section 50 of the bill, which requires the board to make all records available relating to civil or criminal action, could infringe on attorney client privilege or expose strategic decisions in a law suit, which should not be available to anyone who requests them.  He stated the group suggests adding the words “filed with the court” so only records filed with the court are made available.  He continued, in section 50 of the bill, the group proposed payroll records should not be made available.

 

Mr. Magrath stated a homeowner member of the working group had complained that 75 percent of their dues are spent on salaries, but they are not allowed to review payroll records.  Mr. Magrath said the homeowners association board’s attorney said these records were part of a personnel record and were confidential.  Mr. Magrath said the group felt, though you could not ask for the personnel records of an employee, a home owner should be allowed to review payroll records to find out where their dues are going. 

 

Senator O'Connell asked how many homes would be required to call an association a “master association.”  Ms. Scott replied it would not have to be a particular number, but rather that they represent subassociations.  Most master associations, she added, have well over 1000 home owners.

 

Senator O'Connell suggested there are so many things in the handout (Exhibit C) which would not address problems in a smaller association.  She noted the group currently testifying all represent much larger associations than the ones from which she and Senator Schneider had received most of the complaints.  She inquired, if they decide to fund an interim study group, what the cut-off size to designate smaller associations would be for the interim study group to investigate.

Ms. Scott suggested the industry standard is approximately 1000 units to designate a master association.  She continued, two of three criteria must be met for a person to be considered a “large-scale manager” for professional organizations: over 100 units, over 500 acres, and over $1 million budget. 

 

Senator O'Connell asked if they recognize homesteading in reference to the ombudsman having the final authority for foreclosure.  Mr. Buckley responded chapter 115 of NRS, the homestead law, does not protect against association liens.  Senator O'Connell asked why.

 

Mr. Buckley answered, he believes, the way the homestead law is written, it only protects you against involuntary liens.  He explained if you buy a house and you agree to pay a mortgage, you are subject because you agreed to the conditions; and the same analysis applies when you buy into a homeowners association; you bought-in knowing there are assessments to be paid, and you did this voluntarily.

 

Ms. Scott pointed out, it is a secure debt.  She added, mortgage companies, in their requirements for lending, want the assurance associations will have the authority to maintain their associations. 

 

Mr. Buckley continued, saying the bill has a change from 10 to 5 days for the association to provide a list of dues and fees, and he stated the group agreed this change was unnecessary.

 

Ms. Scott added there is a bill in the Judiciary Committee, which places additional disclosure requirements, including inspections, on the association, and the reduced time allowance would make accomplishing this impossible.

 

Mr. Buckley stated the group proposes deleting the language in section 54, which does not allow an attorney to represent a home owner in arbitration.  He stated in section 58, the proposal requires associations to rewrite their CC&Rs to comply with the laws, and the group agreed this would create an unreasonable burden on an association.  The group suggests, instead, the law simply supersedes any discrepancies between the law and the CC&Rs, and the rest of the CC&Rs remain valid. 

 

Ms. Scott stated the group recommended a new section be added to chapter 116 of NRS to deal with master associations that would provide for delegate voting.  She noted the designated number of units in the handout (Exhibit C) is 1000, which may need to be changed to 2000 and also clarify it is a master association.  She suggested, this would allow the larger associations to function so the quorum requirements are not such a difficult issue.  She stated they can elect a member without a quorum, but not remove a member, nor can they amend.

 

Mike Trudell, Manager, Caughlin Ranch Homeowners Association, added Caughlin Ranch was told after the passage of Senate Bill 451 of the Seventieth Session, in 1999, they would have the opportunity to testify as to how the changes in the law effected their association.  He presented a letter to the committee (Exhibit E).  He testified since the passage of Senate Bill 451 of the Seventieth Session, Caughlin Ranch has incurred an additional expense of $3000 per meeting for noticing, agendas, photocopying materials discussed, and sending out minutes to home owners. 

 

Senate Bill 451 of the Seventieth Session:  Makes various changes to             provisions governing common-interest communities. (BDR 10-924)

 

Mr. Trudell added they appreciate the provision in the law, which allows them to notice home owners through the newsletter.  Also, he stated, due to other changes, Caughlin Ranch has initiated a procedure for counting votes, which has eliminated any allegations of election irregularities, at a cost of approximately $6000 per year.  He stated, he believed the intent of the Legislature was to insure developers did not pass on costs to home owners by deeding common areas to home owners who did not have proper reserves.  He said he believed developers were now required to provide a reserve study and provide for adequate reserves.  He stated in Caughlin Ranch’s experience, they have had at least one developer say he is not the developer, as defined in chapter 116 of NRS, because NRS 116.31038 discusses the declarant as the entity that controls the homeowners association prior to turning over control of the homeowners association to its members.  He said in the case of Caughlin Ranch, as with other large developments, there is more than one declarant, and therefore, there will be more than one developer deeding common area improvements to the homeowners association.  He said they thought all developers would be required to provide reserve studies and adequate reserves and not only the initial declarant.  To remedy this, he said, they are suggesting a change to NRS 116.31038 and to NRS 116.3115, which would require the declarant, other than the declarant who controlled the homeowners association, who is attempting to deed common areas to the homeowners association, to conduct a reserve study and provide adequate reserves.

 

Donald Minoli, Concerned Citizen, testified he has experience in building small developments, has written CC&Rs, and is a home owner in what he contends is one of the most “corrupt and mismanaged homeowners associations in Nevada.”  He stated he is now in the process of suing his board for mismanagement and other wrongdoings.  He also said he is a title expert.  He stated the election issue in section 36 and 37 of S.B. 421, regarding election of officers, should be changed.  These sections, he suggested, should include the requirement that the association provide with each secret ballot: an instruction sheet; a blank return envelope; a ballot; and a third self-addressed, stamped envelope.  He stated these envelopes should be returned to some form of neutral trustee.  He said a small association is sometimes subject to less-than-professional board members.  He stated the lack of participation by the home owners is not caused by apathy, but rather because they cannot afford to attend, and if the board is not principled, the home owners can be harassed, threatened, and intimidated.  He insinuated, a year ago an election in his homeowners association was “rigged.” 

 

Senator Townsend asked how many units there are in Mr. Minoli’s association.

Mr. Minoli answered 400 lots, with approximately 300 residences.  Senator Townsend asked if the developer retains 25 percent of the votes.  Mr. Minoli answered the developer sold the project to several different parties.  Senator Townsend asked if builders owned the remaining lots and if they can vote.  Mr. Minoli answered there are approximately 56 lots with no improvements.

 

Mr. Minoli continued, stating in the election, a year ago, approximately 250 votes were cast.  He said the votes were counted in public, and winners were announced.  Then he said, two days later, 56 votes that came by fax were thrown out, which changed the winners.  He stated because the election was “rigged” he has now filed a lawsuit against the association in an attempt to have the board removed and to appoint a fiduciary.  He stated in subsection 9 of section 47, they should also include language which deals with the situation where the association becomes the defendant.  He reasoned in his case, where he is suing the association, they are able to pay attorneys from their budget without approval of the home owners, because the law only requires approval when the association is the plaintiff. 

Senator Townsend remarked in the case where a home owner sues the board over foreclosure, in this case the board can also use the association funds to defend against a lawsuit.   He asked Mr. Minoli, in clarification, if he wants the law to add language which requires the same procedures for defending a lawsuit as for commencing a lawsuit.  Senator Townsend asked all present if they understand this section of the bill to only address commencing a lawsuit and not for defending a lawsuit, as Mr. Minoli suggests.  There were several nods from the audience and no one contested the statement.  Senator Townsend stated Mr. Minoli is correct; the procedure does not apply to defending a lawsuit.  Senator Townsend stated there should be a cost-benefit analysis presented to the home owners so they may decide whether they should defend a lawsuit or pay to settle.

 

Mr. Minoli concluded, stating there must be a commission; if the ombudsman’s office had the power to intervene, there would not have been a need for a lawsuit. 

 

Joanne Young, Concerned Citizen, testified the ombudsman’s office is too busy to handle the complaints.  She stated 1000 calls per month breaks down to 6.25 calls per hour, which means the ombudsman can speak to each person for less than 10 minutes.  She commented that does not allow any time for any investigation or action.  She said there needs to be a commission funded to handle the problems, especially for low-income home owners.  She suggested most people cannot afford to hire an attorney.  She added she believes people should not be allowed to serve on the board if they are delinquent in their dues.  She concluded by asserting how important it is for the committee to address the problems of the lower-income home owners, because she believes the larger, more affluent home owners have the resources to hire attorneys and better fend for themselves.

 

Senator Townsend expressed Senator O'Connell and Senator Schneider deserve credit for taking so much testimony.  He said the point regarding protecting integrity of the votes is important.  He said he appreciates the statement which was made, that people who live in the larger communities have more time to study the books they get when they move in.  He continued, stating those larger associations and their members seem to have resources which the average working Nevadans do not.  He said the problems of the people, like the ones who just testified, are what this bill is attempting to address.  He added there are two things he is concerned about: the integrity of the vote, and foreclosing on someone who did not pay their association fees. 

 

Mr. Minoli suggested on line 41 on page 12 of S.B. 421, they replace the word “remove” with “recall,” and the same process applies as in an election.  Senator Townsend replied he did not know if they could legally use his changed language.  Mr. Minoli stated he agrees with the bill text on page 12, line 38, which requires two-thirds of the votes cast.  He stated he believes only those who choose to vote should be counted.  He stated he also agrees with the way the bill designates one vote to fill multiple positions with the top recipients of the vote count. 

 

Joy Foreman, Concerned Citizen, testified she lives in an association of 576 unit owners.  She stated, in 11 years they have never had an election.  She said the board did have an election, but the board dismissed the results because only eighty-seven people responded and forty-two or forty three were not qualified to vote because they were behind in their dues.  She stated she was under the understanding the meeting fell under the Robert’s Rules of Order, but when her husband attempted to make a motion to hold a meeting to lower the quorum requirement, he was denied the opportunity.  She continued they did not receive their 1999 fiscal audit until January 2001, at which time it was revealed the board knew of an $83,000 embezzlement to the association, and the suspect had not been charged.  She urged the committee to “put some teeth” in the laws.

 

Robert Fuller, Concerned Citizen, testified he was the president of Springland Village Homeowners Association for 6 years.  He said he chose not to run for election to the board this year, in order to give others the opportunity to serve.  He stated the association has 312 units.  He commented one of the problems is, each time the law is revised, more power is taken from the boards.  He said he agrees there are problems with boards, but he maintained home owners must also be held accountable for their actions.  He stated, by the time the board complies with required processes and time constraints on disciplinary actions for families who are repeatedly breaking swimming pool rules, the pools have closed for the winter.  He urged the committee to remember the homeowners association boards also need some power to enforce rules to control the minority, so the majority may enjoy the property.

 

Senator Townsend replied the ability of the board to fine is important for important matters, but the less important matters may be cut from the law to try to relieve some of the problems.  No one, he added, wants their property devalued, but some of the petty issues are not reasonable.  He stated Senator O'Connell and Senator Schneider have been working together on this issue.  He said the committee has listened to testimony regarding the issues of bigger, master developments, as opposed to smaller communities with less than 1000 units.  He remarked they should be sensitive to the different problems of these different kinds of communities.  He said he would provide, in the next 48 hours or so, research and support for them to come back to the committee with a proposal, which is more focused on the different issues of the two different sized communities.  He suggested they should try to differentiate the two groups.  He stated the idea of creating a commission appears to have value, but he stated he does not know how it would be accomplished.  He said he would ask leadership for an exemption from the deadline for submitting the bill, so they could have more time to deal with this issue.  He added if they are unable to get an exemption, they will readdress the issue the next day.

 

Mr. Maddox, representing Nevada Trial Lawyers Association, stated the Nevada Trial Lawyers are opposed to the voting requirements for a construction defect lawsuit.  He stated the bill, as it is now written, can be interpreted to mean 100 percent of the owners would have to approve a construction defect lawsuit. 

 

Senator Townsend stated he appreciates the comment, but added he has intentionally avoided the construction defect issue until some of the other problems have been addressed.  He stated they would deal with construction defects at a later time. 

 

Mr. Maddox said that is why he had waited until the end, but wanted to get the Nevada Trial Lawyers objection on the record.  He added he also wanted to get on the record the study group’s recommendations are acceptable to the Nevada Trial Lawyers Association.

 

 

 

 

 

 

 

Senator Townsend closed the hearing at 10:32 a.m.

  

 

RESPECTFULLY SUBMITTED:

 

 

 

Jude Greytak,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                       

Senator Randolph J. Townsend, Chairman

 

 

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