MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-second Session
February 20, 2003
The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on Thursday, February 20, 2003, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to the Grant Sawyer State Office Building, Room 4401, 555 East Washington Avenue, 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 Warren B. Hardy II, Vice Chairman
Senator Ann O'Connell
Senator Raymond C. Shaffer
Senator Joseph Neal
Senator Michael Schneider
Senator Maggie Carlton
STAFF MEMBERS PRESENT:
Scott Young, Committee Policy Analyst
Kevin Powers, Committee Counsel
Laura Adler, Committee Secretary
OTHERS PRESENT:
Jack K. Clark, Ward III, City Council, City of Henderson
Chris Napolitano, General Education Core Requirement, Gateway Educational
Terri Janison, Concerned Citizen
Dave Duritsa, Safe Homes Nevada
Eddie Haddad, Resources Group
Judi Booe, Concerned Citizen
Michael T. Schulman, Attorney
Mark Kaplinsky, Concerned Citizen
Glenn Hayward, Concerned Citizen
Donald Minoli, Concerned Citizen
Joanne C. Young, Concerned Citizen
Michael Trudell, Manager, Caughlin Ranch Homeowners Association
Pamela Scott, Lobbyist, The Howard Hughes Corporation
Eldon Hardy, Ombudsman, Ombudsman for Owners in Common-Interest Communities, Real Estate Division, Department of Business and Industry
Gail J. Anderson, Administrator, Real Estate Division, Department of Business and Industry
Michael E. Buckley, Lobbyist, Community Associations Institute
Ann Gerken, Concerned Citizen
John V. Briggs, Concerned Citizen
Karen J. Brigg, Regional Vice President, Eugene Burger Management Corporation
Sara E. Barry, Concerned Citizen
Karen D. Dennison, Lobbyist, Lake at Las Vegas Joint Venture
Melody L. Luetkehans, Lobbyist, Nevada Association of Realtors
William A. S. Magrath II, Lobbyist, McDonald Carano Wilson LLP
Jerry Northfield, Concerned Citizen
Chairman Townsend:
There are a couple of items with which we will be dealing on Senate Bill (S.B.) 100. We have an able work document (Exhibit C. Original is on file in the Research Library.) put together by our staff, comparing S.B. 100 of this session with S.B. No. 421 of the 71st Session. We also have the Ombudsman for Owners in Common-Interest Communities report (Exhibit D. Original is on file in the Research Library.).
SENATE BILL 100: Makes various changes to provisions governing common‑interest communities. (BDR 10-29)
The past work this committee and the Assembly did is still relevant. Are there any additional matters that would be appropriate, given some of the discussions during the interim?
Senator Schneider:
Mr. Chairman, I apologize to you, the committee, the chairman of the judiciary, and the majority leader of the Assembly, for not getting this issue through last session. I am going to work with everyone to get this bill through, because we must do what is right for the people.
We start on this legislation session with an issue about the American flag. It has been an issue statewide because we have many military personnel who wanted to fly their flags after the September 11, 2001, terrorist attacks. It became obvious some homeowners associations did not allow this.
I inserted the issue that people in homeowners associations would be able to fly the American flag. The federal guidelines should be used regarding treatment of the flag.
One of the hallmarks of the last legislation was to develop a commission to handle homeowner complaints and board complaints against homeowners. The commission would be appointed by the Governor to settle disputes that concern many homeowners associations. Money for the commission would come from the ombudsman’s office from the $3 door fee established in 1997. I would like to again pursue the idea of a commission.
Section 11 describes how to file a complaint with the commission. The Real Estate Division wants to do more mediation before going to the commission. The commission should have subpoena power. In past legislation subpoena power was given to the ombudsman to subpoena records of an association when they were not turned over to the homeowners. The attorney general did not approve this. We may have to get representatives from the attorney general’s office to work with us.
It is my hope the commission will make firm decisions that would end most disputes in homeowners associations. Some things stand out like agricultural common-interest communities (CICs) for our rural areas. We must make sure everyone is on board with it.
In 1997 when we started this process, I met with homeowners in my district. Many associations were being consumed by lawsuits. By the time a case went to court, the homeowners forgot what they were fighting about. Some homeowners spent up to $100,000 defending themselves in court and could not remember what started the lawsuits. We then got everyone together to make sure they agreed to sue before going to court and spending tens of thousands of dollars. That may give some control over boards from getting into lawsuits with homeowners over something small like bushes. Homeowners should know they are putting their property at risk in any type of lawsuit.
Because of the energy costs in Las Vegas, we left the issue of shutters in the bill. The bill also contains a lot about community managers. I request we contact Assemblyman Bernie Anderson to give us someone to work on our subcommittee to understand what we do. Assemblyman John Ocequera and Assemblyman David Brown have previous experience with these issues.
Chairman Townsend:
Mr. Young, if that would be okay, contact the Speaker of the House, Richard D. Perkins, to advise him S.B. 100 will be worked on in detail in subcommittee. Those meetings will be posted and videoconferenced, and we would appreciate as many members as they can spare to join us to work on common ground. The reason we ought to address it to the speaker is their rules are different.
Chairman Townsend:
For those of you in southern Nevada, we would like people who can provide input to the details of items in the bill.
Jack K. Clark, Ward III, City Council, City of Henderson:
I would like to give some background on how our ordinance (Exhibit E) in Henderson came about, which was passed January 21, 2003.
Over the past several years we have received complaints from homeowners about the inability to fly the American flag. That issue became extremely important after the September 11, 2001 terrorist attack (Exhibit F). We looked at several court cases; some decided in favor of the homeowners associations, some in favor of the homeowners. We gathered it was unlawful to restrict the flying of the American flag. I suggested to the homeowners associations they incorporate the flag code of the United States into their Covenants, Conditions & Restrictions (CC&Rs). We did not include the code in our ordinance; we said they could not unduly restrict the flying of the American flag.
Since the passage of the ordinance, I have had complaints from homeowners about the restrictive nature, such as only being able to fly it on certain days. As an example, that would preclude a veteran of World War II from flying the flag on December 7. I strongly urge you to include not only the prohibition against homeowners associations restricting the flying of the American flag, but also include the flag code as part of this bill.
Senator Neal:
What restrictions does your ordinance have in terms of flying the flag? If a homeowner decided to fly a Terrible Hurbst flag, would they be permitted to do so?
Mr. Clark:
What we did include was that the flag could not be any higher than the building. It is all included in the United States Flag Code, as well as flag etiquette. That code can easily define the circumstances and manner the flag should be flown.
Chairman Townsend:
For those of you in Las Vegas who have never appeared before, please state your name for the record.
Chris Napolitano, General Education Core Requirement, Gateway Educational:
I am with GECR, Gateway Educational. I am here facilitating the educational requirements.
Terri Janison, Concerned Citizen:
I am here regarding the commission Senator Schneider talked about.
Dave Duritsa, Safe Homes Nevada:
I represent Safe Homes Nevada. I will be speaking briefly on the commission itself, and one other item in the proposed bill.
Eddie Haddad, Resources Group:
My company is involved in the purchase at trustee sales of almost 100 homes a year in Las Vegas. Approximately 65 percent of those homes are in homeowners associations. There are a lot of predatory fees charged by the homeowner associations’ affiliations, like property management companies, collection agencies, and foreclosure companies.
Judi Booe, Concerned Citizen:
I am here as a citizen and former board member of a homeowners association. I am here to talk to a number of points in the legislation (Exhibit G). I strongly support S.B. 100.
Michael T. Schulman, Attorney:
I represent a number of homeowner associations. I want to talk to one point in section 53 regarding the filing of lawsuits. We have certain issues with section 53.
Mark Kaplinsky, Concerned Citizen:
I am a former board member, president, and manager of a small association. I am here out of concern with some language in the proposed bill I feel might compromise a fair election.
Glenn Hayward, Concerned Citizen:
I am president of Sun City Summerlin Community Association of 7779 homes. I am here to speak on some of the items in S.B. 100.
Donald Minoli, Concerned Citizen:
I am a member of the Rainbow Bend Homeowners Association to talk to the many features of a commission. I am against the continuation of the ombudsman’s office.
Joanne C. Young, Concerned Citizen:
I am a homeowner in a homeowners association (HOA). I would like to address the CC&Rs. A lien can be filed against an individual and it is not protected by the homestead.
Michael Trudell, Manager, Caughlin Ranch Homeowners Association:
I am the manager of Caughlin Ranch Homeowners Association in Reno.
Pamela Scott, Lobbyist, The Howard Hughes Corporation:
I am here to express support for the commission and several portions of this bill.
Eldon Hardy, Ombudsman, Ombudsman for Owners in Common-Interest Communities, Real Estate Division, Department of Business and Industry:
I am here to bring you up-to-date on what the ombudsman’s office has been doing the last 2 years. When it is appropriate, I would like to go through the handout (Exhibit D) to let you know what we are doing, and what we think would help solve the problems that are starting to diminish.
Gail J. Anderson, Administrator, Real Estate Division, Department of Business and Industry:
This is my first appearance before you in my capacity as Administrator of the Real Estate Division, a position I began July 1, 2002.
Michael E. Buckley, Lobbyist, Community Associations Institute:
I am with the law firm of Jones Vargas in Las Vegas. I am representing the Community Associations Institute, Nevada chapter legislative action committee to testify in support of the commission and various sections of the bill.
Ann Gerken, Concerned Citizen:
I am a unit owner of the Elk Point Country Club Homeowners Association at Lake Tahoe. On reviewing S.B. 100 with a few more amendments it could be even better.
John V. Briggs, Concerned Citizen:
I also live at Elk Point Country Club. I am here to support the bill with some amendments I have given to the committee in writing (Exhibit H). I would like to say we need a commission with teeth, because the alternate dispute resolution (ADR) is a failed policy.
Karen J. Brigg, Regional Vice President, Eugene Burger Management Corporation:
We have offices in Las Vegas and Reno. I am here to speak with regard to the bill and its support.
Sara E. Barry, Concerned Citizen:
I am representing myself. I have been in this industry for 23 years in almost every discipline. I have concerns about portions of the bill. I do want to support a commission.
Karen D. Dennison, Lobbyist, Lake at Las Vegas Joint Venture:
I am a lawyer and I am here representing Lake at Las Vegas Joint Venture. I am in support of the bill with a couple of minor amendments and some additions (Exhibit I and Exhibit J).
Melody L. Luetkehans, Lobbyist, Nevada Association of Realtors:
I am general counsel for the Nevada Association of Realtors. We have questions with several sections, and would like to propose clarifications (Exhibit K. Original is on file in the Research Library.)
Chairman Townsend:
If there is anyone else who would like to testify, come up to the table and we will recognize you. Section 8 is the flag portion of the bill in which Senator Schneider has talked about using federal guidelines.
Ms. Booe:
I am a member of the South Shores Homeowners Association which has about 1200 units. I served on the board for about 3 1/2 months and was horrified at some of the glaring problems. In regard to section 8 on the flag, there should be some language that says it will be administered consistently. We discovered some people were notified to take the flags down, and some were not, based on personal relationships with board members.
Mr. Minoli:
It is a wonderful thing to put the flag in here. Do not leave it up to board members to decide what is right or wrong concerning size or height of the flag.
Chairman Townsend:
Is there anyone here in opposition to the general concept of the commission as proposed in this bill?
Ms. Anderson:
As proposed in sections 9 to 17, there are significant problems with how this commission for the common-interest community would function administratively within or outside of the Real Estate Division, and what its jurisdiction would be in regard to chapter 116 of the Nevada Revised Statutes (NRS). I am against the commission.
Chairman Townsend:
How are you going to solve the problem? What is your recommendation?
Ms. Anderson:
We have developed a proposal involving two prongs. One is an advisory review committee that would be established in statute as a court of first jurisdiction for matters involving licensed community association managers in violation of NRS 116 for permitted property managers that are licensed under NRS 645. The second prong would deal with the issue of board members and association owner members that a hearing panel would be established in statute. This panel would mediate matters, make decisions and determinations involving violations of NRS 116 and governing documents of an association.
Chairman Townsend:
Have you shared this with anybody recently?
Ms. Anderson:
Yes, with two industry entity groups and Senator Schneider.
Chairman Townsend:
Is this the Governor’s position? Have you shared this with him?
Ms. Anderson:
No, this has been the Real Estate Division’s proposal. The director’s office is aware of our proposal. But I have not shared it with the Governor’s office.
Senator Shaffer:
Who is going to choose the people that serve?
Ms. Anderson:
Both the advisory committee and the hearing panel, as we do now with real estate and appraisals, we take applications through the division and establish criteria by regulation. In some cases decisions are made by the administrator, in other cases it is the Real Estate Commission who would approve panel members. They would then draw three people for a hearing from that panel. This is something we would discuss, if the subcommittee were willing to consider this as far as managers, association members, and other entities might be interested in participating.
Chairman Townsend:
Do you have this in a form that can be shared with the people who are here today so they can think about it before we have a subcommittee?
Ms. Anderson:
We have a written document, but I did not bring copies today.
Chairman Townsend:
Where does Mr. Hardy’s organization fit into this new concept?
Ms. Anderson:
The office of the ombudsman would be administrating those two functions. A fiscal note would need to be attached. There would need to be a legal administrative officer who schedules and organizes meetings, handles notifications, and arrangements. The office of the ombudsman would carry out those functions in terms of the arrangements for them to function.
Chairman Townsend:
It is obvious this needs more input by the people here, they want resolution, they do not want to be in a morass and have to go to multiple levels. A law is a law. When there is a disagreement we have courts of competent jurisdiction.
Senator Schneider:
We met in my office yesterday for almost 3 hours. I also discussed it with some members of the industry who are thinking about it.
Mr. Briggs:
It appears the commission does not resolve anything until after an ADR has been filed and resolved. As I understand this bill, the commission does not do anything until afterwards, so we are still put into purgatory. We have been in three or four of these already, and nothing gets resolved. On page 3, line 37, it says the commission shall not investigate or take action on a complaint until the arbitration is over. If Ms. Anderson’s idea is to lift us out of the arbitration/mediation area, I think it should warrant great attention. Otherwise, you could strike the line that allows a commission to investigate or take action before forced arbitration, then that would be a good amendment.
Ms. Janison:
This is exactly the reason I am here this morning I have copies of my testimony (Exhibit L). My family has been in the middle of a dispute with a Summerlin homeowners association that began almost 2 years ago as a trivial matter about a basketball hoop. The NRS 116 states the rules adopted by an association must be uniformly enforced.
When we questioned Summerlin about NRS 116 they said, “Well, that’s a new law and it has not been tested yet.” The Summerlin homeowners association changed the rule to grandfather in selected homeowners by letting them keep their hoops, while continuing to send threatening and harassing letters to other homeowners.
We asked for their records on basketball hoop enforcement, internal minutes, e‑mails, notes, et cetera. We also asked for their records dealing with property dedicated to the City of Las Vegas. We were ignored. We contacted Ombudsman Eldon Hardy. In September Mr. Hardy said he would try to get a subpoena. We have heard nothing formal from his office.
We have received two threats of foreclosure from the Summerlin homeowners association if we do not pay the fines. Pamela Scott, a lobbyist for The Howard Hughes Corporation, signed the threats. Finally, we expressed an interest in making a difference by running for the board, but they have a delegate voting system that permits the delegates and board members to repeatedly vote for themselves to retain office by proxy, regardless of NRS 116.
Chairman Townsend:
Generally we do not use people’s names, but since they were mentioned, would you like to respond?
Mr. Hardy:
What Ms. Janison said covers everything in my mitigations with them. This is one of those instances where I was not able to get approval from the attorney general’s office, because there was a question about some of the records requested. I modified the request to what I thought was more realistic, but was still unable to get the request through.
Chairman Townsend:
Who was the deputy attorney general?
Ms. Anderson:
The attorneys with whom we met were Gina Session, Patricia Palm, and Kateri Cavin. Our discussion focused on if an association board can be required to create records. In other words, compile statistics that were not already compiled. That was the issue. The decision was no. It was not what the law specified.
Chairman Townsend:
If the request for statistics had not been compiled supported her contention that she was being treated differently than others, then why would that not be acceptable?
Ms. Anderson:
I cannot answer the question. We also recommended they do the alternative dispute resolution process to have a party involved in sorting out some of the facts and findings.
Chairman Townsend:
Here we are in mid-February and this lady asked for something in September. We have not responded.
Ms. Scott:
I am not here to testify on behalf of the Summerlin North Community Association. However, the attorney for the association did respond to the Janison’s attorney outlining that some of the records they had requested were from executive session and were confidential to other homeowners’ files, and could not be made available. They were also advised the representative public election information, minutes, et cetera, were available. If they would contact the management office, they could review those records. However, the request was never made of the association. The matter has been submitted to the ombudsman’s office for arbitration.
Ms. Janison:
I fully understand what the Real Estate Division has stated. We were more than happy to go to that arbitration, but I do not recall ever receiving anything from the association stating we could have access to any other records.
Ms. Gerken:
I have been to arbitration. I have a ruling from the Nevada Supreme Court stating that I could look at all the records. I spent thousands of dollars doing this. I received a letter from the association attorney saying I could not look at all of the records. I do not think the arbitration process has teeth either.
Chairman Townsend:
Let me resolve this. Ms. Janison, Ms. Scott, Mr. Hardy, today is February 20. On March 4, I want every one of you back here, and I want it resolved.
Senator O’Connell:
I thought in the past we made it clear the only confidential records were personnel records. Am I incorrect in that assumption?
Scott Young, Committee Policy Analyst:
Mr. Powers can speak to it. I think there is another exemption for release of records, which concerns records relating to other members of the association.
Senator O’Connell:
Would you go over that, Mr. Powers? I think knowing who has basketball hoops does not fit into the category of something private or someone’s personnel record.
Kevin Powers, Committee Counsel:
Scott was correct. The present state of the law provides that the power of subpoenaed record does not apply to the personnel records of the employees of the association, and the records of the association relating to another units owners. It does not specify the type of information that has to relate to the other units owners, it just has to be records of the association relating to another units owners. There is no specificity as to how those records may be categorized.
Senator O’Connell:
Mr. Chairman, I think we had better do it.
Senator Neal:
I was on this committee before when we had this particular issue. I think we should see exactly whether or not we are fulfilling a public purpose here.
Chairman Townsend:
Section 42, page 17 has to do with cumulative fines. There seems to be a great deal of concern about the following dichotomy. On one hand, the behavior of certain individuals against a CC&R or ruling by the board, that without using common sense, allows fines to accumulate ad infinitum. It is also a means for a board to get people to take care of their properties and do the right thing. How do you define where you stop the accumulation for purposes of rationality, and also letting fines go on to get people to change their behavior?
Mr. Haddad:
One of those behaviors is a homeowner not paying his homeowners association dues on time. I have had the obligation of dealing with many homeowners associations. I know some of them are professional; others are not. Most of the time when I purchase a property at a trustee sale, chances are the homeowners association dues have been delinquent for quite some time. The NRS statute puts a cap of 6 months on a purchaser of a home at a trustee sale. However, these homeowners associations are hiring property management companies that keep changing. During the process, it seems that every one of those organizations is tacking on fees on top of fees.
When there is a delinquent homeowner, for example on an $8 a month fee, by the time we get the bill, it is up to $600 to $700. The NRS statute gave these homeowners associations super-priority lien status. To put this into perspective, Clark County Sanitation District has a $25 lien fee when the account is 1-year delinquent. Why do homeowners associations have $600 to $700 in lien fees on an $8 a month past due bill that we have to pay? These are predatory fees. Essentially, collection companies are mailing a document and charging hundreds of dollars plus postage. Nevada requires, per statute, a single sheet of paper for $15 to be filed with the county recorder’s office to put a lien on the property.
Unless the homeowners association is willing to act on that lien and foreclose of their interest, we do not need all these charges. If you are going to give them super priority lien status, you should also maintain what can be charged. Maybe a $25 lien fee would be enough.
I also spoke to Eldon Hardy about this. He tells me the same thing; his hands are tied. He cannot do anything to make homeowners associations comply.
Ms. Booe:
For the short time I served on the board, one of the things I questioned was the monthly fees assessed against a homeowner for a violation. Based on the letter from the homeowner to the board, if it was written nicely, in every case lien was waived. But, if a homeowner sent a letter questioning the lien fees, written in an aggressive manner, without exception the lien stayed and the fines were increased. It is a five-member board, and three of those board members would consistently refused to waive those fees because they did not like the way that particular letter was written.
There has to be a way for the boards of these associations to be consistent in their treatment of homeowners. It cannot be on a personal basis of whom they like and do not like.
Mr. Minoli:
My handout (Exhibit M) is on section 42 regarding liens put on by a homeowners association. We are going through a horrible circumstance about this misuse of the lien foreclosure, a non-judicial foreclosure. Assessments by a homeowners association are consumer debt, and should be handled by taking through small claims court. Nobody should lose their home, have it put in foreclosure, or have the homestead exemption rendered invalid by the actions of a three-member or five-member board that may not like the person.
Mr. Haddad:
I am for a cap, especially when it comes to a bank acquiring a property. Should they inherit the obligation by the previous owner?
Ms. Gerken:
I am against a homeowners association being able to put a lien on a unit owner’s property when the unit owner has not been fined and does not owe the money. I have had liens put on my property of a bogus gas hookup fee when I paid Southwest Gas for it. The association said the unit owner had to pay them. There was no fine involved or violation of the rules. I had to take the association’s attorney to small claims court. The association agreed to state they inadvertently placed incorrect liens on my property. I am in favor of capping the amounts.
Mr. Duritsa:
Whether you put $100 or a $1000 cap, it does not solve the problem of bringing people into compliance. If this could be taken to subcommittee, maybe some other ideas would come out of it.
Senator O’Connell:
I would like to request Kevin Powers take a look at the law and see what would happen if we did away with homeowners associations. How would that affect loans based on the CC&Rs being a part of that loan?
Mr. Miloni:
If NRS 116 was abolished, CC&Rs would still exist. The CC&Rs are the vehicle, the instrument that creates and brings the subdivision or its homeowners association under the jurisdiction of NRS 116 by the verbiage within them. There is something unclear in the beginning paragraphs of NRS 116. It states what the creation of a common-interest community can or cannot. The word “may” is misused in the first section, which says you can be inured of a common-interest community or you cannot.
Some subdivisions in the Reno area apparently read it that way because they have made clear to their buyers they are not a homeowners association or under a common-interest community. They are paying dues because they belong to a golf course or a country club. This is their way of getting around the NRS. If you abolish NRS 116, your CC&Rs would still be there, but any reference to NRS 116 would no longer be in effect.
William A. S. Magrath II, President, Caughlin Ranch homeowners association:
The gentleman is correct. What we are discussing and what is referred to in the law, and I am a lawyer, is equitable servitudes. Equitable servitude is the legal term for a burden that is placed on land. Each piece of land is burdened with these rules and regulations creating these associations.
If you eliminate NRS 116, those equitable servitudes, which create property rights, in effect, will remain of record. When a person buys a condominium or a town home in Las Vegas, they buy that property burdened by these rules. Those rules and burdens are what generate the process to care for the common interest such as a pool, roofs, and stairways. If you eliminate these property rights, who is going to care for the common interest?
An individual homeowner who pays $29,000 for a town home cannot afford to pay for the common roof or assemble all 30 homeowners to collectively put together the funds to repair the roof. Homeowners associations can collectively put together the process by which people can pay for the paving of the parking lot, or pay for the security of the facility.
Everyone in the homeowners association buys their property with those burdens on it. As a homeowner, I have a right to enforce the rule against my neighbor, even if the homeowners association does not agree. My property value is contingent upon making sure my next-door neighbor follows the rules, as well as the people down the street. My home is more valuable because it happens to be in a neighborhood with parks, common areas, and paths. If you eliminate that right, you are taking away my property rights.
I think it is unconstitutional because there is no compensation to me. A homeowners association allows people to put a swimming pool in the middle of 30 units and operate the pool, which will never be properly operated if you take those rules and obligations away. The same goes with the pathways, et cetera.
I am here as a homeowner because I believe in the system. You will impact thousands of associations if you pass laws to remedy individual problems. Thousands of homeowners associations are ultimately going to fail, if homeowners do not volunteer to serve on the boards.
Chairman Townsend:
Mr. Duritsa, could you address the issue of liening a home based on a homeowners association fine or fee?
Mr. Duritsa:
In the past, I served on a board of directors for 3 years. We solved volumes of problems by identifying the problems one at a time. You actually have to get the people together, identify the problem, and come up with a solution.
Regarding all subpoenas chasing after records. At our association everything is available, with the exception of employee records, and items the board deems would give information about a resident that is confidential. A person may need to know about how many basketball hoops have been noted on a walkthrough. Board members tend to kick back with a despotic attitude saying, “This is mine, and I’m not giving you anything.” That is just plain wrong.
Chairman Townsend:
The question posed, relative to one issue brought up, is the ability of an association to lien a home for its dues or fines. I think that is a threshold issue for homeowners.
Mr. Magrath:
Everyone who purchased a home knew in advance there are rules that apply to the association. If they choose, they can purchase property outside of those rules.
When they enjoy greenbelts for 6 months and not pay dues, they have used and benefited from those common areas. When the association chooses to record a lien allowed by law, it is recorded for failure to pay dues.
A comment was made about the super priority of the lien. A lien does allow, under the law, a foreclosure process. There is substantial due process before you get to that foreclosure process. Maybe we can adopt additional due processes before the foreclosure sale occurs. If the association does not have the power to lien and to foreclose upon the property, every member of the association will have a discretionary right whether or not to pay dues.
The same process occurs on fines. Because the person has failed to comply. Senate Bill No. 421 of the 71st Session allowed for a requirement that you could not foreclose on a property unless it involved the health, safety and welfare of the association. I think that is appropriate. Realistically, if somebody deliberately flaunts the rules and repeatedly builds up fines, if there is no ability to enforce that rule, short of going to court and obtaining an injunction, a problem would be created. That is why the threat of the foreclosure ultimately results in the payment of their obligation. I agree there could be abuses in that situation. However, 99 percent of the time these things are resolved and people pay the fine.
We have an oral surgeon in Reno who does not pay his dues, and can easily afford to do so. We went right up to the foreclosure sale day. Then he finally showed up and paid the dues. If you cannot force people to respond, you will lose the ability to operate the system.
Chairman Townsend:
I appreciate your ability to do that, but Caughlin Ranch may be slightly different than the rest of the world. In the rest of the world, those are not always the conditions.
Senator Neal:
If we did not permit the lien under law, the individuals would have the discretion to do whatever they wanted. You needed the assistance of statute to make them do certain things. How does the State and the general public benefit?
Mr. Magrath:
I think the public, in general, benefits in many ways. By creating condominium associations or townhome units, the American dream is purchase a home. Creating condominium or townhome units is one way.
They cannot do it unless there is an association that operates the common area, pays for the common roof, cleans the sidewalks and parking lots. This is a benefit that requires some organization. You must have that or you will lose the ability to create these small units for affordable housing. Caughlin Ranch has a public park operated for the public.
Senator Neal:
Do homeowners that exist outside of these associations pay more or less taxes than the individuals who actually have these subdivisions? I do not live in a homeowners association, but North Las Vegas comes through with street sweepers to clean the streets. I put my garbage out for pickup and cut my own lawn. Are you saying whatever services are rendered by these associations are a property tax break?
Mr. Magrath:
There is no tax break to the association member, but there is a tax break to the State. In effect, these homeowners associations increase the value of the properties. The actual unit or home in an association is probably assessed at a higher tax value than a homeowner with an identical house who does not have those benefits. My house probably has a greater value because it sits near a park. I paid more for that house because it was on a greenbelt.
I do not have any statistics, but inside associations there is probably a higher assessed valuation because of the benefits from joining an association. Some people have private roadways. In those cases they pay for maintenance of those roadways. The public benefits by having associations that allow low-cost housing in a common community, and increased property values. I believe those are a benefit to Nevada.
Mr. Shulman:
In all these associations, certainly the private communities, the developers have built all the streets and infrastructure. In essence the State and local communities have not had to pay for the streets and infrastructure. The homeowners who live in the community paid for those improvements, not the general public; that is the other benefit.
Mr. Hardy:
I would like to let everyone know what the ombudsman’s office has done in the last 2 years in resolving many of these disputes. We are making great progress. Two years ago we started educational seminars for homeowners and board members. This created a challenge because the budget was not set up to solicit bids for educational seminars. I asked for volunteers and received a tremendous response from professionals in the industry. We conducted 23 seminars in 1 year. Average attendance in Las Vegas was about 130 to 150 people per seminar. We also held seminars in Mesquite and Laughlin every quarter. We did 23 seminars in 12 months.
The seminars were presented by professionals in the industry; managers, attorneys, CPAs, and insurance people. Contracts have been signed to continue the same process. We have up to 10 specific subjects. One of them is a basic overview of the industry, and I would like to see all board members take this 3‑hour course.
With us today are Sara E. Barry and Judy Cook, Speaker/Trainer, Cook & Company, Limited, two of the presenters who were awarded contracts to conduct these seminars. We will conduct 27 seminars by the end of June. We are very pleased with the success of these seminars. I believe communication and education will solve most of these problems. I think most people want to do it right. They just do not understand what right is or how to get there, and we are making progress. These seminars were well received, and I attended every one of them. Some of my staff spent 3 hours in the evenings attending these seminars.
Bill Magrath’s comments about associations and how they operate are accurate. They do offer some benefits. Also other states are looking to Nevada for leadership. I get calls all the time complimenting us about NRS 116. I know there are a lot of disputes about some things, but overall it is a good bill; it is a work in progress.
Chairman Townsend:
How much money do you have in your budget? How many complaints have you taken? What were the biggest complaints?
Mr. Hardy:
One of the challenges we have is registration of homeowners associations. Less than half in the State are registered with us, and the law says they all should be. If they are not registered, I cannot get this information from the secretary of state in a simple process.
Chairman Townsend:
What do you need from the secretary of state?
Mr. Hardy:
They have provided a list of associations that say homeowner in the name, but that is not all of them, since many have property owner, association, et cetera, in their name. Last session there were 754 associations registered. Today there are 1402 registered, and we think there are about 2800 total.
We could continue to do what we have done to register the original 750 associations. When we get calls, we ask people if they are registered. Many homeowners do not know what we are talking about. We compare the new information with our database. To date there are 250,002 units registered with our office.
Over the last 2 years we received 1474 telephone calls. We resolved 28.2 percent of those problems with one telephone call. We spend an average of 36.41 hours per month meeting with homeowners who have scheduled appointments or walk-ins. The average per month is 106 people who meet with us at our office, and most of those are unscheduled. We have filed an average of 7.6 ADR claims per month. There have been 523 claims filed through the ADR process since it began January 1, 1996, of which 432 have been completed, and 175, or 40 percent, were withdrawn before they were implemented.
There were 9 binding arbitrations out of 49. Most people want a decision that can be reached under the ADR program. The level of mediation Ms. Anderson talked about will work well. The people want me to solve their problems, but I must remain neutral. If there was a panel, we could refer these situations so they could be told this is right or wrong, it would help.
Chairman Townsend:
What if we flipped that concept around? You make the decision, and if they do not like it, they can appeal to the higher level.
Mr. Hardy:
In the booklet I gave you (Exhibit D), there is a homeowners survey just completed. We printed 162,000 surveys through the assistance of management companies and seminars. We distributed approximately 140,000 surveys, and got back about 9000 surveys. One interesting response was only 6.2 percent had served on their board and were involved in the operation of the association.
At the end of fiscal year 2002, there is $1.6 million in reserve. We have a staff of four people and that budget is $230,000.
We have broken down surveys from all respondents, and a survey on a large association, Sun City Summerlin, and a small association. The average number of units per association that are registered with us, is 225 units. One question asked was if the person knew the ombudsman was there to assist. Of the respondents, 61 percent did not know we existed, and 32 percent did. We asked, “Now that you know the ombudsman’s office is there, would you use it?” The responses where 62 percent said yes, 5 percent said no, and 32 percent were not sure. This pointed out there is a lot of misinformation out there.
Chairman Townsend:
Are there regulations against using some of your reserve to let the community know you exist?
Mr. Hardy:
No, there is not. We are already doing it.
Chairman Townsend:
Why do 62 percent of the people not know about you?
Mr. Hardy:
Most of them belong to nonregistered associations that do not have any information about us.
Senator O’Connell:
Is there any reason your budget is not printed in this report?
Mr. Hardy:
Our office put this together in about 4 hours earlier this week and I did not have that information at the time. I will see that you get it.
Chairman Townsend:
No matter what proposal, whether it is this commission’s idea or whether it is a real estate idea, there is another idea. You and your staff have a great deal of expertise. I hope we can tap into your expertise and make you part of that process because you have heard it and been through it.
Ms. Gerken:
Mr. Hardy, were the surveys sent to the boards of the homeowners associations?
Mr. Hardy:
Management companies helped distribute the surveys to all registered associations. We sent letters to all the management companies, and dispersed them at the seminars we conducted. There was a follow-up article in the Las Vegas Review-Journal that stimulated a lot of inquiries about the survey from associations not registered with us.
Ms. Gerken:
What is the procedure? We have asked to be put on your database. We are a registered association, but the board manages us, not a management company.
Mr. Hardy:
Give me a call tomorrow and I will be sure you get on the list.
Chairman Townsend:
I would like to work with you on how to present these figures. There is some important data here, and I think the people who helped put these figures together sometimes forget who the audience is. It should be easier to pull out the figures.
Mr. Hardy:
I understand. It was a quick job this time.
Ms. Young:
Mr. Hardy, as a professional management company we have never received any notice of anything your office is doing. Another thing is the number of unregistered homeowners associations. Because the CC&Rs must be recorded to be valid, has anyone thought of going to the county records?
Chairman Townsend:
Database opportunities such as the county recorders should be helpful to the ombudsman’s office.
Mr. Hardy:
We are totally understaffed and have complained about it.
Chairman Townsend:
We do not have a problem with that. We can never forget why this is in front of us; it is all about the homeowner. If homeowners and unregistered homeowners associations are not getting information about opportunities to resolve differences, the system is breaking down. Homeowners need to know you exist. Your point and the gentleman’s from southern Nevada was education, information, and communication should solve 99 percent of these problems. The other 1 percent is people just do not get along.
Mr. Hardy:
I agree, Senator. My whole focus has been education and communication. We have done everything we can to do.
Mr. Haddad:
A lot of homeowners associations are surpassing Eldon Hardy and the ombudsman’s office by hiring collection agencies. The ombudsman cannot regulate them or their fees. Maybe the NRS needs to give the ombudsman or the commission, as being proposed, the power to say whether these are justified or unjustified fees.
Jerry Northfield, Concerned Citizen:
I am a homeowner in North Las Vegas. I might be a current victim of the process. I just refinanced my home. When I went to the title company I asked why they were not informing me about my HOA? They said, “We don’t know about that.” I have been in my HOA for 3 years. The system is not supporting the homeowners, especially with the large influx to this town, for people who have never experienced this environment. The system does not have enough checks and balances to ensure the homeowners are getting informed, and that the process is running properly. The board of directors is receiving the education from the ombudsman’s office, and the training they need to properly run a community. The current system is not working well right now.
Chairman Townsend:
It is our goal to get a bill to the Assembly as soon as possible, so they have the time needed to spend on this issue. Ms. Anderson, we need your proposal as soon as possible. Mr. Hardy, we need a bullet list on what you are suggesting you need to do your job. This includes the identification of homeowners associations all over the State that we cannot get registered, and your suggestions on how we are going to provide public information and education to homeowners so they know the options.
Senator Neal:
As I understand from listening to today’s testimony, the ombudsman actually has two functions. One is the State law we passed in this area. Second are various agreements that govern these homeowners associations, which in many cases is controlling what action should or should not be taken. Where the statute does not cover then the agreements would be controlling. It would be left to interpretation by the individual making the complaint what the rights are under those agreements.
I assume with the number of people in some homeowners associations, there must be a rack of agreements to go through of which to stay abreast. Would they not have to look at the agreements as well as the statutes?
Mr. Hardy:
We do not keep a copy of all governing documents of associations because we do not have a big enough building in which to store them. We can request people send us a copy of the area with which they are dealing, and we will try to interpret it.
Senator Neal:
I understand your problem would be in rendering decisions on a complaint when you have to go through it in that fashion. It is not only the statute you have to deal with, it is also those agreements. I just wanted to get that on the record as to your job, as I understood it today.
Chairman Townsend:
I think Senator Neal has brought up something important for us as we move through this. Mr. Magrath’s articulate representation about the value of an association versus the value of the property of each individual homeowner is well positioned and respected. Not all associations are well defined, gated communities with well-defined common areas. I would suggest, Mr. Hardy, you think through this and talk to your staff.
I would like to know if you can give us a breakout on how many complaints are coming from these larger well-defined, planned unit developments versus the others. In our last hearing we heard there are many homeowners associations that are not gated and use public streets, et cetera. It is important to differentiate the types of homeowners associations we have so everyone involved has an opportunity to get their issues resolved.
Mr. Trudell:
There are multi-levels of quality control, in each of these associations. In NRS 116.31162, subsection 4, “The association,” and that means the good ones and the bad ones, “may not foreclose a lien by sale for the assessment of a fine for a violation of the declaration, bylaws, rules, or regulations of the association unless the violation is of the type that threatens the health, safety and welfare of the residents of the common-interest community.” It is already in the law. There are other ways to simply remedy that than to eliminate the lien ability.
Mr. Hardy:
One of the things I have encountered is most homeowners have an account with their board or association. On that account are the homeowner and association assessments and fines. If they get behind on one or another, it is turned over to a collection company. The association will not accept payment for their assessment because the homeowner owed a balance on their account. I would like to propose we look at keeping the fines and assessments separate in the billing process. I have had people who have been foreclosed on because they owed a fine and had not paid it off. The association refused to accept their payment and sent their checks back, and then sent the past due fine to foreclosure because they were behind on their assessments.
Glenn Hayward, Concerned Citizen:
I live in Sun City Summerlin, and will refer to my handout (Exhibit N). I am the president of Sun City Summerlin Community Association and serve on the board of directors of that association. There are 7779 homes, and the required quorum is 50 percent of members. Since I have been there we have never reached a quorum. In S.B. 100, section 53 there is the proposed amendment to NRS 116.3115. As the statute presently exists it causes our association numerous issues regarding assessments and majority votes. There are situations in which we need to pursue third parties without having to obtain votes. Those situations are when we need to pursue a vendor for breach of contract, or an unrelated third party that causes damage to the association.
The association’s annual budget exceeds $13 million. There are numerous vendors the association pays for services. If they had to get votes before pursuing a vendor, they would be at a disadvantage. Additionally, the association owns golf courses. We believe the law should not be changed, and there should be exemptions for boards to pursue third parties without a vote of the homeowners. Without this exemption, it would be impossible for our board to be fiscally responsible to the association. The committee may need to consider different rules for different size associations. I believe the remedy for homeowners who do not like their boards is to vote them out and vote in new board members.
Mr. Schulman:
I also represent Green Valley Ranch that has 4000 units. They have similar concerns. They have substantial landscaping contracts giving rise to regular disputes. The board could not get 2000 votes to do anything. Basically, the law benefits the wrongdoer. I know this committee understands the apathy of the homeowner because the bill contains a section on reduced quorums for certain meetings, and a no quorum for election of directors. If section 53 goes through the way it is, it would further handcuff my clients.
I think there is a huge inconsistency in the law. In 1999 a bill was passed that allowed homeowners associations, through their boards, to levy assessments to fund reserves without homeowner approval, and I think that is a great idea. You do not let the homeowners’ board pursue the third party responsible for damages to the association.
Ms. Booe:
There is good reason why there is not participation by homeowners in homeowners associations. Association boards do everything they can to strangle the homeowner so they are not able to participate. When you volunteer to participate, there are 2 or 3 people who have the quorum and you are unable to make any changes.
There are 1200 homes in the Summerlin area. If someone is a delegate, they vote for everyone that is not there. Basically, they have the proxy of 200 homeowners that did not show up. They automatically get those votes.
Mr. Duritsa:
I would ask you to look at page 29, section 53, line 17, regarding written notice. Subsection (d) is lined out, which said, “to protect the health, safety, and welfare of the association.” It appears an association would not be able to commence a civil action. Unless I am misreading this, I take it that it was scratched out in error.
Chairman Townsend:
That is the way it is printed and it will be part of the debate.
Mr. Durista:
One thing I have witnessed in homeowners associations is no one makes a final decision. These homeowners are asking for adjudication one way or the other so they know where they stand. What we see are homeowners boards not willing to make decisions because they are unpopular. We need this proactive approach to make a decision. We would like to see that from the ombudsman’s office.
Senator Schneider:
I would like to start the subcommittee hearings next Tuesday. I will check with the Speaker to see if he can give us some Assembly people to work on this. We discussed with the secretary of state getting notification of homeowners associations from his office. His office is designing a new computer program, a checkbox may be included for homeowners associations, because they are now listed as nonprofit corporations. This information could be turned over to the ombudsman right away.
Mr. Minoli:
If you want to give verbal input when there is nothing in writing, would you still have the opportunity?
Chairman Townsend:
Absolutely. Anyone is welcome to make verbal input. Anything that occurs in these committees can be part of litigation. The court looks for guidance on paper as to what is the intent.
Mr. Minoli:
Regarding writing, I would suggest this committee consider the revisions of NRS 116 to adopt a declaration of legislative intent. Set out what are your objectives. It is a uniform act out of the Chicago group of judges and lawyers who put it together. It was thrown against the wall here in 1991 and about 25 percent of it fell off.
Chairman Townsend:
For those of you who are also here on S.B. 136, because it deals with the same topic, it will also be assigned to the subcommittee.
SENATE BILL 136: Revises provisions governing assessment of fines by unit‑owners’ associations. (BDR 10-897)
Everyone should leave your information so we can contact you about these meetings. There being no further business, we are adjourned at 10:46 a.m.
RESPECTFULLY SUBMITTED:
Laura Adler,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: