MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-second Session
March 26, 2003
The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:51 a.m., on Wednesday, March 26, 2003, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to the Grant Sawyer State Office Building, Room 4412, 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
Courtney Wise, Committee Policy Analyst
Kevin Powers, Committee Counsel
Makita Schichtel, Committee Secretary
Laura Adler, Committee Secretary
OTHERS PRESENT:
David Smith
William A.S. Magrath II, Lobbyist, Caughlin Ranch Homeowners Association
Pamela Scott, Lobbyist, The Howard Hughes Corporation
Karen D. Dennison, Lobbyist, Lake at Las Vegas Joint Venture
Kathryn Pauley, Silver State Trustee Services, LLC
Karen Brigg, Lobbyist, Eugene Burger Management Company
David Stone, Nevada Association Services of Las Vegas
Shirley McKeller, Associated Management
Mark Kaplinsky
Tami DeVries, Legal Administrative Officer, Real Estate Division, Department of Business and Industry
Chairman Townsend:
We have Senate Bill (S.B.) 325, as well as S.B. 438. These bills have a great deal in common.
SENATE BILL 325: Makes various changes to provisions governing common‑interest communities. (BDR 10-176)
SENATE BILL 438: Makes various changes related to common-interest communities. (BDR 10-791)
Committee, you have a copy of a large document (Exhibit C. Original is on file in the Research Library.) that could only be put together for the committee in the time allotted. That document compares S.B. 100, S.B. 325, and S.B. 438, so you can quickly look at the common elements of each bill. This needs to be reviewed before tomorrow’s hearing so we can process it. I think we should take limited testimony on S.B. 325 and S.B. 438 in the context of what is new, and not revisit old issues. We will then go into a work session where Senator Schneider will give us a report on bill drafting and his efforts.
Kevin Powers, Committee Counsel, and Scott Young, Committee Policy Analyst, because we already had testimony on it, I think it is important to highlight those things not in S.B. 100, and those issues of substance that are different between the two bills.
SENATE BILL 100: Makes various changes to provisions governing common‑interest communities. (BDR 10-29)
Scott Young, Committee Policy Analyst:
Probably the largest difference between S.B. 325 and S.B. 438 is that S.B. 325 has a commission provision, as does S.B. 100. However, the provisions relayed to the commission in S.B. 325 are more extensive. There are provisions for data collection and other details of the commission process that are spelled out in S.B. 325. There is also a sunset provision for the commission in S.B. 325 different from that in S.B. 100. There are provisions for association assessments in S.B. 325 that are not in the other two bills.
Chairman Townsend:
Committee, we will deal with S.B. 325 section 51, and then come back to section 17.
David Smith:
I own four condominiums. I have been involved in construction defects litigation, mitigation with condo associations, served on the condominium association board, and a member of a common-interest community association (CIA). This is the first year I have come to testify. I like this bill because I have seen abusive boards, and this keeps a cap on them. The condominiums I own are valued between $75,000 to $150,000. What I would like to see with this bill is that boards or associations must adopt a policy of evenhandedness, rather than being selective according to personalities. You have to stop the boards from being dictatorial.
William A.S. Magrath II, Lobbyist, Caughlin Ranch Homeowners Association:
I recognize there might be some bad boards out there. The difficulty in the limitation that Senator O’Connell’s bill has causes the association to transfer the costs of a foreclosure for failure to pay dues to the members. We are not talking about fines or tyrannical boards fining neighbors out of vindictiveness. Subsection 12 of section 51, defines the cost of collecting to mean just about anything, including fees for filing, recording, and referral, as well as costs for postage and delivery.
Chairman Townsend:
You have a concern about a cap that would affect the ability of an association based on a failure to pay dues to go to foreclosure?
Mr. Magrath:
It would transfer the cost of that to the members, because this does not fairly reimburse the association.
Chairman Townsend:
What if that part were excluded, but only had fines?
Mr. Magrath:
If this only applied to fines, I would not have a problem.
Pamela Scott, Lobbyist, The Howard Hughes Corporation:
I would have to agree if it only applied to fines. The bottom line is the way that section exists now, a $20 letter on a $200 debt is almost a year of dues in Summerlin. I cannot send a certified intent-to-lien letter for $20. It hurts the people who have to cover the cost of every certified letter long before we ever get to the point of filing a lien.
Karen D. Dennison, Lobbyist, Lake at Las Vegas Joint Venture:
I would like to add to that in subsection 12, paragraph (a), it also excludes any costs associated with civil action. This would preclude going to small claims court and charging for it. I agree with Mr. Magrath and Ms. Scott.
Kathryn Pauley, Silver State Trustee Services, LLC:
Caps and limitations on collection costs would impact chapter 649 of Nevada Revised Statutes (NRS) and NRS 99.040. Those are for collection or foreclosure companies, or any other service that does late letters for associations. There are six foreclosure laws I have listed in my handout (Exhibit D) as well as the federal Fair Debt Collection Practices Act. These allow the home owner recourse if they believed they were being unfairly billed for their delinquencies.
Karen Brigg, Lobbyist, Eugene Burger Management Company:
I agree with the group that $20 does not meet the needs. I think Senator O’Connell, during the last session, had concerns regarding foreclosure, and actually taking individual’s homes. I have made a concerted effort over the past 18 months to monitor the foreclosure process, which goes quickly with some collection companies. Mr. Smith had a point that sometimes home owner associations aggressively pursue particular individuals, depending on the amount and size owing, while others are left to linger. As a company, most of our collections are in-house, therefore, we can work with individual home owners. As an extra step, we do a final foreclosure notice explaining what will happen and how they can lose their house. This gives the home owners an additional option to talk to the board prior to going to foreclosure. The boards need to consider those, and go into forbearance if needed in hardship cases.
Chairman Townsend:
Mr. Smith brought up an excellent point that no matter what the law says, or the policies of the home owners association or the board, have matters applied equally. Is there anything in any of these bills, or in current law, that has repercussions for not applying it? If a board does not apply things equally, that board is immediately replaced with another board.
Mr. Magrath:
I am not aware of any specific rule or section of NRS 116 that requires boards to apply things equally. Let me give you an example of why we do not want to uniformly require that. Two years ago, Senator O’Connell described an unusual circumstance where a woman’s husband passed away and previously he had paid all the bills. If an association were required to uniformly apply the rule, they would have to foreclose on the woman’s home. There are some circumstances when the board may not want to foreclose on a particular person’s home and be allowed some discretion. On the other hand, I recognize there is a problem if there is retribution. I think there needs to be some discretion so an elderly widow is not suddenly forced by law to make payments she cannot meet, and be foreclosed.
Chairman Townsend:
We do not disagree. What we are trying to do is separate the issue of not paying your dues, which allows for foreclosure. That is one substantial issue, and the other is being inappropriate in your fines, not in your collection of an association assessment. The fine issue can become quite petty. Mr. Smith made the point that if you are going to be petty, be petty with everyone.
Mr. Magrath:
The fines are a different issue. With respect to the dues, if in fact, this widow needs discretion and the association recognizes and privately understands these situations, they ought to have some discretion, and not be forced to foreclose on her and everyone else.
David Stone, Nevada Association Services of Las Vegas:
My company does assessment collection for a few hundred home owners associations, that are mostly in southern Nevada. I want to make it clear my company, and as far as I know my competitors, try to work with a home owner before the case gets to foreclosure, and the fees get exorbitant. Nobody wants to foreclose. Licensed collection companies want to work with home owners. We help enforce compliance with home owner assessments. My company enters into payment agreements with home owners on a regular basis. Once a home owner fails to make payments, a late fee is incurred. Then it is usually farmed out to a collection company. At that point the initial fee is $50 or $75. It is outlined in a letter (Exhibit E) I prepared for Judy Farrah. The number of accounts my company processes that go into foreclosure are relatively small. The number of people living in home owners associations do pay their assessment on time.
Mr. Smith:
I can tell you from experience, having been on boards and attending board meetings, that some boards have problem people. The board members do not care, and they run up bills. I fought with my board members on behalf of home owners, telling them we need to talk to the home owner. Why turn it over to a collection agency? All they were doing was adding fees. The home owner was behind in dues, and those fees keep piling up. Instead, work with that person. A member of the Virginia Highlands Homeowners Association said, “We are neighbors. We need to get along, and help each other, instead of them against us.” There are home owners association boards that do not care, and I want to make sure proper controls are placed on boards that misuse their power.
Mr. Stone:
We encourage all our clients, meaning the home owners associations and management companies, to work with the delinquent owners prior to having overdue bills turned over to collection. I cannot tell you how many times this happens on a daily basis where a home owner comes to my office to work out a payment plan, and has had issues with the board. I ask them if there was an attempt to contact the manager, attend a board meeting, or talk to a board member, and 9.9 times out of 10, the home owner has not. The opportunity is there for those people who need special assistance, but most people never take advantage of that opportunity.
Ms. Pauley:
You asked previously if there are any provisions to protect the home owner from this happening. In NRS 116, it stipulates if an association is going to fine a home owner for anything or give any kind of penalty, it has to be in writing before it happens. We have encouraged every home owners association to make a collection policy and distribute it to their home owners. The home owners know there are consequences when they do not pay their bill. After 3 months of delinquent fees, the home owner receives an intent-to-lien letter, meaning there must be contact with the association to make payment arrangements, or the delinquent amount of fees will be sent to a lien company, or a lien will be placed on the house. There is protection within NRS 116. If there is a discrepancy through a board, where they pick and choose who they will fine, that is why we are looking for a commission so unfair application of association documents can be reported to the commission or the ombudsman.
Mr. Magrath:
I did find in the statute a law on this issue (Exhibit F). It is NRS 116.31065. Under subsection 5, it says, The rules adopted by an association “must be uniformly enforced under the same or similar circumstances against all units’ owners. Any rule that is not so uniformly enforced may not be enforced against any unit’s owner.”
Chairman Townsend:
If a home owner finds out that is the case, where does the home owner go under NRS 116?
Mr. Magrath:
The home owner will have to go to the ombudsman or to the commission, if in fact a commission is established. The law does exist.
Chairman Townsend:
That is the point. We have written every law in the world, and probably will adopt some more. The average person living in associations has a copy of this, but nobody is threatened enough. Most of you have raised either a child or a dog who have to know where the fence is because if they do not, they keep running. If the home owner thinks there is no retribution for their behavior they are going to keep doing it. I think that is the point Senator O’Connell and Senator Schneider have tried to make in proposing these bills. But the question is who is going to enforce them?
Shirley McKeller, Associated Management:
I find as a community association manager that all the boards I have dealt with have been fair to all home owners. I think it is a matter of management being able to work with home owners to let them know about their recourses, and to correctly advise the board. I do not think boards are as bad as people make them out to be.
Chairman Townsend:
You are from around here, and that is the underlying problem with your argument. In northern Nevada, many of us see each other on a regular basis, but in southern Nevada, with so many new and growing communities, no one knows anyone. They also have different types of home owner associations. Some are gated communities, planned unit developments, sub-associations, or neighborhood associations. Things are different, and unfortunately that is why we have to have these laws. If they had people like you, it would not be a problem. You would figure out how to make it work.
Ms. McKeller:
I do feel the caps are unreasonable because you cannot do business efficiently.
Ms. Scott:
I gave you a summary (Exhibit G) of all the steps Summerlin goes through, and you can see how the costs add up. The only soft cost in the entire list is the $3 per month late charge. I cannot tell how many $3 per month late charges we waive, because some people get upset the first time they get one. It is easy to get them back in line by waiving that $3 soft cost. However, the rest of the charges are not soft-cost charges to the association. Somebody is going to pay them. If the law could say we do not want to make a profit on collections, but we want to be reimbursed for all our hard costs, then perhaps have a cap on the monthly late charge which is a soft cost.
Ms. Brigg:
I think your point is well taken that the commission will help educate board members, and that will help with the problem of some of these boards. The other thing you need to look at is extending the process to allow home owners ample time to understand what is going on. We have to notify these home owners, perhaps on a yearly basis, by including with the collection policy an explanation of the process, what can happen, and how quickly it can move. What I have seen is a $20 assessment owed on an account that the home owner continues to not pay, it goes to intent and then to lien. Before long the cost is so high that the $200 owed becomes $1000 owed.
Mark Kaplinsky:
There are other abusive practices such as associations that refuse to accept payment on the assessments, so they force the situation into foreclosure in an attempt to collect fines.
Ms. Brigg:
What I have seen is the management company or the board will elect to enter into a contract with a collection company. When the assessment becomes delinquent, it goes to the collection company. When the individual home owner comes into our office, we cannot take the check. The home owner will have to work directly with the collection company. Sometimes they are down to the last day, and if the check does not get to the collection company on time, there are additional charges. Some of the collection companies are out of state. When the check arrives late, the collection company says they cannot accept the check, because they have already gone through another process that means more money to them.
Mr. Kaplinsky:
That is not exactly what I meant. For example, if a home owner owes a fine up to $500 or $1000, the unscrupulous board of directors cannot foreclose on a $1000 fine. Sometimes the board tries to turn it into a health, welfare, and safety issue, but other times they instruct the management company not to accept any more assessments. They refuse all checks for assessments, then, essentially, commingle fines with assessments. I understand it is in the law not to do that, but it is done often.
Another thing is the inherent conflict of interest between management companies that do their own collection. I know of specific cases where they are making money from conducting their own collections. They have no reason to work with the home owner.
Chairman Townsend:
Let us go to section 17, page 4 of S.B. 325. This section concerns the collection and maintenance of data. Under the provisions in this bill, the commission would do that. Senator O’Connell and Senator Schneider have taken hundreds of complaints on this issue. We have been trying, over the past 6 years, to craft legislation to deal with this issue. Unfortunately, most of it has been by anecdote, and as a result it has been hard to follow the trend. Does anyone have a problem with this section?
Mr. Smith:
I do not have a problem, but I would break out units or associations of less than 5 years, 5 to 10 years, and 10 years and over. My research indicates new associations in northern Nevada are well run and developed, and do not appear to have a lot of problems. My condominiums are in older associations, and that is where I see the problem. I am horrified about what is going on in Las Vegas. I do not know what you are going to do, but if you solve that problem you are all geniuses. I would also break out the number of units. There are a lot of associations that have 5, 10, or 15 units, and those are not the problem. It is the 75-, 100-, and 300-unit places, and there are some places in Las Vegas that are running $5 million and $7 million budgets.
Chairman Townsend:
I think your point is well taken. Senator Schneider and Senator O’Connell, and in particular my colleagues from southern Nevada, need to work with the people here and in Las Vegas to figure out how we would separate types of associations by age and size. There might be ways to better approach that. Maybe that should be part of the commission’s charge. I think it is an important element. Particularly the aged smaller ones where people have known each other longer and some of the medium sized that are older where some situations have now existed for a while. The newer ones seem better organized. They are following newer rules, and started from scratch.
Senator Neal:
In listening to the discussion about trying to get a handle on the problem and the resolution, I was looking at NRS 116.31036 that calls for the removal of the executive board. Part of that statute says, “Not withstanding any provision of the declaration of bylaws to the contrary, the units’ owners, a by two-thirds vote of all persons present and entitled to vote at any meeting of the units’ owner at which a quorum is present.” I would remove the quorum if that refers to the group of people who actually own the homes, and say if they have a problem at any meeting, they can change the structure of the board, and that would give the power back to the home owners. This would be the only change I would make.
Mr. Magrath:
Is your intention that votes of only those people who appear at the meeting would count? Our association has 2000 members. We have never had more than 200 people at a meeting.
Senator Neal:
Then those that show up and vote would be the controlling votes. As the statute suggests, it is a vote of two-thirds of those present.
Mr. Magrath:
We have an election process that requires secret ballots to be mailed to everybody. If the same board members can be taken out of office simply by a dissident group, I would venture to say that any elected official would not want to be subject to the whims of the group of people who show up in protest. If 50 people are unhappy with your actions today, and 45 of them wanted to vote you out of office, I think you would prefer to go by the real election process.
Senator Neal:
What we are talking about is a board that is not being responsive to the actual home owners in those communities.
Mr. Magrath:
What if 1000 people do not show up at the meeting because they are satisfied with what the board is doing?
Senator Neal:
They would not mind if the people present removed the board.
Mr. Magrath:
Then you are forcing people to participate in democracy, and I do not think that is appropriate.
Senator Neal:
What about people who have an investment, and they have a board that is out of control? How are you going to bring it back into control?
Mr. Magrath:
Sometimes the board members are the elected representatives who have an obligation to the 1000 members to enforce the rules.
Senator Neal:
Sometimes they are not fulfilling that obligation, and this is why we have these problems.
Mr. Magrath:
What if they are fulfilling their obligation by forcing 100 home owners to pick the weeds, and clean up the yards, and those 100 people vote them out of office?
Senator Neal:
Then how do you read that section in NRS 116?
Mr. Magrath:
I believe you have to have a quorum present. A quorum has a certain definition in the law that requires you have people present.
Senator Neal:
How do you understand the section I just read?
Mr. Magrath:
The key is if you have a quorum present. A quorum means 50 percent of the entire membership of the home owners, or whatever the governing documents provide maybe 20 percent in the law.
Ms. Brigg:
The board is elected by the membership, and they have a responsibility for the good of the entire membership. Sometimes the decisions they make for the good of the entire membership are not good for a small group of people, which may come in and oppose that particular board.
Senator Neal:
What I am talking about is when the board says, I like this individual, but I do not like that individual. So the rules of the organization are not being enforced fairly throughout the community.
Ms. Brigg:
I understand. I think that is why the commission needs to be put in place. We are talking about a small group that may disagree with a board and should not have the ability to remove the board. We have talked about that in a previous meeting during this session. We will have removal done by secret ballots.
Senator Neal:
Let me ask you a question since you seem to have knowledge about these common-interest communities. When bylaws are first drawn up, who does that?
Ms. Brigg:
The developer usually had their attorney draw up the papers.
Senator Neal:
After the papers are drawn up, then what happens? Does the community that is present adopt them?
Ms. Brigg:
No. If the bylaws do not work for that community, the community can amend those bylaws.
Senator Neal:
If there are certain restraints put in the bylaws that would make it difficult, then those bylaws could not be changed?
Ms. Brigg:
Any bylaws can be changed.
Senator Neal:
I understand. I am talking about individuals who may have a complaint and go before their board seeking relief, and they do not get it.
Ms. Brigg:
They can go to the ombudsman.
Mr. Magrath:
I understand your concern, but the entire concept of common-interest communities requires at the beginning, a developer to come up with a common‑interest scheme; a plan for the community that requires certain people to follow certain rules. It is how they pay for greenbelts, ground maintenance, and security. It is how the developer pays for the project. The attorneys for the developer always draw up those rules in the beginning. Every potential home owner who moves into that development is given a copy of those rules. They have a choice at that time to decide if they want to live under those rules, or go elsewhere. Senator Carlton said she bought somewhere outside. Senator Schneider said his wife told him she would never live in a common-interest community because there are too many rules. The rest of us choose to live there.
Senator Neal:
If we change this law whereby those who show up at a scheduled meeting, and voted in two-thirds, you would have a larger number of people showing up because board members are going to notify people to come to the meeting.
Mr. Magrath:
If you create that anarchy, you will not see many of us here in 2 years because some of us might have been voted out, all of the volunteers would have left. You may have many complaints because nobody will run the association.
Senator Neal:
We have complaints now.
Mr. Magrath:
You are going to have more complaints because you have eliminated the boards.
Senator Neal:
No. We are not eliminating the boards, we just voted to change.
Mr. Magrath:
No. You are allowing a small, vocal minority to eliminate the regular election process, that is wrong.
Chairman Townsend:
Committee, with a show of hands indicate to me those of you who are interested in, and can support, the concept of a commission. Senators Carlton and Shaffer said they were not sure. Senators Schneider and O’Connell have to find the best components of that, and we will help them. I think this issue in S.B. 325 about regulations, the commission, data collection, and miscellaneous powers of the commission, are all important aspects as well as the things in S.B. 100. We need to find the best way to discover the commonalities and the direction.
Ms. DeVries, if we adopt a commission, what would be the ombudsman’s role? Based on what you have seen come into that office, what role should an ombudsperson play relative to a commission?
Tami DeVries, Legal Administrative Officer, Real Estate Division, Department of Business and Industry:
I do not know if you recall the handout from last time, but I have created a flowchart (Exhibit H) that I have today. The ombudsman’s office would be the point of first contact for anyone who has any kind of a problem within a community. At that level, they would attempt to assist or resolve whatever that problem may be through the work of the ombudsman or the office staff. If they find they cannot resolve the issue, or the issue has violations of law the issue would be referred to our compliance section for an investigation. After the investigation is conducted, it would go to the commission for a hearing. The alternative is if the issue involves violations of covenants, conditions and restrictions (CC&Rs), or something the commission could not rule upon, it would be referred to the person within the ombudsman’s office handling the alternate dispute resolution (ADR) process.
Chairman Townsend:
What value is it to either party, if you have a commission, to have an ADR process?
Ms. DeVries:
The ADR process should stay in place to handle issues involving conflicts in the CC&Rs.
Chairman Townsend:
Can that be voluntary for the parties, if they both agree to it as opposed to one more step?
Ms. DeVries:
Yes, that is the way it is now.
Chairman Townsend:
Both parties agree because there is a conflict and they need to get it resolved.
Ms. DeVries:
Yes, Sir.
Chairman Townsend:
What distinct authority should the ombudsman or the staff have relative to when a complaint is received? Do they have authority that can only be appealed to the commission? What is your view on that?
Ms. DeVries:
The ombudsman’s office would actually have authority similar to what they have now to assist the home owners or board members that are coming to them, to understanding their role within the community, their rights and responsibilities, to try to bring all the parties together, and assist them to resolution. That is part of the new function of the office through education, assistance, and understanding their rights.
Chairman Townsend:
If the premise is the purpose of finding and qualifying the role of the ombudsman relative to the potential commission, do you think the process is functionally going to work?
Ms. DeVries:
Yes. That is the way we think it would work functionally within the Real Estate Division as shown on the flowchart (Exhibit H). The flowchart is on the front, and on the back it spells out the different responsibilities the ombudsman’s office would have as opposed to the compliance section within the division.
Chairman Townsend:
My recommendation to this committee is to find the basic components that are necessary to make the commission and the relationship with the ombudsman work for the parties involved. Because Senator O’Connell and Senator Schneider and other colleagues from the south suffer the greatest problems relative to this, I want to get the basics of this into one bill, and get it to the Assembly. In the meantime, check with our colleagues in the Assembly as to who can work with all of us as we work through the details. If they have to amend because we missed a detail, we can have that ready so we are not retrying the big issues, and can just deal with the small things.
If you look at S.B. 325, S.B. 100, and S.B. 438, one thing you will notice is the reference in each bill as to who is responsible for certain things. We need to be sure what works for all parties involved. We will go back through the bills to make the language consistent. For example, section 22 in S.B. 100, is section 26 in S.B. 325, and section 10 in S.B. 438. They are different references, but they do the same thing. One references the commission and one references the division. We need to make sure of the best way to do this. It is my understanding there would be layers. First to the ombudsman, then if needed to the ADR, then perhaps the commission, then the next level is either district court, or the Real Estate Division. The public needs to know how this works, and it has to be in print and mailed to home owners in associations.
Senator Neal:
What would be the time line?
Chairman Townsend:
What kind of timeline do you want it to have?
Senator Neal:
Enough time after the ombudsman is contacted to go through all the steps.
Chairman Townsend:
That is in all these bills. What do you think is fair?
Ms. DeVries:
I think the timeline would depend on the complexity of the situation. There are certain timelines that need to be spelled out in statute as to notice time frames for hearings and other similar things. I went through all the bills, and have made suggestions on lobbyist Michael Buckley’s amendment, which is being incorporated into S.B. 100. There are some time frames that need to be adjusted, and some reduced, to assist in a speedier process.
Senator Neal:
To paraphrase the Chairman’s statement of yesterday, I would hate to see us bogged down in the outskirts of the resolution.
Senator O'Connell:
Mr. Chairman, I think the most efficient thing we could do is use the time line that Ms. DeVries has developed. She deals with these issues on a regular basis and knows what is required.
Chairman Townsend:
Mr. Powers, we are likely to have an amendment to S.B. 100 sometime within the next couple of days. There are things in the bill now that will not remain. Let me give you an example. Since we are amending the bill, and there are three bills with three names, should we make it a committee amendment and turn it into a committee bill? We should make a separate list of changes from what you are drafting, in particular section 17 in S.B. 325, which has to do with data gathering. This will help the process, since you are already drafting an amendment to S.B. 100 with multiple issues.
Kevin Powers, Committee Counsel:
“Certainly at this stage, drafting can incorporate many of these ideas that have been discussed today. I can save them for a later time as well.”
Chairman Townsend:
Let me ask Senator O’Connell and Senator Schneider, since they brought the two bills forward. There are certain things of which we are aware. That is a commission concept. Does the amendment to S.B. 100 change the commission in any way in which we are not familiar?
Mr. Powers:
“It does not. It is based on information that Michael Buckley had presented.”
Chairman Townsend:
Mr. Powers, I suggest, if you can, to include section 17 from S.B. 325, if that is all right with the committee, which deals with gathering data. Ms. DeVries, did you submit the timelines for the purpose of this amendment?
Ms. DeVries:
Actually, I submitted them to Michael Buckley, since it was his amendment.
Chairman Townsend:
Would you check with Mr. Powers to make sure, since Senator O’Connell said your expertise gives us a sense of the timelines? We will look at those timelines to make sure we are happy with them. Committee, now that we have this side‑by-side comparison (Exhibit C), find things that have not been contemplated that have merit and substance to recommend for the final amendment. We will then have a list of things we did not find. As the bill goes through the Assembly side, Mr. Powers and Mr. Young can use that list to develop the best way to process those items.
Senator O’Connell:
I would like us to get a feel for section 51. I know the group is unhappy about subsection 12 where it would apply across the board, but I think it is important for us to establish the fines, and the capping of them. Does anyone have any opposition to section 51, subsection 3, on page 17?
Chairman Townsend:
Is it your intent to deal with assessments that are ultimately able to go to foreclosure, or is your issue to deal with caps on fines?
Senator O'Connell:
Caps on fines. Deal with them first.
Senator Schneider:
I like caps on fines. We have to keep in mind the fines on the custom lots that have not been built out are huge. I do not have a problem with what is in the bill. Some of the developers say they want to be able to fine the people $10,000 to $50,000 or more as an inducement to get the property owner to build on these custom lots.
Senator O'Connell:
If there is no contractual agreement when the property is sold that there is a timeline when the property must be developed, then no fines. But if there is a timeline stipulation in the purchase agreement, we cannot go outside of an existing binding contract.
Senator Schneider:
When we wrote the existing law, we never considered custom lots. I think we have now capped those custom-lot fines at $500, and from what I have been told, that has created a problem. Some associations have fines up to $30,000 or more, and approached me on it. I told the association we threw out the net and brought in everyone, and they are in violation of the law. If you would like to exempt those in the bill, that is all right with me.
Mr. Young:
In conjunction with this discussion, the committee might want to look at section 31 in S.B. 100, and section 18 in S.B. 438, page 18 (Exhibit C). The last section on the page deals with enforceability of fines. Now go to page 27, section 42 of S.B. 100, and section 31 of S.B. 438. Pages 18 and 27 deal with the issue of fines and cumulative fines. You might want to keep in mind what is in the other two bills as you discuss S.B. 325.
Mr. Magrath:
Senator O’Connell’s bill discusses costs added to fines. I think we discussed earlier that I do not have a disagreement with limiting the collection costs that can be added to fines, and I think we have distinguished assessments. It is cheaper to park your big motor home in the street than to rent a space elsewhere. If you put a cap in, you are, in effect, rewarding the wealthier home owners who can afford to pay the fines to ignore the rule.
Senator Hardy:
I think that is the case in the circumstance brought up by Senator Schneider. I have a problem with someone moving into a community they anticipate being developed over time under the assumption of contractual agreements and are not. I do not have a problem with huge fines in that case, because that has a negative impact of everyone’s property values. I had that situation with my home owners’ association when I moved in to it. There was property under litigation, and I was told that once it was resolved, they would move forward. For someone to sell a lot as land speculation would bring down the value of surrounding property. I would not want to see that included in the capping of fines.
Mr. Powers:
Currently, as S.B. 100 is proposed and is being processed, one of the things the subcommittee decided to do was to incorporate A.B. 43 into the proposed amendment. What A.B. 43 does is take construction penalties out of the concept of being a fine. It creates a different category, and then allows those construction penalties to be imposed based on the separate category of construction penalties. So, the fines, other than construction penalties, can be dealt with differently.
Chairman Townsend:
There are really three issues. There is either a contractual obligation to build when you buy the lot, or there is not, or it is silent and someone changes it after they have purchased the lot. You know what the rules are when you sign, or you do what you want because there is no contractual obligation, and the third thing is where the problem lies. We have to make sure that is handled. There are some places that do not have an obligation to build within a certain time that works well, because the lots are clear and clean and kept that way. There are those that do not have an obligation to build that are a nightmare with trash, weeds, and other things.
Senator O'Connell:
Are we okay with section 51 up through subsection 12 on page 18?
Chairman Townsend:
Those are dealing with fines, and not with assessments.
Ms. Scott:
I do not think that is clear at this point.
Chairman Townsend:
It is not going to be associated with assessments; it will be associated with fines. The subcommittee has carved out this construction issue or vacant land issue. In S.B. 438, section 32, and in section 43 of S.B. 100, it covers the staggered terms of boards. In the case of S.B. 100, it provides for staggered terms of office.
Mr. Smith:
The other thing is the way the commission is set up now, I would not be eligible because I do not live in my condominium community, but I am a home owner.
Chairman Townsend:
Are you saying under S.B. 100 you would not qualify?
Mr. Smith:
Under Senator O’Connell’s bill it says you have to live in the residence, not just own it. I think you need to be an owner, but you do not have to be a resident. You could still be effective on the commission.
Senator O'Connell:
When we were going through this discipline the last session, we heard complaints because of developers who still had homes in the division, but were absentee owners. During the debate there was a lot of conflict, and it was thought somebody who lived on the premises would be much better.
Mr. Smith:
I agree with that. The thing a developer has a position, as a developer, to be on the commission, but I think it bars other people.
Chairman Townsend:
If you ever served as a board member, then you would qualify under section 12, subsection 2, paragraph (a) of S.B. 325.
Mr. Smith:
What I am trying to make sure is that there are good, responsible home owners, because this will be a tough job. It will take a lot of hours and a lot of work, and there are good home owners that do not live in the complex, but are involved there. I want to make sure these people are not barred from serving.
Chairman Townsend:
Under section 12 of S.B. 325 it says, “One member who is a unit’s owner residing in this State¼ .”
Mr. Smith:
That one I will take. Before we get to the commission, I have a concept that we have a hearing group in both northern Nevada and southern Nevada made of developers, owners, board members, and professional managers that hear complaints from their respective areas. There may be 15 people in a pool. When there is a conflict requiring a hearing, the ombudsman would review the pool of names for a possible conflict of interest, then select people for the hearing. The hearing could be once a week or once a month. Those involved in the conflict are heard by this subcommission hearing group. If the issue cannot be resolved, it would go to the commission. I can tell you that just having a commission would not have time if they met every day to hear all the issues. The concept behind this proposal is that the issues in the north are different than the issues in the south, and that is why each hearing group would be made up of people from that area.
Chairman Townsend:
Let me see if I can interpret this. You are saying that before an issue goes to the commission, there would be two groups of people geographically separated because of the geographic differences. That is a pool of people to pull from to hear a complaint before it ever gets to the commission where there are de novo issues, et cetera. Is that the kind of concept?
Mr. Smith:
It would be a pool, so if someone is from the same association as those with the complaint, you could pick another to serve. I think a group of five people who would be trained to talk to the home owner and the others involved to resolve the issue. If the group cannot solve the complaint, then it would go to the commission. I got the concept from lawyers who have a pool to serve on the disciplinary panel, and they rotate service.
Ms. Scott:
I want to point out that I believe in the commission language there is an opportunity for the commission to appoint a hearing panel to deal with that kind of thing.
Chairman Townsend:
I think his point is he wants people from the section of the community who would understand that a roof problem in northern Nevada is substantially different from a roof problem in southern Nevada, or snow removal issues in the north versus flood control issues in the south. Those are serious, separate issues that have geographic implications. That might be done within the context of what is currently in the commission proposal. I think his idea has merit, and we need to pursue it, because there is some common sense here.
Mr. Smith:
If this concept is adopted, and each side gets to look at the other and see where the abuses are, then maybe it will reduce the number of complaints.
Chairman Townsend:
Mr. Powers, did you address the issue of the commission in redrafting the bill, or is it intact as it is?
Mr. Powers:
“The commission, I think, is being shaped as we speak now.”
Chairman Townsend:
I am talking about what you drafted. Does that affect the current S.B. 100 commission?
Mr. Powers:
“It does make changes to the commission.”
Chairman Townsend:
Then when we get that, we will deal with those changes.
Mr. Kaplinsky:
I would urge the Senators to consider a clause that allows the Governor to remove a commission member without cause. There may be people on the commission who are not doing the job, or doing something the Governor may not want them to do.
Chairman Townsend:
The Governor has to establish it is for a cause, and then he can remove that member. You do not want to remove someone without cause, because that becomes a personality issue, and you end up in federal court. Now we are adjourned at 10:27 a.m.
RESPECTFULLY SUBMITTED:
Laura Adler,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: