Now that S.B. 177 has been killed, it might be useful to talk about what our concerns were with its provisions. We don’t disagree that the process of resolving construction defect claims needs to be corrected. What we oppose is the resolution on the backs of consumer home buyers by effectively taking away their rights to some recourse in the event they suffer from significant defects in the design or construction of their homes.
What was it about S.B. 177 that causes us to say that it took away the rights of the consumer home buyers?
1. S.B. 177 disallowed modifications of an Association’s governing documents to change or eliminate a mediation or arbitration requirement. While we generally agree that mediation is a good thing, and even arbitration can be a good alternative dispute resolution mechanism, the concern with this provision is that the Association’s governing documents are always drafted by the developer and its legal counsel. So even though the bill stated that an arbitration requirement represents a commitment on the part of the unit owners and the association on which developers are entitled to rely, in fact, the owners don’t get to participate in the determination of the arbitration process or in a meaningful way in the selection of the arbitrator.
2. The bill required an Association’s Board of Directors to mail a notice to all owners in the community before any legal action could be commenced – this would include legal action to collect delinquent assessments or foreclose on the unit of a delinquent owner, legal action to require compliance with the governing documents or to seek a restraining order or permanent injunction to prevent a violation of the restrictive covenants. Imagine that every time the association had to take these actions, it had to send written notification to all of its owner. While some might characterize an association as “big brother” telling everybody what they can and can’t do, many people move into communities because of the substantial benefits provided by their association. When owners fail to pay their assessments, all of the paying owners are subsidizing the non-paying owners. The association shouldn’t be required to notify all owners every time it needs to pursue legal action to enforce an owner’s obligation to pay assessments. Similarly, the association should not be required to incur substantial expense notifying owners before it can bring legal action to enforce the restrictive covenants or rules.
3. The notification requirements relating to construction defect actions were even more onerous; they required the Board to provide owners with a good faith estimate of the benefits and risks of construction defect legal action, which itself is not a bad idea. However, the specified form of providing that information fails to discuss the downside of any failure to bring construction defect action. But most significantly, before any construction defect legal action could be brought, owners holding more than 50% of the votes in the association had to provide their signed, written consent to the action. While such a requirement sounds innocuous enough to somebody who might not be familiar with association operations, in reality it can be virtually impossible to obtain, for a variety of reasons, not the least of which is the general lack by owners of understanding of what is being requested and why.
The bill spoke in terms of “public policy.” However, it seemed that the only public policy was requiring owners in communities to bear the burden of shoddy construction. There has to be a better way, and a more even-handed approach.