SB 6175 — Concerning the Washington uniform common interest ownership act.

S-4580.3SUBSTITUTEZ-0616.2SENATE SENATE BILL 6175State of Washington65th Legislature2018 Regular SessionBy Senate Financial Institutions & Insurance (originally sponsored by Senators Pedersen, Rivers, and Mullet;

by request of Uniform Law Commission)READCommissionAN FIRST TIME 02/02/18.AN ACT Relating to the Washington uniform common interest ownership act;

(a) With respect to a plat community, the plat as defined in RCW 58.17.020 and complying with the requirements of Title 58 RCW, and (b) with respect to a condominium, cooperative, or miscellaneous community, a map prepared in accordance with the requirements of section 210 of this act.(32) "Master association" means an organization described in section 221 of this act, whether or not it is also an association described in section 301 of this act.(33) "Miscellaneous community" means a common interest community in which units are lawfully created in a manner notconsistent inconsistent with chapter 58.17 RCW 58.17.040 and that is not a condominium, cooperative, or plat community.(34) "Nominal reserve costs" means that the current estimated total replacement costs of the reserve components are less than fifty percent of the annual budgeted expenses of the association, excluding contributions to the reserve fund, for a condominium or cooperative containing horizontal unit boundaries, and less than seventy-five percent of the annual budgeted expenses of the association, excluding contributions to the reserve fund, for all other common interest communities.(35) "Organizational documents" means the instruments filed with the secretary of state to create an entity and the instruments governing the internal affairs of the entity including, but not limited to, any articles of incorporation, certificate of formation, bylaws, and limited liability company or partnership agreement.(36) "Person" means an individual, corporation, business trust, estate, the trustee or beneficiary of a trust that is not a business trust, partnership, limited liability company, association, joint venture, public corporation, government, or governmental subdivision, agency, or instrumentality, or any other legal entity.(37) "Plat community" means a common interest community in which units have been created by subdivision or short subdivision as both are defined in RCW 58.17.020 and in which the boundaries of units are established pursuant to chapter 58.17 RCW.(38) "Proprietary lease" means a written and recordable lease that is executed and acknowledged by the association as lessor and that otherwise complies with requirements applicable to a residential lease of more than one year and pursuant to which a member is entitled to exclusive possession of a unit in a cooperative.

(1) Except for a nonresidential common interest community described in section 121 of this act, sections 120 and 326226 of this act apply, and any inconsistent provisions of chapter 59.18, 64.32, 64.34, or 64.38 RCW do not apply, to a common interest community created in this state before the effective date of this section.(2) Except to the extent provided in this subsection, the sections listed in subsection (1) of this section apply only to events and circumstances occurring after the effective date of this section and do not invalidate existing provisions of the governing documents of those common interest communities.

To protect the public interest, sections 120 and 326226 of this act supersede existing provisions of the governing documents of all plat communities and miscellaneous communities previously subject to chapter 64.38 RCW.NEW SECTION.  Sec. 118.  APPLICABILITY OF AMENDMENTS TO NEW COMMON INTEREST COMMUNITIES.

Chapter 64.32 RCW does not apply to condominiums created after July 1, 1990, and chapter 64.34 RCW does not apply to condominiums created after the effective date of this section.NEW SECTION.  Sec. 120.  ELECTIONSECTION.  Sec. 120.  AMENDMENTS OF PREEXISTING COMMON INTEREST COMMUNITIES TO BEGOVERNING GOVERNEDDOCUMENTS. BY THIS CHAPTER.

(1) The declarationgoverning documents of any common interest community created before the effective date of this section may be amended to provideachieve thatany thisresult chapterpermitted willby applythis tochapter, the common interest community, regardless of what applicable law provided before this actchapter was adopted.(2) NotwithstandingExcept anythingas toprovided theotherwise contrary contained in thesection governing218 documents(9), of(10), a(11), common(12), interestor community(13) created before the effective date of this section,act, an amendment to the declarationgoverning documents authorized under this section maymust be adopted in conformity with subsectionany (3)procedures ofand thisrequirements section.(3)for Anamending amendment to the governinginstruments documentsspecified authorizedby inthose thisinstruments sectionand is adopted if all of the following conditions are satisfied:(a) The association must provide notice to all unit owners in accordanceconformity with section 310 of this act;(b) Persons entitled to cast twenty percent of the votesamendment inprocedures the association:(i) Are present in person or by proxy at the beginning of thethis meeting;(ii)chapter. Have voted by absentee ballot;

or(iii)If Arethe presentgoverning bydocuments anydo combinationnot ofcontain (b)(i)provisions andauthorizing (ii)amendment, ofthe thisamendment subsection;(c)procedures At least sixty-seven percent of thethis voteschapter castapply. approve the proposed amendment;

and(d)If Thean amendment mustgrants beto recordeda inperson accordancea withright, sectionpower, 218(3)or ofprivilege permitted under this act.NEWchapter, any correlative obligation, liability, or restriction in this chapter also applies to the person.NEW SECTION.  Sec. 121.  APPLICABILITY TO NONRESIDENTIAL AND MIXED-USE COMMON INTEREST COMMUNITIES.

(1) The association has a statutory lien on each unit for any unpaid assessment against the unit from the time such assessment is due.(2) A lien under this section hasis priorityprior overto all other liens and encumbrances on a unit except:(a) Liens and encumbrances recorded before the recordation of the declaration and, in a cooperative, liens and encumbrances that the association creates, assumes, or takes subject to;(b) Except as otherwise provided in subsection (3) of this section, a first security interest on the unit recorded before the date on which the unpaid assessment became due or, in a cooperative, athe first priority security interest encumbering only the unit owner's interest and perfected before the date on which the unpaid assessment became due;

and(c) Liens for real estate taxes and other state or local governmental assessments or charges against the unit or cooperative.(3)(a) A lien under this section is also hasprior priorityto over the security interests described in subsection (2)(b) of this section to the extent of an amount equal to the following:(i) The common expense assessments, excluding any amounts for capital improvements, based on the periodic budget adopted by the association pursuant to section 317(1) of this act, along with any specially allocated assessments that are properly assessable against the unit under such periodic budget, which would have become due in the absence of acceleration during the six months immediately preceding the institution of proceedings to foreclose either the association's lien or a security interest described in subsection (2)(b) of this section;(ii)section; The association's actual costs and reasonable attorneys' fees incurred in foreclosing its lien but incurred after the giving of the notice described in (a)(iii) of this subsection;

provided,and(ii) however,The thatassociation's theactual costs and reasonable attorneys' fees thatincurred willin haveforeclosing priorityits underlien thisup subsectionto (3)(a)(ii)the shalltime notwhen exceedany twoperson thousandpays dollarsto orthe anassociation amount equal to the amountsfull amount described in (a)(i) of this subsection, whicheverincluding isthe less;(iii)association's Theattorneys' amountsfees describedand incosts.(b) (a)(ii)For the purposes of this subsectionsubsection:(i) shall"Institution beof priorproceedings" onlymeans toeither:(A) theThe securitydate interest of therecording holder of a securitynotice interestof ontrustee's thesale unitby recordeda beforedeed theof datetrust onbeneficiary;(B) whichThe thedate unpaidof assessmentcommencement, becamepursuant dueto andapplicable onlycourt ifrules, theof associationan hasaction givenfor thatjudicial holderforeclosure noteither lessby thanthe sixtyassociation days'or priorby written notice that the ownerholder of thea unitrecorded issecurity ininterest; default in payment of an assessment.

The notice shall contain:(A) Name of the borrower;(B) Recording date of the trust deed or mortgage;(C) Recording information;(D) Name of condominium, unit owner, and unit designation stated in the declaration or applicable supplemental declaration;(E) Amount of unpaid assessment;

and(F) A statement that failure to, within sixty days of the written notice, submit the association payment of six months of assessments as described in (a)(i) of this subsection will result in the priority of the amounts described in (a)(ii) of this subsection;

and(iv) Upon payment of the amounts described in (a)(i) of this subsection by the holder of a security interest, the association's lien described in this subsection (3)(a) shall thereafter be fully subordinated to the lien of such holder's security interest on the unit.(b) For the purposes of this subsection:(i) "Institution of proceedings" means either:(A) The date of recording of a notice of trustee's sale by a deed of trust beneficiary;(B) The date of commencement, pursuant to applicable court rules, of an action for judicial foreclosure either by the association or by the holder of a recorded security interest;

(A) Availability of materials and products, (B) prevailing law, or (C) sound engineering and construction standards then prevailing.(c) The adoption of a periodic budget that purports to allocate to a unit any fines, late charges, interest, attorneys' fees and costs incurred for services unrelated to the foreclosure of the association's lien, other collection charges, or specially allocated assessments assessed under section 317 (6) or (7) of this act does not cause any such items to be included in the priority amount affecting such unit.(4) Subsections (2) and (3) of this section do not affect the priority of mechanics' or material suppliers' liens, or the priority of liens for other assessments made by the association.(5) A lien under this section is not subject to chapter 6.13 RCW.(5)RCW.(6) If the association forecloses its lien under this section nonjudicially pursuant to chapter 61.24 RCW, as provided under subsection (12)(13) of this section, the association is not entitled to the lien priority provided for under subsection (3) of this section, and is subject to the limitations on deficiency judgments as provided in chapter 61.24 RCW.(6)RCW.(7) NotwithstandingUnless subsectionthe (2)declaration ofprovides thisotherwise, section, if two or more associations have liens for assessments created at any time on the same property, those liens have equal priority,priority.(8) and any foreclosure of one such lien shall not affect the lien of the other.(7) Recording of the declaration constitutes record notice and perfection of the statutory lien created under this section.

Further notice or recordation of any claim of lien for assessment under this section is not required, but is not prohibited.(8)prohibited.(9) A lien for unpaid assessments and the personal liability for payment of those assessments are extinguished unless proceedings to enforce the lien or collect the debt are instituted within six years after the full amount of the assessments sought to be recovered becomes due.(9)due.(10) This section does not prohibit actions against unit owners to recover sums for which subsection (1) of this section creates a lien or prohibit an association from taking a deed in lieu of foreclosure.(10)foreclosure.(11) The association upon written request must furnish to a unit owner or a mortgagee a statement signed by an officer or authorized agent of the association setting forth the amount of unpaid assessments or the priority amount against that unit, or both.

The liability of a recipient who reasonably relies upon the statement must not exceed the amount set forth in any statement furnished pursuant to this section or section 409(1)(b) of this act.(11)act.(12) In a cooperative, upon nonpayment of an assessment on a unit, the unit owner may be evicted in the same manner as provided by law in the case of an unlawful holdover by a commercial tenant, and the lien may be foreclosed as provided under this section.(12)section.(13) The association's lien may be foreclosed in accordance with (a) and (b) of this subsection.(a) In a common interest community other than a cooperative, the association's lien may be foreclosed judicially in accordance with chapter 61.12 RCW, subject to any rights of redemption under chapter 6.23 RCW.(b) The lien may be enforced nonjudicially in the manner set forth in chapter 61.24 RCW for nonjudicial foreclosure of deeds of trust if the declaration:

Upon an express waiver in the complaint of any right to a deficiency judgment in a judicial foreclosure action, the period of redemption is eight months.(c) In a cooperative in which the unit owners' interests in the units are real estate, the association's lien must be foreclosed in like manner as a mortgage on real estate or by power of sale under (b) of this subsection.(d) In a cooperative in which the unit owners' interests in the units are personal property, the association's lien must be foreclosed in like manner as a security interest under chapter 62A.9A RCW.(e) In a foreclosure under chapter 61.24 RCW, the association must give the notice required by statute or, if there is no such requirement, reasonable notice of its action to all lienholders of the unit whose interest would be affected.(13)affected.(14) If the unit owner's interest in a unit in a cooperative is real estate, the following requirements apply:(a) The association, upon nonpayment of assessments and compliance with this subsection, may sell that unit at a public sale or by private negotiation, and at any time and place.

Further proof of authority is not required even though the association is named as grantee in the conveyance.(e) At any time before the association has conveyed a unit in a cooperative or entered into a contract for its conveyance under the power of sale, the unit owners or the holder of any subordinate security interest may cure the unit owner's default and prevent sale or other conveyance by tendering the performance due under the security agreement, including any amounts due because of exercise of a right to accelerate, plus the reasonable expenses of proceeding to foreclosure incurred to the time of tender, including reasonable attorneys' fees and costs of the creditor.(14)creditor.(15) In an action by an association to collect assessments or to foreclose a lien on a unit under this section, the court may appoint a receiver to collect all sums alleged to be due and owing to a unit owner before commencement or during pendency of the action.

The exercise of rights under this subsection by the association does not affect the priority of preexisting liens on the unit.(15)unit.(16) Except as provided in subsection (3) of this section, the holder of a mortgage or other purchaser of a unit who obtains the right of possession of the unit through foreclosure is not liable for assessments or installments of assessments that became due prior to such right of possession.

Foreclosure of a mortgage does not relieve the prior unit owner of personal liability for assessments accruing against the unit prior to the date of such sale as provided in this subsection.(16)subsection.(17) In addition to constituting a lien on the unit, each assessment is the joint and several obligation of the unit owner of the unit to which the same are assessed as of the time the assessment is due.

Suit to recover a personal judgment for any delinquent assessment is maintainable in any court of competent jurisdiction without foreclosing or waiving the lien securing such sums.(17)sums.(18) The association may from time to time establish reasonable late charges and a rate of interest to be charged, not to exceed the maximum rate calculated under RCW 19.52.020, on all subsequent delinquent assessments or installments of assessments.

If the association does not establish such a rate, delinquent assessments bear interest from the date of delinquency at the maximum rate calculated under RCW 19.52.020 on the date on which the assessments became delinquent.(18)delinquent.(19) The association is entitled to recover any costs and reasonable attorneys' fees incurred in connection with the collection of delinquent assessments, whether or not such collection activities result in a suit being commenced or prosecuted to judgment.

The prevailing party is also entitled to recover costs and reasonable attorneys' fees in such suits, including any appeals, if it prevails on appeal and in the enforcement of a judgment.(19)judgment.(20) To the extent not inconsistent with this section, the declaration may provide for such additional remedies for collection of assessments as may be permitted by law.(20)law.(21) An association may not commence an action to foreclose a lien on a unit under this section unless:(a) The unit owner, at the time the action is commenced, owes a sum equal to at least three months of common expense assessments;

and(b) The board approves commencement of a foreclosure action specifically against that unit.NEWunit.(22) SECTION.  Sec. 319.  OTHERUnless LIENS.the parties agree otherwise, the association may apply any sums paid by unit owners who are delinquent in paying assessments (a) to the oldest debt on account, or (b) in the following order:(i) Unpaid assessments;(ii) Late charges;(iii) Reasonable attorneys' fees and costs and other reasonable collection charges;

and(iv) All other unpaid fees, charges, fines, penalties, interest, and late charges.(23) Every aspect of a collection, foreclosure, sale, or other conveyance under this section, including the method, advertising, time, date, place, and terms, must be commercially reasonable.NEW SECTION.  Sec. 319.  OTHER LIENS.

An initial reserve study must be prepared by a reserve study professional and based upon either a reserve study professional's visual site inspection of completed improvements or a review of plans and specifications of or for unbuilt improvements, or both when construction ofis some but not allcompleted. of the improvements is complete.

(1) Subject to subsections (2) and (3) of this section, express warranties made by any declarant or dealer to a purchaser of a unit in a condominium, if relied upon by the purchaser in purchasing the unit, are created as follows:(a) Any written affirmation of fact or written promise that relates to the unit, its use, or rights appurtenant to the unit or its use, improvements to the condominium that would directly benefit the unit, or the right to use or have the benefit of facilities not located in the condominium creates an express warranty that the unit and related rights and uses will not materially deviate from the affirmation or promise.(b) Any written description of the physical characteristics of the condominium at the time the purchase agreement is executed, including plans and specifications of or for improvements, creates an express warranty that the condominium will conform to the written description in all material respects.(c) Any written description of the quantity or extent of the real estate comprising the condominium, including plats or surveys, creates an express warranty that the condominium will conform to the description, subject to customary tolerances.(d) A written statement that a purchaser may put a unit only to a specified use is an express warranty that the specified use is lawful.(2) Subject to subsection (3) of this section, neither formal words, such as "warranty" or "guarantee," nor a specific intention to make a warranty are necessary to create an express warranty, but a statement of opinion or a commendation of the real estate, its quality, or its value does not create a warranty, and a statement, promise, model, depiction, or description does not create a warranty if it discloses that it is only proposed, is not representative, or is subject to change.(3) A purchaser may not rely on any statement, affirmation, promise, model, depiction, or description unless it is contained in the public offering statement delivered to the purchaser or made in a record signed by the declarant or dealer, or the declarant's or dealer's agent identified in the public offering statement.(4) Any conveyance of a unit transfers to the purchaser all express warranties of quality made by the declarant or dealer.NEW SECTION.  Sec. 415.  IMPLIED WARRANTIES OF QUALITY.

and(b) Are excluded by written expression of disclaimer, such as "as is," "with all faults," or other language that in common understanding calls the buyer's attention to the exclusion of warranties.(2) With respect to a purchaser of a condominium unit that may be usedoccupied for residential use, noa general disclaimer of implied warranties of quality under section 415 of this act is not effective, exceptbut that a declarant and any dealer may disclaim liability in an instrument signed by the purchaser for one or more specified defectsconditions, defects, or failures to comply with applicable law, if:(a) The declarant or dealer knows or has reason to believe that the specific defectsconditions, defects, or failures exist at the time of disclosure;(b) The instrument specifically describes the defectsconditions, defects, or failures;(c) The instrument includes a brief statement as to the expected effect of the defectsconditions, defects, or failures;(d) The instrument is bold faced, capitalized, underlined, or otherwise set out from surrounding material so as to be conspicuous;

and(e) The disclaimerinstrument is separately signed by the purchaser.(3) A declarant or dealer may not make an express written warranty of quality to a purchaser of a condominium unit that limits the implied warranties of quality made to the purchaser set forth in section 415 of this act.NEW SECTION.  Sec. 417.  WARRANTIES OF QUALITY—BREACH—ACTIONS FOR CONSTRUCTION DEFECT CLAIMS.

Such periods may not be reduced by either oral or written agreement or through the use of contractual claims or notice procedures that require the filing or service of any claim or notice prior to the expiration of the period specified in this section.(2) Subject to subsection (3) of this section, a cause of action for breach of warranty of quality, regardless of the purchaser's lack of knowledge of the breach, accrues:(a) As to a unit, the latest of:(i) The date the unit was conveyed to the purchaser to whom the warranty is first made;

or(ii) The date any portion of the unit that constitutes a building enclosure as defined in RCW 64.55.010(3) was completed;