Washington State RCW 64.38.025(3) Supersedes HOA Bylaws in Regards to Budget Ratification

Started by GnomeX • 10 replies • 17346 views

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GnomeX (Washington)
Posts: 253

Posted:

All Washington state HOA Board members need to read this.

http://www.bellinghamherald.com/2013/04/30/2989683/court-ruling-makes-it-easier-for.html

Here is the text from RCW 64.38.025
http://apps.leg.wa.gov/rcw/default.aspx?cite=64.38.025

"(3) Within thirty days after adoption by the board of directors of any proposed regular or special budget of the association, the board shall set a date for a meeting of the owners to consider ratification of the budget not less than fourteen nor more than sixty days after mailing of the summary. Unless at that meeting the owners of a majority of the votes in the association are allocated or any larger percentage specified in the governing documents reject the budget, in person or by proxy, the budget is ratified, whether or not a quorum is present. In the event the proposed budget is rejected or the required notice is not given, the periodic budget last ratified by the owners shall be continued until such time as the owners ratify a subsequent budget proposed by the board of directors."

In a nutshell, from what I understand, this is what this recent court ruling means:

1) RCW 64.38.025 supersedes any provisions in a Washington State HOA's governing documents concerning budget ratification.
2) A Budget includes not only expenditures but also the dues needed to fund those expenditures. In other words, dues and expenses are to be voted on as a package and not separately.
3) Homeowner's do NOT get a vote to approve a Board's proposed budget. They ONLY get a vote to REJECT a Board's proposed budget.
4) ALL homeowner's get to vote on the Board's budget regardless of whether they are paid up on their dues or not.
5) It takes a majority (50%+) of ALL votes which are allocated within the HOA to REJECT a Board's proposed budget. If less than a majority reject a Board's proposed budget, the budget is ratified.
6) No quorum need be present at such meeting of the HOA for the Board's proposed budget to pass.

The Board of the HOA in question fought to NOT follow RCW 64.38.025(3), at great legal expense to the association, and lost the case. They are one of the largest HOAs in the state. They are currently appealing the decision.

This one case is going to impact every HOA in the state as it will clarify state law concerning budget ratification.

GnomeX (Washington)
Posts: 253

Posted:

Why did the Washington State legislature pass this law and why did the courts rule this way?

IMHO numerous HOAs across Washington state have been running into budget problems for years as they are often not properly setting dues to meet all expenditures. The legislature intended to stop this problem. The members of an HOA often want to keep dues artificially low and Boards often go along with it due to political pressure of the members that only show up to annual meetings. This often results in not properly funding reserves for assets that need long term budgets. In fact another recent addition to the Washington HOA Act was added a few ago that REQUIRES an HoA to perform reserve study annually.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Politicians seeking to "do something" lead to these kinds of over-regulatory laws. Nice explanation, Gnome! Our by-laws here in NC dictate much the same logistics in passing a budget, but it's not a problem for my community.

AmyA1 (Washington)
Posts: 101

Posted:

Wow, our HOA is in need of an increase. Our CC&R's require 75% to change our dues. They have only gone up once in over 20 yrs. Income from Clubhouse and RV parking rentals is the only thing that keep us going.

NancyG3 (North Carolina)
Posts: 342

Posted:

Not a problem with our NC HOA either. Our Board of Directors has never ratified our budget and don't intend to. They have been informed that it is a NC Corp law, but they have overlooked all laws above our Covenants and ByLaws. They run their own agenda and the homeowners don't care, including me. I've tried and have been unsuccessful. Other homeowners don't care.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By AmyA1 on 09/22/2013 7:59 AM
Wow, our HOA is in need of an increase. Our CC&R's require 75% to change our dues. They have only gone up once in over 20 yrs. Income from Clubhouse and RV parking rentals is the only thing that keep us going.

Amy

Many docs will allow a BOD to increase dues a modest amount each year without owner approval. Our limit is 5%.

GnomeX (Washington)
Posts: 253

Posted:

Quote:

Amy

This Washington State Statute supersedes your CC&Rs. If any provision of your governing documents (CC&Rs, bylaws, etc.) conflict with RCW 64.38 then RCW 64.38 controls. For this particular HOA mentioned in the lawsuit, their Bylaws required 60% of owners at an annual meeting to raise the dues. The court overturned this provision of their bylaws. Per RCW 64.38.025 it takes a majority (50%+) of ALL owners to REJECT a Board's proposed budget which includes the dues assessed needed to fund it. Even IF a quorum of members are NOT present at the meeting. Even member's that are not paid up on dues get to vote on at least budget ratification.

That is what the court ruling states. However remember, it is currently in appeals. The appeals court is expected to make a ruling in 2014.

This case will have sweeping changes to ALL Washington state HOAs.

VB (Washington)
Posts: 2

Posted:

As per my attorney: This case (decided by the Whatcom County Superior Court in 2013) was appealed and the Washington Court of Appeals reversed the Superior Court decision in a decision issued in 2014. (That Court of Appeals decision was appealed to the Washington State Supreme Court, but the Supreme Court denied review.) The Court of Appeals basically said that the HOA’s governing documents prevail over the statute.

VB (Washington)
Posts: 2

Posted:

MarkM31 (Washington)
Posts: 351

Posted:

The COA ruling
http://law.justia.com/cases/washington/court-of-appeals-division-i/2014/70329-3.html

GeorgeR8 (Arizona)
Posts: 182

Posted:

Quote:

Posted By GnomeX on 08/30/2013 7:15 PM
All Washington state HOA Board members need to read this.

http://www.bellinghamherald.com/2013/04/30/2989683/court-ruling-makes-it-easier-for.html

Here is the text from RCW 64.38.025
http://apps.leg.wa.gov/rcw/default.aspx?cite=64.38.025

"(3) Within thirty days after adoption by the board of directors of any proposed regular or special budget of the association, the board shall set a date for a meeting of the owners to consider ratification of the budget not less than fourteen nor more than sixty days after mailing of the summary. Unless at that meeting the owners of a majority of the votes in the association are allocated or any larger percentage specified in the governing documents reject the budget, in person or by proxy, the budget is ratified, whether or not a quorum is present. In the event the proposed budget is rejected or the required notice is not given, the periodic budget last ratified by the owners shall be continued until such time as the owners ratify a subsequent budget proposed by the board of directors."

In a nutshell, from what I understand, this is what this recent court ruling means:

1) RCW 64.38.025 supersedes any provisions in a Washington State HOA's governing documents concerning budget ratification.
2) A Budget includes not only expenditures but also the dues needed to fund those expenditures. In other words, dues and expenses are to be voted on as a package and not separately.
3) Homeowner's do NOT get a vote to approve a Board's proposed budget. They ONLY get a vote to REJECT a Board's proposed budget.
4) ALL homeowner's get to vote on the Board's budget regardless of whether they are paid up on their dues or not.
5) It takes a majority (50%+) of ALL votes which are allocated within the HOA to REJECT a Board's proposed budget. If less than a majority reject a Board's proposed budget, the budget is ratified.
6) No quorum need be present at such meeting of the HOA for the Board's proposed budget to pass.

The Board of the HOA in question fought to NOT follow RCW 64.38.025(3), at great legal expense to the association, and lost the case. They are one of the largest HOAs in the state. They are currently appealing the decision.

This one case is going to impact every HOA in the state as it will clarify state law concerning budget ratification.

I have no problem with this. These things are done in many places. I disagree with an annual reserve study that another poster mentioned.

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