Overview of Senate Bill 6215 Covering Reserve Studies for Condominium Associations
On March 21, 2008, Washington State Governor Christine Gregoire (D) signed into law Senate Bill 6215 (Chapter 115, 2008 Laws), 2007 – 2008 legislation concerning reserve accounts and studies for condominium associations. The new law took effect on June 12, 2008, and requires condominium associations to update reserve studies annually and make mandatory disclosures to purchasers. The new law affects reserve study professionals, declarants, associations, sellers, purchasers, and the agents that serve them. It is intended to create, through disclosure, greater transparency about the true cost of ownership in a condominium. It does not mandate that associations create reserve accounts or raise association dues.
For a quick overview of this topic, refer to an excellent article by Elizabeth Rhodes of the Seattle Times.
For a complete and detailed look at the law itself, please see the Condominium Act and scroll down to Section 64.34.380 through 64.34.390. The history of the new legislation is available at http://www.leg.wa.gov/legislature. You can view the Original Bill or the Bill as Passed in Legislature.
The goal of the new law, sponsored by Senators Rodney Tom, Jim Honeyford, and Bob McCaslin, is to enhance consumer protection in the purchase and ownership of a condominium.
In addition, new rules adopted by Fannie Mae and Freddie Mac, the two secondary mortgage market enterprises that purchase most residential loans, now require that lenders verify that the community association has a line item in its budget requiring annual reserve contributions equal to 10 percent of revenues. An article in the Seattle Times discusses the responsibilities of and potential liabilities for condominium home owners associations.
With the law going into effect each Public Offering Statement or Resale Certificate should include a copy of the association’s reserve study for the current fiscal year that meets all of the requirements of the new law (see, especially, Section 2), or the following disclaimer:
This association does not have a current reserve study. The lack of a current reserve study poses certain risks to you, the purchaser. Insufficient reserves may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a common element.
If you are an association, you or your agent should contact a reserve study professional in the next several months to determine the cost of preparing or updating a reserve study during your next budget preparation cycle. Once the cost is ascertained, you will have to determine whether preparing or updating a reserve study creates an unreasonable hardship for your association. An unreasonable hardship exists, according to the new law, if the cost of preparing or updating a reserve study would exceed 10 percent of the association’s annual budget. Other cases of unreasonable hardship will be fact-specific.
Call us for a free consultation and briefing on SB6215!