1137 is Finally Final – Asking for a Veto

By Lindsay S. Smith on May 31, 2022
Posted in From Capitol Hill/Legislation

After a contentious session, House Bill 1137 is finally in its final form and on its way to the Governor. This bill is going to create havoc should it go into effect on August 10.

It will:
– Eliminate fines as a means of enforcement against individual, discrete behavioral violations that are easily cured and easily repeated (such as short term rental violations and noise violations).
– Create unfunded and new mandatory expenses for translations, process service before commencing collections, certified mailings, and balance letters.
– Confuse owners by requiring notices regarding amounts owed that will be inaccurate and fail to reflect all charges payable on accounts in collections, and further confuse them by requiring collection notices that tell owners how to cure non-existent covenant violations.
– Create ambiguities in existing parts of the law that are not changed by HB 1137.
– Force communities to subsidize delinquencies and delay foreclosures until the owner misses an 18-plus month delayed balloon payment (multiple times), creating breaches of existing loan and bond documents and negatively impacting lenders’ willingness to loan in communities.
– Create accounting errors for management companies and communities by removing fees, charges, awarded attorney fees, and late charges from the foreclosable HOA lien, but leave them as part of the lien that must be paid at sale or refinance.
– Eliminate a truly wronged owner’s right to recover all actual damages in a foreclosure.

It will not:
– Eliminate HOA foreclosures. While courts will have to work out the details, an HOA may end up with a judgment lien that is almost equivalent to the existing HOA lien, which lien will include things like attorney fees and late charges and is subject to foreclosure.
– Protect homeowners. You remember those unfunded expenses I mentioned above? An HOA will either have to pay those out of pocket – and that means higher assessments for everyone in the community – or stop with enforcement altogether and face legal liability for a breach of fiduciary duty (and again, innocent owners will pay the costs).
– Stop lawsuits. To the contrary, by taking away the power and availability of fines, more matters will be sent to legal counsel for enforcement lawsuits. A homeowner who might’ve followed the rules in response to a fine reasonably designed to compel compliance will now be able to buy his or her way out of following the rules, leaving the HOA in the impossible position of ceasing enforcement (and violating fiduciary duties), or filing a lawsuit.
– Save money. This bill will force all HOAs to adopt two or more updated responsible governance policies in the span of 70 days. Thousands of communities will contact their attorneys in a panic to ensure they are compliant before the effective date. Then, in a year, when a clean-up bill is introduced to address all the issues we’ve pointed out that have been ignored or minimized, those communities will have to spend more money for more revisions to their policies.

Let’s not do that. Veto this bill. Communities will be better off with a revised bill in 2023 that is conscientiously drafted with real input from the people who will implement the law in real life, than they will be with a poorly drafted and ambiguous law shoved through the legislative process in an attempt to show responsiveness to tragic stories that will still happen with HB 1137 in place. Let’s fix the problem, not make it worse.