02/09/2022 01:30 PM Senate LABOR & COMMERCE

           SB 143-COMMON INTEREST COMMUNITIES; LIENS                                                                        
                                                                                                                                
1:32:28 PM                                                                                                                    
ACTING CHAIR  STEVENS announced the consideration  of SENATE BILL                                                               
NO.  143 "An  Act  relating to  horizontal  property regimes  and                                                               
common interest communities; and  relating to mortgages, deeds of                                                               
trust, and other property liens."                                                                                               
                                                                                                                                
1:32:40 PM                                                                                                                    
SENATOR JOSHUA REVAK,  speaking as sponsor, introduced  SB 143 by                                                               
reading the sponsor statement.                                                                                                  
                                                                                                                                
[Original punctuation provided.]                                                                                                
                                                                                                                                
     In  1986, the  Uniform  Common  Interest Ownership  Act                                                                    
     (UCIOA)  made   major  revisions  to   Alaska  statutes                                                                    
     governing    Homeowners   Associations    (HOA's)   and                                                                    
     Condominium  Owner's  Association  (COA's)  in  Alaska.                                                                    
     However, two  issues were  not fixed  by UCIOA  when it                                                                    
     passed and  remain problematic for HOA's/COA's  and the                                                                    
     members  of  these  communities to  this  day.  SB  143                                                                    
     addresses  these  two  issues   and  ensures  that  all                                                                    
     associations,  regardless  of  when they  were  formed,                                                                    
     receive the same treatment.                                                                                                
                                                                                                                                
     The  first change  SB 143  makes is  to the  process by                                                                    
     which  HOA's/COA's make  amendments to  their governing                                                                    
     documents. As statutes currently  stand, the process of                                                                    
     amending  an HOA's/COA's  charter  is  so onerous  that                                                                    
     many  associations  are  forced to  continue  operating                                                                    
     with long-outdated rules. Unless  a statutory change is                                                                    
     made,  these  associations  may be  forced  to  operate                                                                    
     under   outdated   and   archaic   standards   forever.                                                                    
     Unfortunately,  this problem  affects mostly  older and                                                                    
     often  lower-income  properties;  the  very  properties                                                                    
     that most  need the  protections provided by  UCIOA. SB
 does  not eliminate the current  amendment process,                                                                    
     but instead provides a  more reasonable alternative for                                                                    
     associations  who are  unable to  complete the  process                                                                    
     currently laid out.                                                                                                        
                                                                                                                                
     Secondly, when  a home in  an HOA/COA is  abandoned, or                                                                    
     the owners stop paying  their regular dues, the HOA/COA                                                                    
     (and thereby  all the individuals  who pay  their dues)                                                                    
     bear  the cost  of maintaining  the property  until the                                                                    
     house is foreclosed upon.  UCIOA grants all HOA's/COA's                                                                    
     "super-priority  lien  status,"  which allows  them  to                                                                    
     collect six  months of outstanding HOA/COA  dues from a                                                                    
     bank holding a first lien  on the property. However, in                                                                    
     practice,  the  statute  has been  interpreted  to  not                                                                    
     grant   super-priority  lien   status  to   HOA's/COA's                                                                    
     created before  1986 and UCIOA.  SB 143  rectifies this                                                                    
     decades  old  problem  for  pre-1986  associations  and                                                                    
     clarifies  what is  already in  the  statute to  assure                                                                    
     that  pre-1986 HOA's/COA's  will  receive their  super-                                                                    
     priority lien just like their post-1986 counterparts.                                                                      
                                                                                                                                
     SB 143  will serve to benefit  homeowners associations,                                                                    
     condominium  associations,  common  interest  ownership                                                                    
     communities,   and   the    homeowners   within   those                                                                    
     communities   by  providing   an  alternative   to  the                                                                    
     overburdensome  charter   amendment  process  currently                                                                    
     laid  out in  statute and  assuring that  even pre-1986                                                                    
     HOA's/COA's are  compensated for  the costs  they incur                                                                    
     to  maintain homes  that are  not paying  dues. SB  143                                                                    
     will  directly benefit  all  dues-paying homeowners  in                                                                    
     HOA's/COA's  and grant  all HOA's/COA's,  regardless of                                                                    
     when they were formed, the same flexibility and rights                                                                     
                                                                                                                                
SENATOR REVAK thanked the chair  for hearing the bill and advised                                                               
that  his  staff was  available  to  walk through  the  sectional                                                               
analysis.                                                                                                                       
                                                                                                                                
1:36:01 PM                                                                                                                    
SENATOR   GRAY-JACKSON   asked   for   further   explanation   of                                                               
lienholders and notices.                                                                                                        
                                                                                                                                
SENATOR REVAK explained that lienholders  typically are banks and                                                               
several  dozen banks  could hold  liens in  a single  homeowner's                                                               
association. Lienholders  must be given  notice and agree  to any                                                               
change an  association proposes  to its  bylaws. For  example, an                                                               
association cannot  update the amount  it holds in escrow  to pay                                                               
for  utilities  unless every  bank  that  holds  a lien  in  that                                                               
homeowners association  agrees. In  older associations  that have                                                               
not gone  through the onerous  task of updating the  bylaws, that                                                               
escrow amount may  not come close to covering the  actual cost of                                                               
the  utilities. Responding  to a  further question,  he clarified                                                               
that  the bill  does have  to do  with bylaws.  The 1986  Uniform                                                               
Common  Interest  Ownership  Act   (UCIOA)  that  changed  Alaska                                                               
statutes   governing    Alaska   homeowners    associations   and                                                               
condominium owner  association is being interpreted  to not apply                                                               
to  associations formed  pre-1986 so  they do  not have  the same                                                               
opportunities as newer associations.                                                                                            
                                                                                                                                
SENATOR GRAY-JACKSON  noted that  he talked  about bylaws  but he                                                               
also mentioned utilities.                                                                                                       
                                                                                                                                
ACTING CHAIR STEVENS suggested Ms. Torkelson respond.                                                                           
                                                                                                                                
1:38:38 PM                                                                                                                    
EMMA  TORKELSON,   Staff,  Senator   Josh  Revak,   Alaska  State                                                               
Legislature,  Juneau, Alaska,  explained  that  the reference  to                                                               
utilities was an example of  an association that wanted to change                                                               
an outdated rule in the bylaws.                                                                                                 
                                                                                                                                
ACTING  CHAIR   STEVENS  asked  Ms.  Torkelson   to  present  the                                                               
sectional analysis.                                                                                                             
                                                                                                                                
1:39:33 PM                                                                                                                    
MS. TORKELSON  presented the  sectional analysis  for SB  143. It                                                               
read as follows:                                                                                                                
                                                                                                                                
[Original punctuation provided.]                                                                                                
                                                                                                                                
     Section 1    Amends  AS 34.07 by  adding a  new section                                                                    
     which  lays  out  an   alternative  method  for  Common                                                                    
     Interest  communities  formed   before  Uniform  Common                                                                    
     Interest  Ownership  Act  of  1986  (UCIOA)  to  obtain                                                                    
     lienholder  approval  of   proposed  changes  to  their                                                                    
     governing documents.                                                                                                       
                                                                                                                                
She noted that  Section 3 inserts this same language  in AS 34.08                                                               
so it affects associations formed post 1986. She continued:                                                                     
                                                                                                                                
     Under  this section,  pre-UCIOA communities  who choose                                                                    
     to use this  alternative "shall send to  a lienholder a                                                                    
     dated  written  notice  and  a  copy  of  the  proposed                                                                    
     amendment   by    certified   mail,    return   receipt                                                                    
     requested[.]"  If  the  association complies  with  the                                                                    
     written  notice requirements  and  the lienholder  does                                                                    
     not respond within 60 days  of the postmark date of the                                                                    
     notice, "the lienholder is  considered to have approved                                                                    
     the proposed amendment."                                                                                                   
                                                                                                                                
MS.  TORKELSON  clarified  that  this  is not  a  repeal  but  an                                                               
alternative method  in case  the lienholder  does not  respond to                                                               
the written notice.                                                                                                             
                                                                                                                                
1:41:17 PM                                                                                                                    
SENATOR MICCICHE  offered that  this does  not sidestep  what the                                                               
homeowners  want  to  do;  it  provides  an  alternative  to  the                                                               
lienholder approval requirement.                                                                                                
                                                                                                                                
MS. TORKELSON  agreed this  only provides  an alternative  to the                                                               
written consent  requirement for lienholders. It  does not change                                                               
any requirement to  get approval from the property  owners in the                                                               
association.                                                                                                                    
                                                                                                                                
SENATOR  REVAK  added  that  his   office  initially  heard  that                                                               
lienholders did not want to  commit to proposed changes to bylaws                                                               
on  homeowner  associations  in   general,  and  particularly  in                                                               
writing.                                                                                                                        
                                                                                                                                
1:43:40 PM                                                                                                                    
MS. TORKELSON continued the sectional analysis:                                                                                 
                                                                                                                                
     Section   2      Amends  AS   34.08  to   clarify  that                                                                    
     communities  formed  before  UCIOA are  granted  super-                                                                    
     priority lien status  in the same way  that their post-                                                                    
     UCIOA   counterparts  are   currently  granted   by  AS                                                                    
     34.08.470(b).                                                                                                              
                                                                                                                                
She  restated that  the existing  statute granted  super-priority                                                               
lien status  to all HOAs but  it was interpreted to  only include                                                               
those formed post  UCIOA, which passed in 1986. She  noted that a                                                               
list of 250 HOAs that are affected was in the bill packets.                                                                     
                                                                                                                                
     Section 3    Inserts the same language as  in Section 1                                                                    
     to AS  34.08 by  to provide  an alternative  method for                                                                    
     Common  Interest  Communities   formed  after  1986  to                                                                    
     obtain  lienholder  approval  of  proposed  changes  to                                                                    
     their  governing documents.  Under this  section, post-                                                                    
     UCIOA communities  who choose  to use  this alternative                                                                    
     "shall send to a lienholder  a dated written notice and                                                                    
     a  copy of  the proposed  amendment by  certified mail,                                                                    
     return   receipt  requested[.]"   If  the   association                                                                    
     complies with  the written notice requirements  and the                                                                    
     lienholder  does  not respond  within  60  days of  the                                                                    
        postmark date of the notice, "the lienholder is                                                                         
     considered to have approved the proposed amendment."                                                                       
                                                                                                                                
1:45:23 PM                                                                                                                    
VICE CHAIR STEVENS turned to invited testimony.                                                                                 
                                                                                                                                
1:45:56 PM                                                                                                                    
SARAH  BADTEN,   Counsel,  Birch   Horton  Bittner   and  Cherot,                                                               
Anchorage, Alaska, stated that she  has been practicing community                                                               
association  law  for  about  15  years,  helping  homeowner  and                                                               
condominium  associations interpret  and enforce  their governing                                                               
documents.  She has  been approached  by  many associations  that                                                               
have been affected by the issues SB 143 addresses.                                                                              
                                                                                                                                
She  recounted  that in  Alaska,  properties  in condominium  and                                                               
homeowner associations that were  built before the Uniform Common                                                               
Interest Ownership  Act (UCIOA) was  adopted in 1986  are treated                                                               
differently  than  property   in  associations  built  post-1986.                                                               
Homeowners in pre-1986  communities are not able  to change their                                                               
declaration. Responding to the  earlier committee discussion, she                                                               
explained that  the bylaws  refer to  how associations  run their                                                               
business. What the  bill addresses are the  recorded covenants on                                                               
the  property,   which  are  also   called  the   declaration  or                                                               
restrictive  covenants.   It  is   those  documents   that  older                                                               
communities  cannot amend  because  lienholders  must approve  in                                                               
writing  any change  to the  declaration.  Associations have  two                                                               
choices  if  the  lienholders  don't  all  respond;  either  they                                                               
continue to  operate under the  old standards or they  operate in                                                               
non-compliance with the declaration.  She stressed that she would                                                               
not advise operating in non-compliance.                                                                                         
                                                                                                                                
MS. BADTEN stated that SB  143 resolves this problem by providing                                                               
a process  for notification  to lienholders  about any  change to                                                               
the declaration  and an opportunity  to respond. However,  if the                                                               
lienholders are silent,  the association may proceed  to make the                                                               
change.                                                                                                                         
                                                                                                                                
MS. BADTEN also  voiced support for the  provision that clarifies                                                               
that  older associations  have  super-priority  lien status  just                                                               
like associations  created after  1986. Some banks  currently are                                                               
refusing to  pay older associations  any of the  outstanding dues                                                               
on properties  that have been  foreclosed, arguing that  it would                                                               
invalidate the declaration.  SB 143 makes it clear  that the same                                                               
rules relating to lienholder status  apply to both pre- and post-                                                               
1986 associations.  She pointed out that  older associations need                                                               
this protection the  most. Those buildings are more  likely to be                                                               
in need of repair and the  homeowners are less likely to have the                                                               
resources to  pay additional assessments  to offset  unpaid dues.                                                               
SB 143  will help  these pre-1986 properties  be able  to provide                                                               
the  maintenance   services  the  association   is  contractually                                                               
required to  provide under its  declaration. This  provides equal                                                               
standing for both pre- and post-1986 properties.                                                                                
                                                                                                                                
1:50:45 PM                                                                                                                    
SENATOR GRAY-JACKSON  offered her  understanding that  changes to                                                               
covenants need to be approved by the lienholders.                                                                               
                                                                                                                                
MS. BADTEN clarified that the  lienholder approval needs to be in                                                               
writing.                                                                                                                        
                                                                                                                                
SENATOR GRAY-JACKSON  noted that her homeowner  association (HOA)                                                               
was not on the list.                                                                                                            
                                                                                                                                
MS. BADTEN explained that the  list is not comprehensive; it only                                                               
includes those  condominium and homeowner associations  that have                                                               
the word "association" in the name.                                                                                             
                                                                                                                                
VICE CHAIR  STEVENS observed that  the list could be  longer than                                                               
the 250 identified in the material in the bill packets.                                                                         
                                                                                                                                
MS. BADTEN agreed.                                                                                                              
                                                                                                                                
SENATOR MICCICHE  said he understands  the problem and he  has no                                                               
issues with the bill.                                                                                                           
                                                                                                                                
1:53:32 PM                                                                                                                    
SUSAN  JENSEN, Operations  Manager,  Bayshore Owners  Association                                                               
Inc.   (Bayshore),  Anchorage,   Alaska,  concurred   with  Sarah                                                               
Badten's  testimony  in  support  of  SB  143.  She  stated  that                                                               
Bayshore  was founded  in 1974  and is  comprised of  454 private                                                               
homes so  the association  has to  deal with  at least  that many                                                               
banks.  She  related  that  Bayshore  has  wanted  to  amend  its                                                               
declaration a  number of  times through the  years but  was never                                                               
able to do so because of  the requirement to get written approval                                                               
from all  lienholders. For example, the  outdated requirements in                                                               
Bayshore's  declaration  limit  the reserve  to  $20,000  despite                                                               
infrastructure  upgrades  that would  cost  far  more than  that.                                                               
Bayshore  also lost  the opportunity  about  10 years  ago for  a                                                               
$100,000 improvement that  would have made it  safer for children                                                               
to  walk  to school  using  the  association's green  belts.  The                                                               
declaration  did not  allow it.  Further,  the association  often                                                               
loses out  on dues  and fees  owed to it  on properties  that are                                                               
awaiting sale  or in foreclosure  by the bank. In  some instances                                                               
the  unpaid  dues and  fees  amounted  to $11,000  on  individual                                                               
properties.  This  debt is  passed  along  to the  innocent  dues                                                               
paying property  owners. She urged  the committee to pass  SB 143                                                               
to protect older associations.                                                                                                  
                                                                                                                                
ACTING CHAIR  STEVENS listed the individuals  available to answer                                                               
questions.                                                                                                                      
                                                                                                                                
SENATOR   MICCICHE  summarized   that   SB   143  addresses   the                                                               
restriction that prevents older  associations from changing their                                                               
declaration by  giving lienholders the opportunity  to respond in                                                               
writing to  a proposed  change within 60  days. If  the responses                                                               
are not  forthcoming, the wishes of  the members of the  HOA will                                                               
be honored.                                                                                                                     
                                                                                                                                
MS.  JENSEN  answered yes  and  added  that  the members  of  the                                                               
association are thrilled that the bill was put forward.                                                                         
                                                                                                                                
SENATOR MICCICHE  said he wanted  it to be  clear that SB  143 is                                                               
about  honoring  the  rights of  the  individual  homeowners.  He                                                               
referenced  the list  of  248 associations  and  noted that  just                                                               
seven were  in non-compliance. He  asked what the  typical reason                                                               
is for being out of compliance.                                                                                                 
                                                                                                                                
1:59:50 PM                                                                                                                    
MS.   BADTEN   answered   that    associations   that   are   not                                                               
professionally managed may not file  their biannual report to the                                                               
state timely  and will be out  of compliance until the  report is                                                               
filed.                                                                                                                          
                                                                                                                                
2:00:56 PM                                                                                                                    
VICE CHAIR STEVENS asked Ms. Neseth if she had any comments.                                                                    
                                                                                                                                
2:01:11 PM                                                                                                                    
PHOEBE E. NESETH, Esq., Director,  Government and Public Affairs,                                                               
Community  Associations Institute  stated  that  she submitted  a                                                               
letter  that   addresses  how  other  states   have  incorporated                                                               
provisions similar to those in SB 143.                                                                                          
                                                                                                                                
2:01:55 PM                                                                                                                    
ACTING CHAIR STEVENS opened public testimony on SB 143.                                                                         
                                                                                                                                
2:02:23 PM                                                                                                                    
JASON   HENNINGS,  Chapter   President,  Community   Associations                                                               
Institute of  Alaska, Anchorage, Alaska, testified  in support of                                                               
SB 143. He stated that  he had managed community associations for                                                               
about 10 years  in both Anchorage and Wasilla.  He has experience                                                               
with both  pre- and post-1986  HOAs and has found  the collection                                                               
methods fairly easy  for those formed after 1986.  This helps the                                                               
capital  reserves  in  an  association over  the  long  term.  By                                                               
contrast, there are  past collections issues with  older HOAs and                                                               
the reserves  can be  inadequate to  replace a  roof or  do other                                                               
maintenance. He agreed with  previous testimony that associations                                                               
in  less  affluent areas  are  more  likely  to be  affected.  He                                                               
stressed  how difficult  it is  for older  associations that  are                                                               
unable  to  change their  declarations  because  the banks  don't                                                               
respond.                                                                                                                        
                                                                                                                                
2:04:01 PM                                                                                                                    
VICE  CHAIR   STEVENS  found  no  further   public  testimony  or                                                               
questions  from  the committee  and  solicited  the will  of  the                                                               
committee.                                                                                                                      
                                                                                                                                
2:04:11 PM                                                                                                                    
SENATOR MICCICHE moved to report  SB 143, work order 32-LS0211\I,                                                               
from committee with individual  recommendations and attached zero                                                               
fiscal note(s).                                                                                                                 
                                                                                                                                
VICE CHAIR  STEVENS found  no objection and  SB 143  was reported                                                               
from the Senate Labor and Commerce Standing Committee.