SB 143-COMMON INTEREST COMMUNITIES; LIENS  4:59:09 PM CO-CHAIR FIELDS announced that the final order of business would be 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." 4:59:31 PM EMMA TORKELSON, Staff, Senator Josh Revak, Alaska State Legislature, on behalf of Senator Revak, sponsor of SB 143, introduced the bill. She stated that SB 143 fixes two issues that have been causing problems for homeowner associations (HOAs) and condominium owner associations (COAs) for years. She explained that in 1986, the [Alaska] Uniform Common Interest Ownership Act (UCIOA) made an overhaul of HOA and COA statute. The amendment process created by UCIOA requires that HOAs receive written consent from all loan holders before HOAs can make amendments to their governing documents. However, HOAs have found it nearly impossible to get these written responses to their request for consent from the lienholders so they are left with long outdated rules that they cannot change. MS. TORKELSON explained that SB 143 does not repeal the current process but codifies a process so that if HOAs provide the required notice to lienholders and do not receive a response within 60 days the lienholder is considered to have approved it and the association can proceed with the rest of the regular process to amend its governing documents. She clarified that SB 143 does not change anything about the requirement for HOAs to receive written consent from homeowners or any other written requirement, it will just simply stop HOAs from being unable to change their documents if lienholders don't respond to their requests. MS. TORKELSON further explained that currently when a homeowner stops paying their dues or abandons their home, HOAs created after 1986 can collect up to six months of unpaid dues from the primary lienholder. However, HOAs created before 1986 don't get that same right and must absorb the cost, often passing it directly along to the other homeowners in the association. So, SB 143 clarifies what is already in statute to assure that the approximately 150 pre-1986 or pre-UCIOA associations will also be able to collect their unpaid dues just like their post-1986 counterparts. This clarification will provide consistency with how these liens are handled for both pre- and post-1986. MS. TORKELSON concluded her introduction of SB 143 by pointing out that the bill will directly benefit all dues paying home and condominium owners associations and grant all associations, regardless of when they were formed, the same flexibility and rights. 5:02:22 PM MS. TORKELSON provided the sectional analysis of SB 143. She paraphrased from the written sectional analysis, which 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. 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." 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). 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." CO-CHAIR FIELDS open invited testimony on SB 143. 5:04:38 PM SARAH BADTEN, Attorney, Birch Horton Bittner & Cherot, provided invited testimony in support of SB 143. She noted that she's been practicing community association law in Alaska for about 15 years. She said SB 143 is much needed legislation for especially the older homeowners' associations in Alaska. She explained that she helps homeowner associations and condominium associations enforce their governing documents and interpret their governing documents. She cannot tell the committee how many times over the years she has had condominium and homeowner associations be unable to amend their governing documents because of this onerous written requirement by the lienholders. Some of these associations even require 100 percent written consent from the lienholders, which is very burdensome when national banks hold these liens and they don't care about a little HOA in Alaska, so getting that written approval is almost impossible. What that means is that older associations are having to either violate their own governing documents to take some action, which she can never recommend, or they must govern under archaic rules, which is unfair. She posed an example of all unit owners in an association wanting the association to take over the maintenance of mailboxes, but the current declaration requires that the unit owners themselves maintain their own mailboxes. Because of this requirement, any amendment must be approved by the lienholder in writing, so even a change as simple as this cannot be done. 5:07:32 PM MS. BADTEN stated that SB 143 also solves another major problem, which is that pre-1986 properties are continually getting financially stuck with having to absorb costs that their post- 1986 counterparts are not having to deal with. She said this is because of language that banks are saying invalidates the declaration, so the banks are therefore refusing to pay the super-priority lien on these pre-existing associations. It is these older associations that need this protection the most because they are the ones that have the older buildings in need of repair, and they also tend to have more lower-income people living in these buildings. It is only fair that these older associations be given the same benefits that are granted to post-1986 properties, especially when considering that it is these mortgage lenders that are making the loans and, when an owner doesn't pay, the association is still contractually obligated to maintain and uphold the buildings and do yard maintenance and snow removal, which benefits the secured interest of that lienholder. Since it is the associations that are maintaining the secured interest of the lienholders it is only fair that the lienholders pay their fair share. Ms. Badten added that SB 143 would put pre- and post-1986 properties on the same footing. 5:09:36 PM SUSAN JENSEN, Manager, Bayshore Owners Association, provided invited testimony in support of SB 143. She noted that for the past 18 years she has been the operations manager of Bayshore Owners Association, which has 454 private homes and was founded in 1974. She concurred with Ms. Badten's testimony and said SB 143 has important provisions for her association. She related that Bayshore has wanted to amend its declarations many times over the years and has been unable to do so because of the burdensome requirement of bank approval in writing. For example, she continued, Bayshore could find itself in violation of its own governing documents when doing necessary maintenance projects. There is a provision that any expenditure over $20,000 requires a two-thirds approval of the members of the association, already a hurdle, but without bank approval the association cannot go forward even if it succeeds [in receiving the two-thirds homeowner approval]. The association's governing documents need to be amended to reflect the reality and the association today. She recounted an example of when her association lost out on a $100,000 improvement that would have made it safer for children to walk to school using the greenbelts and main roadway. The association was offered, at no cost to the association, a paved lighted pathway connecting the roadway through the association's greenbelt to three other roads and further greenbelts in the subdivision. However, the association would have had to cede the property to the municipality, and because of being unable to amend its governing documents the association lost out on that opportunity. MS. JENSEN further related that the association often stands to lose out on thousands of dollars owed to it for dues, attorney fees, or maintenance on individual properties while the lenders pay nothing while waiting for the eventual sale or foreclosure of a home. Numerous lenders, she pointed out, have lawyers who vigorously defend their right to pay nothing based on the Alaska law as it stands now or their interpretation of it. The bag gets passed on to innocent dues paying owners. She urged that the bill be passed to protect older associations by being able to amend their declarations and give super priority liens. 5:12:11 PM CO-CHAIR FIELDS announced that SB 143 was held over.