1. Governing Documents. Associations may not enforce charges or other rules against homeowners, except those set forth in plain English in governing documents. All operating rules shall be compiled in a single document, available to homeowners on request, that at the beginning provides contact information for the ombudsperson and a description of the ombudsperson’s role.

2. Disclosure to Buyers. Unless otherwise provided by statute, the following provisions

apply:

a. At least __ days before an offer to buy a home becomes binding, the homeowner

shall furnish the potential buyer with [82]

i. the information statement prepared by the ombudsperson (including an acknowledgment for the buyer to execute) and all the association’s governing documents, excluding plats and plans;

ii. a statement of each existing assessment, any unpaid assessment currently due from the selling homeowner, and any other alleged violation of the association’s governing documents by external features of the home or landscape as of the date of the certificate, citing applicable rules;

iii. the association’s current operating budget and financial statement, including any legally required summary of the association’s reserves; and

iv. a statement of the number of foreclosure lawsuits filed within the past three years, any unsatisfied judgments and pending legal actions against the association or otherwise relating to the common-interest community of which the selling homeowner has actual knowledge.

b. Upon a homeowner’s request, within ten days the association shall furnish a certificate with the information specified in ¶ 2a. A requesting homeowner is not liable for erroneous information in the certificate. A buyer is not liable for any past assessment, any future assessment greater than stated in the certificate (unless lawfully increased after the sale), or for violations of governing documents by external features of the home or landscape not stated in the certificate. For this certificate, the association may charge only actual costs, not to exceed $__. [83]

c. Upon request by a homeowner, potential buyer in receipt of a certificate pursuant to ¶ 2b, or homeowner’s or buyer’s authorized agent, within __ days the association shall make any legally required study of the association’s reserves reasonably available to copy and audit.

3. Limits on Default and Implied Powers. Governing documents, and statutes governing homeowners, shall be construed to favor homeowners’ free and unrestricted use of their home, and against any person seeking to enforce a limit on homeowner rights.

a. Absent specific authorization in the declaration or in ¶ 3(b) or ¶ 3(c), associations do not have power to adopt any rules that restrict the use or occupancy of, or behavior within, individually owned homes.

b. Except as limited by statute or the governing documents, associations have implied power to adopt reasonable operating rules to govern the use of (i) common property and (ii) individually owned property to protect the common property.

c. If the declaration grants a general power to adopt rules, an association also has power to adopt reasonable operating rules designed to

(i) protect homeowners from unreasonable interference in the enjoyment of their individual homes and the common property caused by use of other individually owned homes; and

(ii) restrict the leasing of homes to meet valid underwriting requirements of institutional lenders.

d. Except to the extent provided by statute or authorized by the declaration, a common-interest community may not impose restrictions on the structures or landscaping that may be placed on individually owned property, or on the design, materials, colors, or plants that may be used.

e. An association may borrow money subject to any limits stated in the governing documents but, unless the declaration or a court-approved order grants specific authority, the association may not assign future revenues or create a security interest in common property without approval by __percent of all homeowners (or more if required by governing documents) in a vote after at least 30 days notice.

[82]  This time frame depends on other state laws as well as practical considerations that may be unique to local markets within the state.

[83]  This may depend on, for example, labor costs.

Homeowners deserve to know what rules the association applies, but frequently they do not. Clear disclosure provides the foundation for homeowners to agree to association rules and charges, facilitates compliance, and prevents arbitrary enforcement.

The model statute requires plain English because homeowners face serious sanctions for noncompliance. [84]  As required by the Americans with Disabilities Act and federal Fair Housing Act, such rules shall be provided accessibly for persons with disabilities. [85]

Many well-run associations provide notice by stating all their rules and charges in a handbook for homeowners. Such handbooks also often include important practical information such as telephone numbers. Although the model statute supports use of such handbooks, any additional information should not obscure the rules and charges. The ombudsperson could prepare a selfdescription for use in such handbooks.

The model statute also benefits potential buyers, because problems frequently arise when buyers do not understand how associations can constrain their home life. As stated in UCIOA, “[t]he best ‘consumer protection’ that the law can provide to any purchaser is to insure that [s]he has an opportunity to acquire an understanding of the nature of the products which [s]he is purchasing.” [86]  UCIOA requires some disclosures by developers, as well as disclosures on resale. [87]

The model statute focuses on required disclosures before a home’s resale, following the practices in some states. [88] States can impose lesser requirements on smaller associations, but all associations should ensure homeowners know what rules and charges they may face when they buy into a common-interest community.

The model statute specifically requires notice to a prospective buyer if the association alleges violations of the governing documents. [89]  This protects buyers who may be attracted to a particular feature of a house, such as a deck, only to learn (after the purchase) that the association demands that the deck be removed.

The model statute ensures that potential buyers have time to review required disclosures. This can overlap the period during which a potential buyer obtains inspections before making a final commitment to purchase. Having all the rules in a single document helps potential buyers just as it helps homeowners. Scattered rules may not be apparent and, even if discovered in a title search, the information may come too late to be useful.

The information statement must be clear and concise to be effective, but also must include descriptions of any default or implied powers. To ensure this, and to take into account local variation, the model statute requires the ombudsperson to prepare the information statement as a stand-alone document. Nevada and Florida statutes illustrate available options for text in the notice. [90] The model statute contemplates that a part of the information statement can be signed by the buyer and recorded to confirm disclosure.

Where ambiguity exists, the model statute follows traditional common law to protect homeowners’ independence--protection that exists even when state laws call for liberal construction of governing documents. [91]

In limiting the default and implied powers of associations, the model statute ¶ 3 follows the Restatement §§ 6.7, 6.9 and 6.3(3). [92]  In these and other sections, the Restatement recognizes needed limits on association power. [93]  In addition to these substantive limits, the model statute requires special procedures to amend corporate documents and operating rules in Section 105, The Right to Stability in Rules and Charges.

Default or implied powers can surprise homeowners, who typically do not study case law or undisclosed statutes. Even clear requirements to disclose governing documents would not disclose such default or implied powers. As an example of an implied power, some associations have asserted implied power to prohibit (or impose large charges on) lease of homes. Except where authorized by the declaration, the model statute expressly limits such powers, and protects homeowner rights to income from leasing except for limited situations where required by lenders. This follows the Restatement § 6.7. [94]

Like the American Law Institute’s Restatement, the model statute places more conservative limits on association power than UCIOA. UCIOA would grant broad authority, including (among many other powers) for associations to “exercise all other powers that may be exercised

… by legal entities of the same type as the association” and “exercise any other powers necessary and proper for the governance and operation of the association.” [95]  UCIOA’s approach has been followed in some states. [96] Indeed, some states give even broader powers to associations. [97] However, this amounts to granting directors broad amendment power, without any homeowner votes. See also Section 105, The Right to Stability in Rules and Charges (forbidding such broad delegation of amendment power).

[84]  See, e.g., Cal. Civ. Code 1363(g) (all potential penalties and fees must be listed and distributed to homeowners); Nev. Rev. Stat. 116.3108(5) (similar); 116.12065 (also requires notice of new rules); 116.3106(3) (requires bylaws in plain English) & 116.31065 (rules must be reasonable and clear); see also UCIOA § 4-103(a)(4) (developers must provide plain language summary of governing documents); cf., e.g., U.S. Const. Amend XIV (due process clause requires fair notice of rules before punishment).

[85] See 42 U.S.C. 12115 and 42 U.S.C. 3604(f).

[86]  UCIOA § 4-103 comment 1.

[87] Id. §§ 4-103(a)(4) comment 3 (offering statement must include “the declaration, bylaws, and any rules and regulations of the common interest community,” in addition to plain language summary); 4-103(a)(16) (developers must disclose fees and charges); 4-109(a) (requiring disclosures for certain resales); 4-109(b) (association must provide information for resellers).

[88]  E.g., Nev. Rev. Stat. 116.4109; Tex. Prop. Code 5.008, 5.012 & 207; Cal. Civ. Code 1368; Ariz. Rev. Stat. 33-1806 (mandates disclosures to buyers unless under 50 units in association) & 33-1260 (similar for condos); Fla. Stat. Ann. 720.401 (specifying required disclosure, absent which a buyer can void a sale, up to closing) & 718.503(2) (for condos).

[89]  See, e.g., Va. Code 55-512A(9).

[90]  Nev. Rev. Stat. 116.41095; Fla. Stat. Ann. 720.401.

[91]  See, e.g., Tex. Prop. Code 202.003(a), construed in, e.g., City of Pasadena v. Gennedy, 125 S.W.3d 687, 693 n.3 (Tex.App.--Houston [1st Dist.] 2003, pet. den.); Dyegard Land Partnership v. Hoover, 39 S.W.3d 300, 309 (Tex. App.--Ft. Worth 2001), following Ashcreek Homeowners’ Ass’n v. Smith, 902 S.W.2d 586, 588-89 (Tex. App.-- Houston [1st Dist.] 1995, no writ). See also Cal. Civ. Code 1370 and Moore v. Stevens, 90 Fla. 879, 885, 106 So.2d 901, 904 (1925), followed in White Egret Condo, Inc. v. Franklin, 379 So.2d 346, 352 (Fla. 1979); and Heck v. Park View HOA, 642 So.2d 1201 (Fla. 4th DCA 1994); Westwood Homeowners Ass’n v. Tenhoff, 745 P.2d 976, 983-84, 155 Ariz. 229, 236-37 (App. Div. 1987). Contrary decisions exist, see, e.g., Gennedy, 125 S.W.2d at 693 n. 2, but they undermine homeowner rights and open a door to restrictions that cannot be anticipated.

[92] See also Ariz. Rev. Stat. 33-1252(A) (requires 80 percent vote to encumber common elements); Nev. Rev. Stat. 116.3112(1) (requires majority vote).

[93]  See also, e.g., Restatement §§ 6.8 (limits on enforcement) & 6.10 (limits on powers to amend declaration).

[94]  Accord, e.g., Nev. SB 325 § 42 (2005). The Restatement explains why “interpretive rules limit the scope of the power to restrict use of individually owned property.” Id. at 141. “The rationale for not giving an expansive interpretation to an association’s power … is based in the traditional expectations of property owners…. Id. at 142.

[95]  UCIOA § 3-102(a) (16 & 17).

[96] E.g., Nev. Rev. Stat. 116.3102; Ariz. Rev. Stat. 33-1242A (similar rule just for condos). See also Nev. Rev. Stat. 116.2111(b) (default rule that owner cannot change unit’s exterior without association permission); Ariz. Rev. Stat. 33-1221 (similar rule just for condos).

[97] E.g., Tex. Prop. Code 204.010(a) (20 & 21). Even without a homeowner vote, directors have 19 stated implied or default powers, in addition to unqualified authority to “exercise other powers that may be exercised in this state by a corporation of the same type as the property owners’ association” and “exercise other powers necessary and proper for the governance and operation of the property owners’ association.”)