Poorly conceived SB 186 will cost unit owners money

This week, I have invited local attorneys Gregory P. Kerr and Michael T. Schulman of Wolf, Rifkin, Shapiro, Schulman &Rabkin to explain new laws that will affect Las Vegas communities and the state’s homeowners associations. This is a three-part series that takes an in-depth look at the new laws. This week, we will cover Senate Bill 186. Next week, we will tackle new laws concerning fees and water restrictions.

SB 186 is awful. Truly, it is the worst bill affecting common-interest communities the industry has seen in a while. This legislation will cost unit owners money. It is a bill that is poorly conceived and disregards mutual interests that are shared by both unit owners and associations. It undoes beneficial work past bills did. While there is much to dissect and write about on SB 186, the purpose of this column is to present these bills in a concise summary fashion.

There are six major aspects to SB 186 discussed here, and are as follows:

1. It requires all associations consisting of 150 or more units to create and maintain a website and make available through that website “any document relating to the common-interest community.”

While many association management companies establish websites for the associations that they manage, the associations ultimately determine whether a website is useful or cost-effective. Historically, many associations may opt not to have a website or may establish a website but determine the content. Oftentimes, a website may simply not be deemed useful enough to justify the maintenance or protecting it from unauthorized users or hackers. Nevada law pursuant to SB 186 now makes that decision for associations — at least for those associations of 150 or more units. The imposition of this requirement is an additional, costly burden on associations and their unit owners.

What is more shocking is the scope of the content that SB 186 requires to be made available on the website. SB 186 states that an association “shall make available on the website or within the electronic portal any documents relating to the common-interest community or the association … .” The logical extreme of the interpretation of that language can lead to incredibly absurd results. Does each and every document of any kind that in any way relates to the association or the common-interest community generally need to be posted on and kept available on the website? Does every email or letter from any owner or resident; every letter or email from any vendor or any other third party that in any way relates to the association or common-interest community, each and every written communication or email that a board member sends to another board member need to be posted and kept available on the website?

It is unclear at this time what the scope is of the requirement that association records be made available on the website. The most sensible application of that provision of SB 186 is that it requires that only more typical documents such as vendor contracts, board and membership meetings minutes, notices, governing documents and budgets be made available on the website.

The resources and time needed to compile, upload and keep current all association records and maintain the website will be substantial and will come at a cost to each association impacted by SB 186.

2. SB 186 also requires the websites or electronic portals provide an option for owners to make assessment payments electronically. This will require additional online privacy and security measures to be implemented by each association that is compelled by SB 186 to establish such a website or electronic portal.

3. Notices, communications and other information from an association must be mailed to unit owners in addition to electronic mail if an electronic mail address has been provided.

The most unfortunate aspect of SB 186 is the effective elimination of email as an alternative means of communication between an association and its unit owners. Under existing law in NRS 116.31068, associations can send various notices and other official communications by email to owners who have opted to receive such notices and other official communications by email as an alternative to regular U.S. mail. There are certain notices that an association must send by U.S. mail that an owner cannot opt of out of. For example, many of the collection and foreclosure notices prescribed in NRS 116.3116 through 116.31168 must be sent by certified mail to the unit owner at his or her unit address or an alternative mailing address as provided by the unit owner to the association. Other provisions in NRS 116 specify how a notice is required to be sent. However, aside from those association notices that are expressly required to be sent by U.S. mail or by U.S. certified mail, NRS 116.31068 gives owners the option to receive other notices, communications and publications by email instead.

In recent years, there have been efforts to modernize NRS 116 to allow more communications and official association business to be done by electronic means. When an association can send a meeting notice or a periodic newsletter, for example, to a unit owner by email, it allows the unit owner to avoid getting more postal mail that might go unnoticed, it saves on printing and saves paper, and the unit owner can receive it almost as soon as it is sent by email. Moreover, the association — and thereby the unit owners — saves substantial money by having less printing costs and less postage costs. Any savings to the association is a direct savings to the unit owners. It is common for larger associations or associations that send frequent communications to their members to incur paper, printing and postage costs that total in the tens of thousands of dollars annually. One of the goals of allowing electronic communications as an alternative to communication by U.S. mail is to save unit owners those costs.

All of the legislative efforts over the recent years trying to achieve cost savings through electronic communication are effectively wiped out by SB 186. Unit owners can still receive notices, communications and other information from their associations by email; however, SB 186 requires that those same notices, communications and other communications also be sent by U.S. mail. All associations and their unit owners need to be prepared to spend a lot more of association funds on printing and postage related costs.

In addition, the language in NRS 116.31068 was amended by SB 186 to require not just association “notices” (e.g., board of directors and membership meeting notices) be sent by U.S. mail, but SB 186 also added the requirement that notices and “communications and other information provided by the association” be sent by U.S. mail. For example, many associations have established e-blasts where unit owners have signed up to receive by email up-to-date information on events and occurrences taking place in their communities. SB 186 would seemingly require every e-blast to also be sent by U.S. mail to each owner.

4. SB 186 amends NRS 116.31164 to preclude certain persons from bidding on for purchase on a unit being foreclosed on for unpaid assessments. Under SB 186, those persons who may not purchase are:

■ Any person who was involved in the process of foreclosing the association’s lien pursuant to NRS 116.3116 to 116.31168, inclusive, including without limitation:

■ Any person who exercised discretion in any decision relating to the foreclosure of the lien and any person employed by such a person.

■ A collection agency used by the association to collect an obligation relating to the unit.

■ A community manager of the association and any of his or her assistants.

■ A member of the executive board of the association.

■ An attorney who provided representation to any of the parties with regard to the foreclosure of the lien.

■ Any person who is related by blood, adoption, marriage or domestic partnership within the third degree of consanguinity or affinity to a person set forth in paragraph (a); or (c) The person conducting the sale or any entity in which that person holds an interest.

The existing version of NRS 116.31164 only precludes the person conducting the sale or any entity in which that person holds an interest from bidding on and purchasing the unit at the foreclosure sale. SB 186 greatly expands the categories of persons not permitted to bid on and purchase a unit at an association assessment lien foreclosure sale.

Moreover, under the existing version of NRS 116.31164, the association whose assessment lien is being foreclosed was expressly permitted to purchase the unit by credit bid only. That means that an association could offer a bid for the same amount that was owed under the association’s assessment lien at the time of the foreclosure sale. An association may issue a credit bid for a number of reasons. First, issuing a credit bid can ensure that other bidders will not bid less than the amount owed under the lien; it establishes a bid that will at least make the association whole. Also, if there are no other third party bidders at the foreclosure sale, it can acquire the unit, which can avoid a situation where the association recovers nothing and the foreclosure sale canceled. If the credit bid were the only bid, the association would obtain title by way of a trustee’s deed or some equivalent title deed, although in practice, it is rare that an association acquires title to a unit through a credit bid.

That credit bid language authorizing associations to make credit bids and purchase units that it is foreclosing on in the existing version of the statute has been eliminated under SB 186. However, no language was added which states associations may not credit bid. Also, it is unclear if an association may take possession if its credit bid is the only bid. The statute will have to be revised and/or ruled on by a court to provide certainty.

5. Collection agencies that are licensed by the Nevada Financial Institutions Division are required under SB 186 to file certain annual reports with the commissioner of the Financial Institutions Division. The annual reporting requirements include:

■ The number of cases in which the collection agency collected a debt for a unit-owners’ association during the immediately preceding year.

■ The name of each unit-owners’ association for which the collection agency collected a debt during the immediately preceding year and the amount of money collected for each such unit-owners’ association.

■ The total amount of money collected by the collection agency for unit owners’ associations during the immediately preceding year.

■ The ZIP code of each debtor from whom the collection agency collected a debt for a unit owners’ association during the immediately preceding year.

■ A statement, signed by the manager of the collection agency, affirming that the collection agency did not collect a debt against any person during the immediately preceding year in violation of the provisions of subsection 9 of NRS 649.375.

This reporting requirement only affects licensed collection agencies.

6. Precludes affiliated management companies and community managers and collections agents from collecting assessments on behalf of the same associations.

Pertinent to associations, SB 186 precludes a licensed collection agency from collecting a debt from a person who owes the debt to an association if the collection agency is owned or operated by or is an affiliate of a person or entity who is the community manager for that association to which the debt is owed; or owned or operated by a relative of a person who is the community manager for that association. The intent behind this aspect of SB 186 is to avoid appearances of conflicts of interest or self-dealing in the collection of delinquent assessments and other debt obligations owed to an association.

Barbara Holland is a certified property manager and holds the supervisory community manager certificate with the state of Nevada. She is an author and educator on real estate management. Questions may be sent to holland744o@gmail.com.