 Welcome to the Kondo Insider Show where we discuss all things relative to Kondo living. Today we will discuss best practices when maneuvering unavoidable lawsuits. We will provide a perspective for homeowners who either live in their unit or rent out their unit. I'm happy to be joined again by Christa Spadler who has become one of our show regulars and I'm happy to say that. And we're also joined by Porter DeVries with DeVries and Associates who is an expert on all things in Kondo living legal matters. Welcome Porter to the show. Thank you Cheryl. It's my pleasure to be here. Happy to have you. Why don't you tell us a little bit about yourself? Sure. My name is Porter DeVries. My law firm DeVries and Associates is a real estate law firm. We work with Kondo Associations owners, buyers, sellers, developers. The center of our universe is real estate because owning a piece of paradise is a big deal. And last year we were recognized by law firm 500 as the ninth fastest growing law firm in the country which I'm quite proud of and so we're very excited to be here and glad to be with you today. Well great great and we're happy you're here as well. I know that we all have noticed all the cranes and kakaako and all the development and things of that nature and sometimes what comes with that are construction defects. So why don't we start there because potentially these defects can lead to law lawsuits. So I'm sure you've seen it all so if you want to kind of talk about that a little bit and educate associations that may be at a point where they're dealing with construction defects and how you can help them. Yeah so the construction defect lawsuits are a very big deal. There is a ten-year statute of repose which means you've got basically ten years to find it. A lot of newer properties, everybody's buying, happy moving in, excited to be there and a lot of these defects go unnoticed. So that ten-year period can go by pretty quickly. Important for boards to be proactive in terms of hiring experts, racking complaints and finding out if there's kind of a pattern of some kind of issue that's coming up regularly and have those investigated. How are those defects typically found out? Are they sometimes, you know, they just stumble upon it because of something else, you know, how you get some scenarios that you've lived through? Yeah so you know one case you know I lived through was discovered as a result of a fire. So there was a fire in one of the units garages and you know up until this point there have been no other issues, no reason to investigate and look into anything further. After this fire the insurance company came in, their adjuster was investigating to find the cause of the fire and just the extent of damage and as a result of that found that there was a fire blocking issue throughout that entire unit which was part of Sixplex and you know further investigation discovered that it was part of the entire project. So throughout we had these fire blocking issues. Fortunately this was right at the end of the ten year limit. Yeah so that's kind of lucky and unlucky. So what happens if you don't find it out after ten years you're just out of luck? Is that how that goes? Almost yeah I mean there are certain situations where you could get around that you know the the statute of limitations or statute of repose in this case can be told for some reasons you know all of those are judicial decisions and really fact-based so it comes down to really what that specific situation is. When those type of things occur you've got to get you've got to go through that litigation and get the funds from the builder or the developer and in the meantime you've got this issue that could potentially you know this could happen again if it's not resolved. So is there a cost to the owners? Is there an assessment? Very potentially yeah so that raises a very interesting legal issue in terms of you know do we fix this now you know while the lawsuit's pending while we're going through mediation and arbitration all of those steps and those years and expert investigations and all of that. Do we fix it now or do we wait until we've these associations been successful and we have insurance proceeds that can cover the cost of that? It's a tough decision for boards to make. I think it comes down to health and safety and just the legitimate risk of it happening again and so if you know a board were to decide that you know this is pretty significant we need to fix it now they'd be looking at probably especially assessing the owners for that. Yeah definitely not. If one of those situations occurred let's say in that situation with the fire someone had actually been injured or you know passed away because of it that would be a whole other litany of litigation that would take place probably against the builder separate from the HOA. Right yeah somebody's a state or somebody who's been injured by that would be that's outside of the association's domain of course anything that comes up in a lawsuit like that can be used in the association's potential lawsuit. Oh boy. You have quite a few of those going on right now? You know there are a lot of construction defect issues they slow down a little bit just because of that 10-year period you know after 2006 construction really slowed down so there's I think there's things are picking back up just with new constructions having been completed in the last five or six years definitely slowed down there. What are some other type of assessments that occur and you know that you've found I would imagine with older buildings you know you could have an assessment for new elevators that are needed or elevator systems or parking structures or I mean I can't even roof send me and just goes on and on and on. Yeah you name it if you have the association reserves are insufficient to cover a necessary repair or something new has been discovered. One association who discovered that all of their old metal pipes have rotted and deteriorated to the point where they had to be replaced. That's pretty common with the older those cast iron pipes are starting to fail. They thought they would last 50 or 100 years or so and they're starting. Nothing lasts forever. Nothing does. Yeah which means that you will probably start having to go out and get bids for contracts and things like that and I'm sure in some cases there are potential liabilities when addressing or dealing with contracts either reach of contracts or things like that. So do you often help boards navigate contracts and reviewing contracts which I always advise that you know homeowner associations should always let their attorney review the con any major contract before they sign it just make sure the fine print is serves them. Yeah. That is great advice. Yeah. Yeah it's it's unfortunately too frequent that boards get into contracts without having it properly and thoroughly reviewed and it only comes to my attention when there's an issue when we're trying to fix something and then we go back and find that you know this term is just completely ambiguous. It means one thing to us. It means another thing to the contractor and you know we end up in court trying to get somebody neutral to decide what that means. Yeah. So getting into a contract you know it's not only just the specific terms of it and getting clear on what those are making sure that it serves the association's interest. But it's also ensuring that there aren't any conflicts of interest to ensure that the board is making a great decision that's at arms length and that's in the best interest of the owners. You know it's a small state. Everybody has interests in other places and sometimes boards get themselves into contracts where you know although what might be indirect they're benefiting from them. Yeah. In your office you serve all islands. We do. And you're probably are you seeing more lawsuits on one island over the other or are there types of lawsuits that are more prevalent on one island over the other or it's just just depends on the board. Well I think the main differences between islands are just the on Oahu we see a lot of resident based issues. You know we've got full time residents you know on a higher basis or higher percentage here on Oahu as opposed to the outer islands. And so we've got people living here. We've got people who are kind of more invested in where they live. And so there's closer attention being paid to what's going on. And so with that then you know we'd be on outer islands where it's more investors, more just second homeowners. Snowbirds. Snowbirds that you know they're not paying as much attention. You know you might have a board of the only people who are full time residents in an association. They're the only ones who volunteer and can actually serve. Yeah. And sometimes they get themselves into trouble just playing favorites working among themselves. You find just some backup here for all of you out there in any land. Porter and I have known each other for I don't even know how long. Several years. Yeah. Quite a few years and it worked together in Kona and he was my actual corporate attorney when I sold my company and he did a fabulous job. Thank you so much. But because Kona has newer developments. Well now like you said they're getting into the past the 10 year. You find more of the defects in the Kona. You know on the Kona side of the big island than here in Oahu or is it or there's similar. I'd say similar. You know there are the defects in in association cases here on Oahu I think are larger in scale on whole. Yeah. The general statement. Yeah. Yeah. All right. Okay. Come up with some other good ones. We have a whole bunch of them for you. So as far as association dues and board members and their responsibilities and an individual board member be sued by an owner for something related to board activity. Have you seen that happen before? Yes. Absolutely. I'm dealing with that right now. In fact there. Yeah. It's yeah. It's not uncommon. Unfortunately. The question comes down to also let me back up. We've got a claim from an owner against an individual board member. The first question is were they acting in their capacity as a board member or were they acting in their individual capacity outside the scope of their service on the board. And you know that question really defines then whether or not the insurance coverage, the Deanova coverage that hopefully the board has is going to step in to provide coverage for that directive. And so that's really the important first question. What mistakes. Well there's two questions I have regarding the board members. And I'm just on the periphery of everything that happens with the association side of the company I work for. But there's there's always so much encouragement for board education, board training for them to understand their responsibilities, their fiduciary responsibilities, how to conduct themselves, things that can get them into trouble, which I think is fabulous. I'm sure you love that. Absolutely. What what kind of mistakes have you seen someone in a position on a board mate? Maybe this will help folks out there, themselves from going down that path. Yeah, what type of mistakes have you seen them make that you would advise them not to? Sure. So you know, one is a big one I would say is self dealing. Where you've got a board member who's making decisions that really just benefit him or herself. Oh, yeah. Yeah, I've seen that. Whether it be where they're living, like, yes, I want this little plot of trees because my view is going to get expanded or things that are yeah. Yeah, or they're taking their spearheading a change to house rules, or they they take up some some kind of cause that really is only benefiting them. They're the only ones who are really that invested every all the other owners all the other directors are really kind of not that engaged in it, maybe not paying as much attention. And this person kind of ram something through and they change a house rule without having a vote. The board would have to approve it. And so that's why I was suggesting that other board members maybe aren't paying as much attention to it, just because this one person's really that excited about it. Right. The stuff will continue after the break. So thank you for joining us and please come back and we'll continue to the discussion. Thank you. Hello, I'm Mufi Hanuman. I want to tell you about a great show that appears on Think Tech Hawaii. It's all about tourism. In fact, we call it Tourism 101. Where we talk about the issues and challenges that faces our number one industry throughout the state. We'll have some interesting guests, very informative dialogue and allow you an opportunity to maybe learn a little bit more by why this industry is so important for our state. It's been great for us in the past. We need it today and especially going forward. That's Tourism 101 on Think Tech Hawaii. Mahalo. Hi, I'm Rusty Komori, host of Beyond the Lines. I was the head coach for the Punahou Boys varsity tennis team for 22 years and we're fortunate to win 22 consecutive state championship. This show is based on my book, which is also titled Beyond the Lines and it's about leadership, creating a superior culture of excellence, achieving and sustaining success and finding greatness. If you're a student, parent, sports or business person and want to improve your life and the lives of people around you, tune in and join me on Mondays at 11 AM as we go Beyond the Lines on Think Tech Hawaii. Aloha. Back and thank you for joining us again. We're just going to jump right back in and continue our discussion with Porta De Vries. I'm getting it right. And just discussing some of the legalities or some of the legal issues that boards sometimes get themselves into trouble and how you help them navigate some of that and best practices. And I think where we left off, we were discussing potential outdated house rules or we were going to segue into that, I think. And so do you want to kind of talk about like when it is a good time for boards to update the house rules and things like that? Or yeah, absolutely. Process. We're doing that. Yeah. So house rules are a great thing to have, but they can also be a curse. They're the lowest on the totem pole in terms of enforceability. And that's because they're only they can be made by the board and the board itself, you know, board alone without owner input necessarily. And so I'm like the bylaws and the declaration where you need a vote by the ownership. Correct. It really seems fair, but exactly that everybody has to live by out of a 400 unit complex and five people are making the decision on how you're going to what you're going to put on your lanai and how you know, you know, all those little details, all those little details. And so yeah, those come down to the house rules, which because the not all of the owners have approved them, they're sometimes unenforceable. So it's really about, I mean, the board needs to be interpreting its governing documents, the bylaws, the declaration and interpreting those things to add clarity that helps the owners with understanding what they can and can't do. Some of those things are just policy decisions that come up. You know, there's a new issue that everybody's facing. You know, in recent years, it's been service animals in medical marijuana. Oh, yeah. Yeah. You know, those things started out as house policies and you know, turned into laws. And when we have statutes now that provide protections for those and rules and processes to go about that. But they started out as house rules as people start bringing these things on properties and boards have to start dealing with them. They have to start dealing with them and they should always run them by their attorney. You can't say it enough. I hope everybody's hearing that. Yeah. And then I believe you have to give 30 days notice before they're enforceable after the attorney has signed off on them. Yeah. The board needs to put these out to the owners. They need to be presented at a meeting that everybody's aware of them. And yet there's a phase in period for them to be effective. And in conjunction with that, I would think that would kind of be in alignment with any type of finding policy and things like that. Because in my experience, I've seen a couple of finding policies that once you get in front of a judge, they're deemed unreasonable. So another reason to have your attorney vet all these things to make sure you're not being unreasonable, not being selective and enforcement and things of that nature. You don't get a pass because you're the president or anybody else on the board. So I think that's pretty important to. Yeah, you certainly don't get a pass. I mean, the condo laws are written very favorably for the associations, difficult position to be in. The boards are, you know, they're all volunteer. And these people spend a lot of time to try and make sure that their communities are well managed, well funded and in places for everybody to live. And that's commendable. But there is the risk of being arbitrary, being overly burdensome. Some of these rules, as you mentioned, I've seen those house rules of where the finding policy is pretty much out of control. Yeah. And there's a balance there. You know, sometimes you want to have a finding policy that's pretty stern, because ideally that's kind of in the back of people's minds. It's a deterrent, exactly. And it prevents people from getting into that. But if you then take it so far as to let years and years of interest and late fees pile up and then you're in front of a judge trying to say, judge, this is all very legitimate, well, that might not hold up. You know, it might be there as a deterrent initially, but to really follow through and press that when it gets to be the extreme amount compared to the relative value of the property, that's where you might have issues. Do you recommend a number of warnings like first warning, verbal or posted to your door or whatever, second warning, written, sent, certified mail, and then, okay, third warning, $50 fee, you know, then you just progressively moving up if whatever it is hasn't been resolved. I mean, do you recommend having, because I've seen them go straight to the $200 fine before there's even any warnings given, which doesn't really seem fair. Yeah, there are a whole range of different policies that are out there. And the reason for that is that these are written into the Declaration and By-laws. Oh, that's where it all starts. And that's why they aren't standardized. You know, a lot of the management companies will have their process of one letter, two letters, three letters, and after 90 days, they turn it over to the Association's attorney. But some of those kind of standard policies are limited by what's in the Declaration of By-laws. And so, you know, if we were to rewrite everybody's Declaration of By-laws, I think that would be a great rule that just kind of set as, you know, the baseline for you get three notices, and then this is going to the attorney. Then we have a defined period of when you can have a lien filed against the property and so forth. For outstanding debt. Right. So if you did stop seeing something happen in your life due to illness, loss of a job, whatever it might be, and economy shifts, and up to what point, you know, one, two, three, six, nine, 12, how many months typically on average go by before any type of like eviction to that particular owner or does that even happen? Yeah. Or taking over the unit? Yeah. Well, so just to be clear on terms, an owner wouldn't be evicted. Oh. Tenants get evicted. Owners have to be foreclosed on, lose their interest in their property. They can get that lien foreclosed. If they reach the point of having a lien filed against their property, that lien can be foreclosed. The association can go through that process judicially or non-judicially and take the ownership interest from that owner. Take possession. Right. But can you explain judicially versus non-judicial versus non-judicial to the layman? Sure. Pensive and cheaper? Yeah. So some of it's cost, but most of that comes down to just the time it takes. It takes, well, it takes a number of months. For either one of them? For either one of them, you can do a non-judicial foreclosure. I once mapped out like every single deadline if you bet everything to a T. Right. You know, you could get this done in three months. And non-judicial is typically not before a judge, right? Right. So yeah, that's what that means. So getting back to the terminology, non-judicial means that we're outside of the court system. This is just happening pursuant to statute. So there are notices issued. There are notices published in the newspaper, public auction held, and all of these things are defined by statute. But there's nobody looking over our shoulder, watching what's going on. There's just the kind of back end enforcement. If there's been something improperly done, it would come back later on. An owner, however, who is in the middle of a non-judicial foreclosure and petition, have this brought into court quite easily. So there's that protection. Not as much teeth in it, then, as a judicial. Right. Yeah. I mean, a non-judicial is better suited to an owner who maybe is just completely disappeared in a way who would just find there's no risk of them coming back. And, you know, there really isn't a defense there. That's that's where non-judicial is best suited. That does happen. Yeah. But most often these are in the case of just not paying your maintenance fees or maintenance fees get behind opposed to sort of it fines or anything like that typically. Right. Typically, it's kind of a combination of both in a way. So like what happens, I've seen a lot of these where an owner will get fined for something that they think is completely unreasonable. And they are not happy about it. And so they are not paying it. And, yeah. So, you know, it piles up, it piles up and builds and builds and builds. And then they start getting these letters. And, you know, somebody gets more and more upset with their association, they're going to be less participatory, less responsive. And at some point, the board says, you know what? We can't hold this on our books anymore. We need to do something about it. Yeah. How does the priority of payment come into play with that? I know that's a subject plate lately, because there's it's changed. And I don't even know if it's set in stone yet. So if said homeowner, if you will, thinks that this fine is ridiculous, I'm not going to pay it. I know in the past, the association or whatever payments they make towards their maintenance fees could be applied to legal fees and fines and things of that nature. But I don't know if that's still the case. Right. That's changed. That's changed. Yeah. So, legislator asked new legislation, updated the statute, so that the old priority of payments ended to be we'll pay the oldest thing first and pay the legal fees. And so an owner could never really get caught up. And they'd always be assessed a late fee on their maintenance fees, interest on those maintenance fees, even if they were still paying something, those kind of a never ending, the whole digging going on. And so that's what the legislature was addressing there. What we have now is that an owner can designate that the payment they make is to go specifically to their maintenance. Allocate it towards the maintenance fees. Yeah. So they indicate on their check, for example, this is for my maintenance fees. That's the exact amount for the maintenance fees. That has to be applied to their maintenance fees. Can't apply it to anything else. Yeah. Yeah. Yeah. And so that eliminates some of those situations where we've got ballooning fees and interest all based on, you know, one fine or something that was imposed earlier. But a good rule of thumb, if you want to dispute a fine or anything is to just communicate with the board and board should always provide a platform, listen to owners and give them the opportunity to either remedy or in some cases, wave, maybe, you know, they're mitigating circumstances and, you know, they'll give them a pass. But you should just never, like with anything else, ignore it. It's not going to go away. Right. Yeah. Ignoring it is never a good policy. Yeah. You're absolutely right. Communication is number one here. And rational and reasonable communication. Yeah. Qualified a little bit. There are a lot of ranting letters that get sent, a lot of ranting emails and kind of harassing emails that come day in and day out. Yeah. You know, these are difficult for property managers to deal with. Yeah. And if the issue gets moved over to legal counsel, you know, it's hard to say that, you know, we're dealing with somebody who understands the actual issue or why this happened and who would be willing to work on settling it or working at a payment plan. Important to just communicate reasonably and rationally. Yeah. Yeah. It's always a good practice to show up at the board meeting and participate because then you I think you get a lot more insight into the entire process. Absolutely. It's a little mini democracies. They should all be operating as such, which means that everybody has to participate. Wouldn't that be nice? Well, I know we're coming to the close of the show and we could continue, you know, we can go down a rabbit hole of all the experience that you have in different types of scenarios. And he's coming back and you're coming back in January. Yeah, in January. I think this is a good time. Why don't we share with the audience that starting January 2020 is going to host a show and condo insider. Yes, very excited and it'll be primarily related to, you know, property management from the rental aspect. And I've got some really great people coming up and I'm actually going to be interviewing Cheryl to find out more about her experience and background somewhere down the line here. I don't think we've picked a date yet. It'll be fun. We're having fun. So please continue to come back and join, join the fun. Thank you. Aloha.