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What is WUCIOA And Why Do I Care?

On July 1, 2018, a new law took effect.  The Washington Uniform Common Interest Ownership Act is found at RCW 64.90 and is best known by its acronym, WUCIOA (pronounced, “wookiowa”).  Real estate brokers will recognize implementation of the new law by inclusion of a new field in the listing input data sheet, “common interest community,” and the availability of a new statewide form, “Common Interest Community Addendum” (Form 22CIC).  The new field on listing printouts is already causing enormous confusion.  Some listing brokers assume that if seller’s property is part of a homeowners association, it is a “common interest community”.  That is a bad assumption.  In fact, there are few, if any, “common interest communities” in existence on the release date of this article.

WUCIOA replaces the Condominium Acts (both of them), the Homeowner Association Act and the Land Development Act but it ONLY impacts communities with CC&Rs that were recorded AFTER July 1, 2018.  If an association’s CC&Rs were recorded prior to July 1, 2018, the association is NOT a Common Interest Community (“CIC”) as that term is created and defined by WUCIOA (with one exception, explained below).  If the property is in an association created prior to July 1, 2018, then the “Common Interest Community” field on the listing should probably be marked “no” and there is no need to include a Form 22CIC in the purchase agreement.  Associations that are not CICs are still subject to prior law.  

There is an exception to the statement that older associations are not CICs.  An old association can opt into the new law and if it does, it will become a “Common Interest Community”.  That process requires the old association to amend its CC&Rs and that amendment should be recorded. Given the onerous requirements of the new law, it seems unlikely that many associations will opt in.  

Under the new law, an association is a Common Interest Community if the CC&Rs, recorded after July 1, 2018, describe both individually owned units and common areas that benefit and are funded by the unit owners.  It is irrelevant whether the association serves a condominium, a cooperative or something that looks like a plat (created by subdivision or otherwise). There is also an exception to this statement. An association created after July 1, 2018 could be exempt from WUCIOA and not be considered a Common Interest Community if it includes 12 or fewer lots, requires HOA annual dues of no more than $300 and provides for no special declarant rights.  

If listed property is part of a CIC, then listing broker should mark the “Common Interest Community” field on the listing printout as “yes”.  Moreover, the purchase agreement for that property should include a Form 22CIC controlling delivery of the public offering statement or resale certificate.  All Common Interest Communities require delivery of a public offering statement to first-time purchasers and resale certificates to resale purchasers. These requirements will be familiar to real estate brokers who sell condominiums.  Although not required by the law, it is likely that Common Interest Communities will need professional management, just as most condominiums already do, to keep up with the disclosure requirements necessary for the sale of homes and other statutory requirements.

The issue that will be most challenging for the brokerage community will be determining whether a property is part of a Common Interest Community.  Once HOA’s become familiar with this concept, each HOA board or manager should know whether it is or is not a CIC because its operations will depend upon the answer.  

If an association is a CIC, then it must be able to deliver resale certificates within ten days of an owner’s request and every transaction will be voidable by the purchaser until the resale certificate is received and for five days thereafter.  Late delivery of a resale certificate will not cause a closing date extension but if the resale certificate is delivered within five days of closing, then buyer will have the right to void the transaction until the transaction is closed.  Buyers have no ability to waive seller’s obligation to deliver a resale certificate, even in a competitive market where buyers want to make their offers more attractive. If a seller is led to believe that a buyer has waived the right to receive a resale certificate and thus fails to deliver a resale certificate, then buyer will have a right to terminate the purchase agreement until closing.  Delivery of a resale certificate under the new law does not impact a seller’s obligation to also deliver a Seller Disclosure Statement.  Just as condo sellers today must deliver both a resale certificate and a Seller Disclosure Statement, so must sellers of property in a CIC.

Sales of new construction in a CIC require delivery of a public offering statement.  Again, buyers cannot waive seller’s obligation to make this delivery.  A public offering statement is a document even thicker and more complicated than a resale certificate, describing details of the developers other developments, if any, future plans related to the subject development, common elements, anticipated expenses, existing liens and warranties, limitations on use or sale of the units and many, many other issues related to construction, use and management of property that is part of the CIC.  Every purchaser will have seven days to rescind a purchase agreement following receipt of the public offering statement.  If a buyer in a CIC receives the public offering statement more than seven days prior to entering a purchase agreement, then a buyer will have no right to cancel after mutual acceptance.  This will make it critical for listing brokers to keep records of delivery of a public offering statement to potential purchasers as well as to buyers who have already signed a purchase agreement.  Additionally, if a buyer in a CIC receives the public offering statement within seven days of closing, then buyer has the right to extend the closing date in order to capture the full seven day review and cancellation period. (Beware, the law does not say either of these last two items with respect to resale certificates.  Delivery of the resale certificate prior to mutual acceptance does not eliminate a resale buyer’s five day right to rescind the purchase agreement after mutual acceptance and late delivery of a resale certificate does not give a resale buyer the right to extend the closing date.)

This new law is already creating confusion and is likely to do so for many years to come.  Designated brokers, it would behoove you to gain a thorough understanding of this issue and spend time in office meetings conveying information to your brokers.  You will probably have to do this more than once.  It is critical for brokers to understand the bright line nature of the July 1, 2018 date.  Associations that exist by virtue of CC&Rs recorded prior to July 1, 2018 are NOT CICs unless the title report shows an amendment to the CC&Rs after July 1, 2018 by which the association opts into the new law.  Said differently, if the title report shows that CC&Rs were neither recorded nor amended after July 1, 2018, then the property cannot be a CIC.  If CC&Rs were recorded prior to July 1, 2018 and amended after July 1, 2018, then broker will have to understand the nature of the amendment to know whether the amendment was an “opt in” to the new law or simply a modification of the CC&Rs.  

Associations that exist by virtue of CC&Rs recorded after July 1, 2018 are CICs, unless the plat includes 12 or fewer lots and then brokers will have to rely on seller, who may have to consult the HOA, for the answer to the question of whether the property is in a CIC.  

It has always been important for brokers to order a preliminary commitment for title at the time the listing is taken and this new law creates one more item that brokers must confirm with the title report.  Brokers must locate reference to CC&Rs, if any, on the title report and pay attention to the date the CC&Rs and any amendments to the CC&Rs were recorded.  If nothing related to the CC&Rs was recorded after July 1, 2018, then the property is NOT in a CIC.  If recording of the CC&Rs or any amendment to the CC&Rs occurred after July 1, 2018, then broker will have to determine if the association is a CIC.  

It is important for brokers to be able to determine if a community is a CIC.  If a community is a CIC and broker does not help seller understand the importance of timely delivering the statutorily required documents, seller’s transaction will be vulnerable until it closes and if there are association issues that should have been disclosed to buyer but were not, because a required resale certificate or public offering statement was not delivered, then liability could exist for the brokers who failed to recognize the legal requirement for buyer’s protection.  On the other hand, if broker mistakenly identifies an association as a CIC and creates a false impression in the mind of buyer or seller that seller must provide a resale certificate or public offering statement, then seller will be frustrated and buyer may be angry to discover that association disclosures are not actually forthcoming.

With this basic understanding of WUCIOA, some ask how it is that this law came to be.  A short history lesson is instructive.  In 2006, a group of Seattle condo lawyers got together to talk about updating the Condominium Act.  They called themselves the “Condo Club.”  They proposed legislation to improve condo law.  Legislators considered the proposal and the need for all home owner associations to be regulated by law that requires accountability to owners.  After years of work by the Condo Club, Legislators and stake holder groups, WUCIOA was passed during the 2018 Legislature.  It will be a difficult law for many plat communities, created after  July 1, 2018, to embrace and administer.

The Prime Sponsor of this legislation has recently agreed that with changes that are this sweeping, some clean up is in order. Washington REALTORS® will be working with the Legislature to advocate changes that will help to make this complex act more user friendly—stay tuned!