HOA annual meeting

Yes annual elections required per Davis-Stirling:
http://www.davis-stirling.com/AnnualElectionsRequired/tabid/2028/Default.aspx

What if the litigation drags out for a couple of years? Does the HOA sit by and not function?

Life goes on ...

Yes, our HOA is incorprated under CA law.
As for the point on HOA needs to continue to function, our issue with that is we are not able to function with the current board in question. We had conducted the recall of the current board last December. The current board injected 7 illegal votes with our attorney present at the recall meeting. The 7 illegal votes caused the recall result to be 41 for yes recall, 44 for no recall, 9 members did not vote. W/O the 7 illegal votes for no recall, the recall would be successful. Our attorney protested and declared the recall election was invalid. Now we have to wait for the court to find justice for us.
The two board memebers being sued are developers of the project. They still owned 30 units of 88 units. They appointed themselves to board for 4 years in the first annuall meeting. In a way our bylaw and cc&r allowed them to do so. Our bylaw only called for 3 board members. The third member has no saying on anything.
Ok, we need to hold the annual meeting. However, majority of our members do not want to attend the annual meeting because we do not want to listen to the two board members in questions. We also do not want to use the annual meeting to replace only one board member. Our managment company suggested us to send in 'proxy for quorum only' in order for them to at least be able to hold the meeting. Shall we take on the management company's suggestion?

FYI: Its nearly impossible to get a conventional loan if there's pending litigation. You might be able to find private lenders, but they would ask you to put 25% down with much higher interest rate,and most likely it would be a 15-year loan.

What does this mean? People in your HOA cannot sell their homes because the banks wont finance them. Ugg...

Susan,

Declarant = Developer or their representatives
Non-declarant = anyone else, but most typically homeowners

Hi Susan:

Maybe Rob will post here soon ... he is from CA and has alot of knowledge for your state statutes

Found the following under Davis-Stirling. Are all votes in your association Class A votes?

Also, when you stated:

They appointed themselves to board for 4 years in the first annual meeting. In a way our bylaw and cc&r allowed them to do so.

Can you possibly post this section of your By-Law & CCR’s? I would be curious what it states.

https://www.davis-stirling.com/MainIndex/TakingControlfromtheDeveloper/tabid/2705/Default.aspx

Voting Structure. Developers retain control by creating a two class voting structure. Class A is usually the homeowners, each of whom get one vote for each lot or condominium owned. Class B is usually the developer. The developer has three votes for each lot or condominium he owns. In a single phase project, Class B converts to Class A when either the total number of Class A votes equals the total number of Class B votes or on the second anniversary of the conveyance of the first lot or condominium in the project, whichever occurs first. In a multiphase project, Class B converts to Class A either on the second anniversary of the first conveyance in the most recent phases or four years after the first conveyance in the project, whichever occurs first.

Even when the developer has voting control, for certain votes, such as amendments to governing documents, the DRE requires approval by a majority of both Class A and Class B, effectively giving homeowners a veto on some issues.

Director Elections. Starting with the first election, a procedure must be established that ensures that at least 20% of the directors are elected solely by homeowner votes. Once the homeowners elect a director, only the homeowners can remove the director. Eventually, as the homeowners get more votes and Class B converts to Class A, the homeowners will elect all of the directors. The time for this occurring will vary from project to project depending on the pace of sales and number of phases in the project.

Hi Susan:

In many states the statutes will supersede documents on some items. If HOA's in CA are suppose to have annual election, then it struck me as curious the declarant could potentially assign individuals to four year term. Some items have referenced DRE "Department of Real Estate" for when new subdivisions are created, so I am looking at this document to see if there is potentially some idea:

http://www.dre.ca.gov/pdf_docs/relaw/regs2011.pdf

The declarant had put items in our documents and/or left out items (potentially for his convenience) and because many homeowners do not also read their state statutes, sometimes a declarant can get away with doing as they please.

Hi Melissa,

Thank you for the insight on suing HOA BOD.

Fortunately, we are suing the two BOD as individuals and their company.

Hi Melissa:

I would be willing to bet they did not file under HOA law, but under tort law. There are sometimes different circumstances regarding lawsuits concerning developer vs. board members.

Dear Janet:

Thank you for your information. I will pass your info to our attorney.

You are right. Our developers are sly foxes. They put their plan together from the beginning to frame the homeowners into paying higher purchase price than the city allowed, they set up the bylaw and cc&r for their own advantage, they conducted the HOA business in a dictatroship way, they used our HOA money as their own, etc.. Unfortunately, some circumstantial events led us to the lawsuit. They are fighting a tough battle now.

In the beginning, we were just ignorant homeowners. Now we realized the importance of being a knowledgeble homeowner in a HOA community.

We still have a lot to learn. Thank you for your help.

Susan

Hi Susan,

This is a pickle, alright!

A few comments/questions...

1) Class B. You said that Class ceases 2 years after the first unit is sold. How long has it been?

2) Annual Elections. I'm not sure I agree with your attorney that you should boycott the annual election.

3) The Lawsuit. What, exactly, does the lawsuit allege? In California, ordinarily board members are covered by Directors and Officers ("D&O") Insurance, which covers them for errors and omissions associated with the performance of their duties. You said the lawsuit has to do with fiduciary issues, so unless the association has no D&O insurance, I don't understand how it is that the group of homeowners could be suing the board members as individuals.

But let me say something about D&O insurance in California: It is not true that directors' assets can't be touched, even in the case where there is a D&O insurance policy. D&O insurance does not cover everything. It covers board negligence, breach of fiduciary duties, etc., provided the errors or omissions were:

• within the scope of the officer or directors' duties,
  
• performed in good faith, and
  
• not willful, wanton, or grossly negligent.

Read more: Directors and Officers Insurance
from Davis-Stirling.com by Adams Kessler PLC

4) The Recall Election. I need more info on this. When you say 7 votes were illegal, in exactly what way? It seems to me that if this matter of illegality is more than opinion, then the recall was successful (regardless of what anyone says to the contrary) and the recalled directors are now former directors. That means the board no longer has a quorum, and any voting they do at these so-called meetings is invalid, and any actions they take at any meeting they hold have no legal basis. In other words, the association has not had a meeting since the recall, despite the fact that these individuals sit in a room and pretend to conduct business. Ask your attorney about this.

5) New Petition. If I'm right, and the 7 ballots were clearly illegal (not just your opinion), then (depending on how the recall petition was worded) you would ordinarily have had an election at the special meeting at which the recall ballots were counted. If your recall petition did not specify that new directors would be elected that night, then you should now circulate a petition to compel the board to call a special membership meeting for the purpose of electing the recalled directors.

6) Classes and cumulative voting. I agree with whoever said this, in that these two concepts need to be removed as soon as possible from your governing documents. As soon as the homeowners have control of the association, vote these items off your documents. Cumulative voting makes it almost impossible to recall a director, and no "real" government in California allows this type of voting.

Rob

Hi Rob,

1)Our class B membership expired in 2009.
2)For the annual meeting, no owners want to meet with the developers again. No owners agreed to elect only one BOD. We still need a resolution for our 2010 annual meeting.
3)Our lawsuits started with construction defect, now got extended to include violating fiduciary duties, purchase price overcharge, senior financial abuse, etc. We are not suing the defendants as HOA BOD. Our attorney is specialized in HOA law. I hope he knows how he can be compensated because he is not charging us plaintiffs anything.
4) In our bylaw and cc&r all refer to our total membership as 87+1. 87 are residential units, 1 is for the commercial unit. The developer wanted to sell the commercial units as 8 subdividers. Our city cited him for violation and told him that he could only subdivide the commercial unit to 6 units. The city approved the subdivision in early December, 2010. The developer did not change our bylaw and cc&r to include the 6 units.

We filed our recall petition in August 2010. His attorney answered to our petition at end of September and set the first recall election date as 11/18/2010. With the resignation of the inspector, the board rescheduled the recall meeting to be on 12/20/2010. If going by the record date of the election and the bylaw, the total votes should still be 88. However, at the beginning of the recall election meeting, the defendant made a surprise announcement that he is adding 7 votes to the total. His claimed that the subdivision of 6 units had been approved by the city, so he now could have additional 6 votes. We have a manager office. He claimed he owns the office (even though he had never paid the monthly fee for the manager unit.) so he can vote for the manager office. Our attorney told him the 7 votes are invalid right after his announcement. He ignored our attorney’s comments. All members at the meeting became furious with his announcement. The recall election meeting went into a chaos. Our attorney was able to convince everyone to go through the voting process. As you mentioned, without the 7 votes, the recall was successful. The defendants had not announced the recall election result, because his attorney also informed him that the election was invalid.
5)The recall election meeting notice stated that if the recall succeeded, the current board would stay until a special meeting is called to elect the recalled board. Nevertheless I will check with our attorney on filing the petition to compel the board.
6)My reading on the defendant is that he is ready to flee the country. In the beginning he signed a contract with his own company to manage our HOA with excessive fee. After the recall chaos, he suddenly signed with a new management company effective 1/1/2011. The new management company started to realize the so called board is illegal. And with no show of owners (both plaintiffs and non-plaintiffs) at the annual meeting, they are very frustrated right now.
7)I agree with both Rob and Janet that we need to revise our bylaw and cc&r after we take over the board. I might ask for advice on how to do it right for our members.

Susan