Correcting past By Law Violations

We have had a series of by law violations that have been documented and submitted to our board attorney. The bulk of the violations deal primarily with actions taken by the either the president or the executive committee without the full board's vote, including spending association funds. The individuals responsible for these actions seem to think that all we have to do is bring up the issues and vote to retroactively approve them. Could it be that simple?

Steve,

I forgot to add, that in my Association, if the President thought they could do everything without prior board approval, that individual would no longer be serving as President.

Typically, the individual is appointed to the office of President by the Board. Therefore, the Board can remove the individual from that office (not from the Board, just from the office).

I don't see where the president getting an appraisal for neglected areas and paying for it out of the POA/HOA funds is wrong. Where else was the money supposed to come from? A HOA is ONLY funded by it's members FOR it's members. So if he/she was trying to get an appraisal for repairs for a neglected area, the money would have to come from the POA funds. No violation there except maybe it might have been unnecessary work. However, neglected common area usually does effect HOA values.

Are you involved in your POA? Do you attend meeting regularly or on a committee? Have your read your documentation? Just curious as I didn't see any real serious violations out of the example you provided. Not saying it's not happening. They happen all the time to ALL HOA's. Just wasn't seeing any real glaring violations.

Having a lawyer to handle violations is extremely expensive and grossly inefficient in alot of cases. It's best to make sure the HOA has the ability to enforce fines and punishments in their documentation. Many HOA's lack this and thus make collecting fines not possible. The HOA strongest artillery in their arsenal is Liens and foreclosures. Much better than lawsuits and even better than letters....

You don't need compliant to your by-laws. You need compliant to your Convenants and Restrictions. The CC&R's are the real binding contract. By-laws are just the "filler" to better define the CC&R's. They act more like an "outline". By-laws aren't even required to be filed in some states. The CC&R's are filed Locally in the COUNTY and your Incorporation documentation is filed at STATE level.

Your HOA may not be a non-profit corporation if you can purchase property. That is important to look up. Some HOA's can't purchase additional property. It's in the CC&R's if you can or can not purchase additional property. It may also be in your Incorporation documentation.

The President may have been acting on the behalf of the homeowners. This may have been an issue that the general homeowner's wanted addressed. Which if that was the case, the BOD should have acted on their behalf to get this done and NOT table the idea. Something tells me this is a bigger issue than what appears.

Steve,

If the Association is considering purchasing property, getting an appraisal would certainly be prudent.

I would just caution the Board that anything related to the possible purchase be voted upon prior to committing the Association or implementing a step in the process. This way, the Board can minimize any possible issues from the membership.

I would also recommend that the Board keeps the membership informed, via newsletters, about the process and where the Association is in the process. I suspect that the Board has the legal authority to purchase any property without membership approval. However, they should put it to a vote of the membership and abide by that vote - as this should eliminate any future complaints about the purchase.

Tim

The president would be in big trouble in my HOA too for exceeding his/her authority. Only the board as a group, may decide these matters. All if taking action without a meeting; a quorum if at a scheduled meeting.

-the president appointing himself to fill a vacant board position

This action is generally not allowed. Most associations, by law, require board members to be elected by the members. The majority of the board can appoint someone to fill a position for the rest of an unexpired term only. Is that what happened? It would still have to be done properly where all board members are notified, (and members in order to meet any open meeting requirements), and a proper vote is called.

Sounds like your board is letting the officers run the show. Most places have the officers report to the board.

Hi Steve:

I would check with your attorney and my suggestion would be depending on what is stated in your governing documents regarding this situation (as they would control), the board should potentially either vote for the individual who appointed himself or vote for some other individual to take the position (if they do not want said current individual who appointed himself). If this is the individual who is potentially causing all these problems, now would be the time to possibly eliminate from the board. This would meet the requirements of the Non-Profit Corporation statute as noted below (or potentially as noted in your governing documents, if needed):

Non-Profit Corporation:
Section 10A-3-2.10

Board of directors; vacancies.
(a) Any vacancy occurring in the board of directors and any directorship to be filled by reason of an increase in the number of directors may be filled by the affirmative vote of a majority of the remaining directors, though less than a quorum of the board of directors, unless the governing documents of the nonprofit corporation provide that a vacancy or directorship so created shall be filled in some other manner, in which case the provision shall control.
(b) A director elected or appointed, as the case may be, to fill a vacancy shall be elected or appointed for the unexpired term of his or her predecessor in office.
(c) Any directorship to be filled by reason of an increase in the number of directors may be filled by the board of directors for a term of office continuing only until the next election of directors.

Have it noted in the current minutes that after checking the documents and state laws it was found that an officer cannot appoint himself to the position; therefore, steps are being taken now to correct the action. Even large corporations have mistakes made, but the important thing is to try and correct them when found following proper procedures. Also, fixing potentially relieves certain possible liabilities.

For actions taken without a meeting the following is in your state Non-Profit statutes and which states:

Section 10A-3-2.14

Action by members or directors without meeting.
Any action required by this title or this chapter to be taken at a meeting of the members or directors of a nonprofit corporation or any action which may be taken at a meeting of the members or directors or of a committee of directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the members entitled to vote with respect to the subject matter thereof, all of the directors or all of the members of the committee of directors, as the case may be. The consent shall have the same force and effect as a unanimous vote and may be stated as such in any filing instrument filed with either the judge of probate or Secretary of State.

Therefore, this is an option if the board can meet these qualifications. Otherwise, as someone noted above potentially the board needs to determine whether or not the appropriation of association funds for the appraisal was proper, if not proper then they would potentially need to possibly pursue the individual for reimbursement of corporate money improperly spent:

Section 10A-3-8.01

Unauthorized assumption of corporate powers.
All persons who assume to act as a corporation without authority to do so shall be jointly and severally liable for all debts and liabilities incurred or arising as a result thereof.

Potentially the board needs to keep in mind that not following proper procedures could possibly incur liability for themselves if they do not properly pursue and in essence could be viewed as participating regarding improper actions.

The ad-hoc committee formed by one director in essence according to statute is potentially not valid:

Section 10A-3-2.12

Board of directors; committees.
If the governing documents of a nonprofit corporation so provide, the board of directors, by resolution adopted by a majority of the directors in office, may designate and appoint one or more committees each of which shall consist of two or more directors, which committees, to the extent provided in the resolution, or in the governing documents of the nonprofit corporation, shall have and exercise all the authority of the board of directors, except that no committee shall have the authority of the board of directors in reference to amending, altering, or repealing the bylaws; electing, appointing, or removing any member of any committee or any director or officer of the corporation; amending the certificate of formation, restating the certificate of formation, adopting a plan of merger or adopting a plan of consolidation with another nonprofit corporation or other entity authorizing the conversion of the nonprofit corporation into another form of entity; authorizing the sale, lease, exchange, or mortgage of all or substantially all of the property and assets of the corporation; authorizing the voluntary dissolution of the corporation or revoking proceedings therefor; adopting a plan for the distribution of the assets of the nonprofit corporation; or amending, altering, or repealing any action or resolution of the board of directors which by its terms provides that it shall not be amended, altered, or repealed by the committee. Other committees not having and exercising the authority of the board of directors in the management of the nonprofit corporation may be designated by a resolution adopted by a majority of the directors present at a meeting at which a quorum is present. The designation and appointment of any committee and the delegation thereto of authority shall not operate to relieve the board of directors, or any individual director of any responsibility imposed upon it or him or her by law.

If the board wants the said committee they have the option of now making the committee a viable legal committee with a proper vote following procedures in your documents and the statutes.

This is just my two cents … if you agree with any of them, check with your attorney to see if they are potential options.

Also, I would suggest you follow Tim’s advice after these few issues are somewhat settled and get the membership involved. The more up front you are with the membership the better future for the association. Hopefully that will keep individuals down the road from potentially posting questions to all of us on how to recall board of directors. That is a question many of us hate to see asked by association members, mostly because in many situations it should have or could have been avoided.