Board claims they have powers they don't have...

We live in a mixed community of single-family homes and townhomes. The townhome people pay MUCH more
than the single-family homeowners, but that's because they have cyclical maintenance done (roof replacement,
siding replacement, power washing, etc).

At this year's annual meeting, our board president stated that if the board needed to, it could borrow money from the
townhome reserves. Several people objected and a committee was eventually formed to look into our reserve accounts.
The end result was that we found the following paragraph in our covenants:

“All amounts collected by the Association as Neighborhood Assessments shall be held in trust for and
expended SOLELY for the benefit of the Neighborhood for which they were collected and shall be
accounted for separately from the Association's general funds.”

(by the way, our covenants do specify that Neighborhood means the townhomes).

To us, it is very clear that the board can NOT borrow money from the townhome reserves. Well, at a later meeting this
year, the board once again stated that they could borrow from the townhome reserves (even though we showed them
the paragraph above).

Our state's Planned Community Act points right back to our covenants. Under the section labeled Powers of owners' association,
it says:

Unless the articles of incorporation or the declaration expressly provides to the contrary, the association may:

From here, it goes on to list several things the board can do, but the only one that makes reference to reserves
is shown below.

(2) Adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for
common expenses from lot owners;

The key here of course is that it says unless the articles of incorporation or the declaration expressly provides
to the contrary (and our protective covenants DO say to the contrary).

To us, the board has stated, in effect, that they will violate our covenants if they feel the need to do so. Is this grounds
for removing the board (or at least those who keep saying they can borrow from the townhome reserves?

thanks.....Steve

Steve, from what you posted it is difficult for me to believe that Neighborhood Assessments applies only to the townhomes. I believe there should be separate accounting (operating income/expenses and reserve funds) for the townhomes and the single family homes. Otherwise how does one distinguish between the two different type units when townhome income/expenses and reserve funds are greater?

It appears they are doing a bad job of managing the finances of the single family homes. I would advise the Board in writing that if they knowingly violate the Covenants they open themselves to personal law suits which may not be covered by D&O insurance. Also, you could suggest they do a special assessment of the single family homes or else try to get a bank loan if absolutely necessary.

Tim,

My interpretation is that each "neighborhood" has a separate reserve fund and the question is, "can the board borrow from the reserves of one neighborhood and use the funds to benefit another neighborhood?" The CCRs seem to state this is not allowed.

In one development where I lived there were four "neighborhood" types, which were characterized by size of houses, materials used for construction, size of lots, etc. There were two assessments. One assessment was for the entire comunity and was the same amount for everyone and paid for such expenses as front gate security, main road maintenance and street lighting, etc. The second assessment amount depended on which of the four neighborhood types you lived in and paid for the costs of maintaining each particular neighborhood type, such as maintaining lawns and foundation plantings, etc. Reserves were also kept separate.

I'm assuming that Steve's development is similar.

Forgot to add:

The key word in all of this is borrow.

State laws control over Association laws. Since your State showed CA, I went with those laws. Association documents need to comply with State laws. Typically the Association can make state laws more restrictive but can not be in conflict.

You might need to point out to the Association that any borrowed money must be paid back within one year (CA law - see the link posted earlier).

You also might want to lobby about separating the townhomes from the single family homes with a different Association.

Tim