CAN THIS HAPPEN

JarrodG (Louisiana)
Posts: 16

Posted:

I am in a weird position. One of the home owners in my 9 lot subdivision owns 2/3 of the lots therefore has 66% of the vote which is required to 'pass laws'. He informed me that he ant to sue many people well one person for two thing and another person but the lawyer cost for these thing will be extravagent. He has a lot of money by the way which I am just comfortable. Can he make these decisons and follow through with them and have the hoa pay for it by raising the dues or having a special assesment charge? I dont see anything in the restrictions saying that he can't.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Having one person owning 2/3 of the property is bad for the other 1/3.

The test is whether the lawsuits are for his personal benefit of for the benefit of the association? Whose name will appear as plaintiff on the lawsuits, his or the HOA?

Even though he holds all the votes, he still has a legally enforceable fiduciary duty to act in the best interests of the association. This means he cannot lawfully use HOA funds to finance his personal lawsuits.

JamesP9 (Colorado)
Posts: 13

Posted:

I would petition the rest of the community to rewrite the declarations to favor the majority of the Association in regards to lots and not to allocated interest. You may have some success if your Associations attorney would take the position of representing majority members in the Declaration change. I don't think a judge would favor the dictatorship that seems to be in place.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I like Larry's advice here. What are these lawsuits about? Remember suing your HOA is suing yourself and it's members. It's the same with the HOA bringing a suit against an owner. It's suing itself and making you all pay for doing it. May I recommend someone talking to this guy and understanding that legal action are not good to take. There are other options in the HOA than lawsuits. Lawsuits are probably the worst option for a HOA to pursue in many cases depending on your state.

Does your HOA have a fining schedule in place? It would need the ability to fine and then have a definition on what it can fine for. Liens can not be the basis of liens in most states. So one can not place a lien for unpaid fines but only unpaid assessments. Suing to collect fines is a bad idea if you don't have a fining schedule or the ability to fine in your documentation.

Sounds like you have a majority member who doesn't understand the system. They just assume suing is the answer and assume they have the right to do so. Unfortunately, you all will have to take the brunt of the cost while they learn their lesson. It's not to say the rest of your membership is helpless. It's just you all will have to act together to stop this person from using the HOA funds as their own.

Former HOA President

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By JarrodG on 03/19/2013 2:28 PM
Can he make these decisons and follow through with them and have the hoa pay for it by raising the dues or having a special assesment charge? I dont see anything in the restrictions saying that he can't.

Decisions for an Association to initiate legal action are made by the Board of Directors.

Depending on your governing documents, the decision for special assessments may be at the Board level or require membership vote.

Even though this individual has enough votes to basically handpick who will sit on the Board, Directors only have one vote each and decisions are made by majority vote.

JarrodG (Louisiana)
Posts: 16

Posted:

Quote:

Posted By MelissaP1 on 03/20/2013 2:40 AM
I like Larry's advice here. What are these lawsuits about? Remember suing your HOA is suing yourself and it's members. It's the same with the HOA bringing a suit against an owner. It's suing itself and making you all pay for doing it. May I recommend someone talking to this guy and understanding that legal action are not good to take. There are other options in the HOA than lawsuits. Lawsuits are probably the worst option for a HOA to pursue in many cases depending on your state.

Does your HOA have a fining schedule in place? It would need the ability to fine and then have a definition on what it can fine for. Liens can not be the basis of liens in most states. So one can not place a lien for unpaid fines but only unpaid assessments. Suing to collect fines is a bad idea if you don't have a fining schedule or the ability to fine in your documentation.

Sounds like you have a majority member who doesn't understand the system. They just assume suing is the answer and assume they have the right to do so. Unfortunately, you all will have to take the brunt of the cost while they learn their lesson. It's not to say the rest of your membership is helpless. It's just you all will have to act together to stop this person from using the HOA funds as their own.

To fill in the gaps, the Hoa president who owns 2/3 of the lots has had trouble with the developer or builder. The Hoa has just been turned over and he selected his wife as president and himself as treasurer and secretary. He want to sue a person who owns property behing our subdivision for cutting down some trees. He also want to sue the builder and or developer for a bulkhead issue and a couple other smaller things. He is sueing the developer and builder for his home right now but not as the HOA. I own one lot and another guy owns two lots. How can we act together to get this guy to stop trying to sue. We have obviously tried talking to him but he has resentments against the developer and wants to get them back it seems.

JarrodG (Louisiana)
Posts: 16

Posted:

Quote:

Posted By JarrodG on 03/20/2013 5:11 AM

Posted By MelissaP1 on 03/20/2013 2:40 AM
I like Larry's advice here. What are these lawsuits about? Remember suing your HOA is suing yourself and it's members. It's the same with the HOA bringing a suit against an owner. It's suing itself and making you all pay for doing it. May I recommend someone talking to this guy and understanding that legal action are not good to take. There are other options in the HOA than lawsuits. Lawsuits are probably the worst option for a HOA to pursue in many cases depending on your state.

Does your HOA have a fining schedule in place? It would need the ability to fine and then have a definition on what it can fine for. Liens can not be the basis of liens in most states. So one can not place a lien for unpaid fines but only unpaid assessments. Suing to collect fines is a bad idea if you don't have a fining schedule or the ability to fine in your documentation.

Sounds like you have a majority member who doesn't understand the system. They just assume suing is the answer and assume they have the right to do so. Unfortunately, you all will have to take the brunt of the cost while they learn their lesson. It's not to say the rest of your membership is helpless. It's just you all will have to act together to stop this person from using the HOA funds as their own.

To fill in the gaps, the Hoa president who owns 2/3 of the lots has had trouble with the developer or builder. The Hoa has just been turned over and he selected his wife as president and himself as treasurer and secretary. He want to sue a person who owns property behing our subdivision for cutting down some trees. He also want to sue the builder and or developer for a bulkhead issue and a couple other smaller things. He is sueing the developer and builder for his home right now but not as the HOA. I own one lot and another guy owns two lots. How can we act together to get this guy to stop trying to sue. We have obviously tried talking to him but he has resentments against the developer and wants to get them back it seems.

JarrodG (Louisiana)
Posts: 16

Posted:

Quote:

Posted By TimB4 on 03/20/2013 2:41 AM

Posted By JarrodG on 03/19/2013 2:28 PM
Can he make these decisons and follow through with them and have the hoa pay for it by raising the dues or having a special assesment charge? I dont see anything in the restrictions saying that he can't.

Decisions for an Association to initiate legal action are made by the Board of Directors.

Depending on your governing documents, the decision for special assessments may be at the Board level or require membership vote.

Even though this individual has enough votes to basically handpick who will sit on the Board, Directors only have one vote each and decisions are made by majority vote.

He has majority vote as the BOD or on a membership level. He and his wife hold all the positions.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By JarrodG on 03/20/2013 5:14 AM

He has majority vote as the BOD or on a membership level. He and his wife hold all the positions.

OK, let me summarize:

There are 9 lots in the development.
Owner A owns 1 Lot
Owner B owns 2 Lots
Owner C owns 6 Lots

Per the Louisiana Business Corporation Law, the Board must consist of 3 individuals.
Owner C is on the Board
Owner C spouse is also on the Board
Unknown owner may or may not be serving on the board (posts are unclear)

Owner C controls the voting power of the membership
Owner C also controls the voting power of the Board

The only protection to this type of issue would be qualifiers to serve as Director. This would have to be part of the CC&Rs, Bylaws or Articles of Incorporation. The qualifier should be something similar to the following:
Regardless of the number of lots owned, no more than one member of an owners household may serve as Director at any time.

Now, if there currently are no qualifiers to serve, it's unlikely that you will get such a qualifier adopted (as Owner C controls the votes). Therefore, I see the following options:

1) wait for the owner to lose interest or sell some of the Lots to lessen the voting power they own.

2) Become lifelong friends with Owner C and hope they value your advice.

3) Petition the court to create such a qualifier to serve as Director (LOTS of expense, time and energy - NOT RECOMMENDED but still an option)

4) sell and move

Unfortunately, these are the only options I see.

JarrodG (Louisiana)
Posts: 16

Posted:

Quote:

Posted By TimB4 on 03/20/2013 6:21 AM

Posted By JarrodG on 03/20/2013 5:14 AM

He has majority vote as the BOD or on a membership level. He and his wife hold all the positions.

OK, let me summarize:

There are 9 lots in the development.
Owner A owns 1 Lot
Owner B owns 2 Lots
Owner C owns 6 Lots

Per the Louisiana Business Corporation Law, the Board must consist of 3 individuals.
Owner C is on the Board
Owner C spouse is also on the Board
Unknown owner may or may not be serving on the board (posts are unclear)

Owner C controls the voting power of the membership
Owner C also controls the voting power of the Board

The only protection to this type of issue would be qualifiers to serve as Director. This would have to be part of the CC&Rs, Bylaws or Articles of Incorporation. The qualifier should be something similar to the following:
Regardless of the number of lots owned, no more than one member of an owners household may serve as Director at any time.

Now, if there currently are no qualifiers to serve, it's unlikely that you will get such a qualifier adopted (as Owner C controls the votes). Therefore, I see the following options:

1) wait for the owner to lose interest or sell some of the Lots to lessen the voting power they own.

2) Become lifelong friends with Owner C and hope they value your advice.

3) Petition the court to create such a qualifier to serve as Director (LOTS of expense, time and energy - NOT RECOMMENDED but still an option)

4) sell and move

Unfortunately, these are the only options I see.

Dang, that is what I was afraid of. So, back to my original question. Can he make special assesments and raise the hoa fees without consulting anyone else?

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By JarrodG on 03/20/2013 6:27 AM

So, back to my original question. Can he make special assesments and raise the hoa fees without consulting anyone else?

If your governing documents do not limit the Boards authority on this, then the simple answer would be yes.

My association limits this authority and only allows the Board to raise assessments by 5% each year. Any greater increase requires membership approval. All Special Assessments require membership approval.

However, even if your Association has the same or similar limitations in your governing documents, since Owner C controls the votes, what owner C wants will be what happens. The proper procedure must be followed but the end result would be based on the desire of the individual/s controlling the votes.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Jarrod,

A couple of questions,

Is your Association incorporated?
Are there three individuals serving on the Board?

JarrodG (Louisiana)
Posts: 16

Posted:

Quote:

Posted By TimB4 on 03/20/2013 6:34 AM
Jarrod,

A couple of questions,

Is your Association incorporated?
Yes
Are there three individuals serving on the Board?

Yes. The wife is president and the husband is the treasuer and secretary.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Since your Association is incorporated, and LA Corporate law requires three individuals to serve on the board, see LA RS 12:224, who is the third individual?

If there are only two individuals serving, I would suggest that you offer to serve on the Board so the Association can be in compliance with LA Nonprofit Corporation Law. You won't be able to overturn the decisions (as they would control the votes) but at least you will know what they are thinking, be aware of the issues and perhaps sway their opinion.

Hope this helps,

Tim

JohnB26 (South Carolina)
Posts: 1,569

Posted:

he is, in fact, in charge

HOWEVER

he is required by state corporate law to have a "fiduciary duty" to the association

and act in a 'fiscally prudent' manner

let the attorneys buy new limos

JarrodG (Louisiana)
Posts: 16

Posted:

Quote:

Posted By TimB4 on 03/20/2013 7:37 AM
Since your Association is incorporated, and LA Corporate law requires three individuals to serve on the board, see LA RS 12:224, who is the third individual?

If there are only two individuals serving, I would suggest that you offer to serve on the Board so the Association can be in compliance with LA Nonprofit Corporation Law. You won't be able to overturn the decisions (as they would control the votes) but at least you will know what they are thinking, be aware of the issues and perhaps sway their opinion.

Hope this helps,

Tim

Great suggestion. Thanks

TimB4 (Tennessee)
Posts: 21,059

Posted:

One more thing.
Directors and Officers are two different positions.

Directors are elected by the membership, are the Board of Directors and make decisions (awarding contracts, set the amount of assessments, etc.) on behalf of the Association.

Officers (President, VP, Treasurer, Secretary) are appointed by the Board and implement the decisions of the Board. They also handle the day to day tasks of running the Association (collecting assessments, responding to complaints, supervising contractors, paying the bills, etc.).

Often the Officers are appointed from amongst the Directors. When this happens the individual is performing two different jobs.

JulianneW (California)
Posts: 25

Posted:

You might check your governing documents and state law.

The governing docs for my association states that family members can't be on the board at the same time, regardless of the number of lots. I haven't checked state law to see if it's backed up there, but I'd be surprised if it wasn't.

If family members are on the board, then any discussions they have about association business can be construed as a "board meeting," which would be inappropriate, as there would be no notice, members wouldn't have the opportunity to attend, and there would be no minutes.