Non-Profit Corporationg vs HOA CCR's

Started by ToddB7 • 24 replies • 1810 views

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ToddB7 (Washington)
Posts: 5

Posted:

I looked for this question on the site but could not find anything so I will ask it and hope I don't get flamed for asking a duplicate question.

(BACK STORY)
I live in a community that has our HOA CCR's that we live by. Our HOA is also registered with the county as a Non-Profit Corporation in good standing. We are in Washington State.

We are having some issues with the current elected board and this is the reason for the question:

I was told by someone that when you are part of a Non-Profit Corporation, the HOA has to follow the States RCW for Non-Pro before we follow the rules of the communities CCR's. Is this correct or false?

Let me know if there is more I can provide to help with the answers. Thank you in advance!

Todd

TimB4 (Tennessee)
Posts: 21,059

Posted:

Todd,

Typically those statutes should not conflict with each other. One may be more restrictive (using the word shall vs. the word may) but they should not be in conflict with each other. If there is a conflict, courts would be needed to decide statute trumps the other. However, there typically aren't conflicts within State statutes.

If you can provide an example of an issue where this was brought up it will be easier to address.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Todd

Many Articles of Incorporation will have clauses in them that say unless a corporation's Covenants/Bylaws say otherwise. As an example some articles will say Proxy voting is allowed unless the Bylaws say otherwise and if the Bylaws say no Proxy voting, than Proxy voting is not allowed.

An Associations Covenants/Bylaws can be more restrictive as all agreed to such when purchasing. As an example local regulations may say fences can be 8 feet tall but one's Covenants may say no fences taller than 4 feet and the Covenants rule.

Please cite your issues.

TimB4 (Tennessee)
Posts: 21,059

Posted:

The order of precedence is:

Federal Statutes
Federal Codes
State Statutes
State Codes
County Codes
City Ordinances
CC&Rs
Articles of Incorporation
Bylaws
Resolutions (rules and regs adopted by the board)

If there is a conflict (and often the conflict is perceived vs. actual) then the higher precedent document is the one that must be complied with (i.e. that document controls the issue) UNLESS the higher document defers control to the lower document.

For example, phrases like "If the Bylaws are silent" or " In the absence of a provision in the articles of incorporation or bylaws . . ." or "nless this chapter or the articles of incorporation require otherwise" are examples of deferring control to other documents or statutes.

ToddB7 (Washington)
Posts: 5

Posted:

Here is one example:

I do not have a copy of my CCR's with me right now at the time of post (at home). The current president is saying for our up coming elections that all houses will have to be current to vote and be in good standing, but the RCW doesn't state doesn't state that clause.

2005 Washington Revised Code RCW 24.03.085
http://law.justia.com/codes/washington/2005/title24/24.03.085.html

So its not clear which is correct. The CRW or the HOA CCR.

Todd

KerryL1 (California)
Posts: 14,550

Posted:

State statutes generally take precedence over CC&Rs when there is a conflict and over other HOA docs, e.g., bylaws.

The wording of corporations codes usually is not hard to understand. Sometimes they'll say "A corporation's governing documents notwithstanding, a board shall have a minimum of three directors." This example means that a corp. may not have only one or two directors.

Or, you'll see the opposite: "Unless the governing documents specify otherwise, corporations shall have at minimum the officers of president and secretary. One person may not hold both of these offices."

Along with Tim, an example or two would help a lot, todd. Welcome to the Forum.

KerryL1 (California)
Posts: 14,550

Posted:

Sorry, my post crossed with 3-4 others.

Check you bylaws, Todd, for voter qualifications. You've noted one that may be in your bylaws or not. I don't think it'd be in your CC&Rs, but it might. But the prez may not just make it up.

Our bylaws do have sun a restriction and every year, the board votes on the cut-off date to be caught up on dues or to cure violations or pay fines for violations. Our annual meeting & election, for instance, is tomorrow, and the cut-off date was Oct. 15.

And it appears (I didn't read your citation) that WA has no such requirement unless there are statutes specifically for WA HOAs (we have a LOT of them in CA).

MarkM31 (Washington)
Posts: 351

Posted:

Quote:

Posted By ToddB7 on 10/26/2015 10:37 AM
Here is one example:

I do not have a copy of my CCR's with me right now at the time of post (at home). The current president is saying for our up coming elections that all houses will have to be current to vote and be in good standing, but the RCW doesn't state doesn't state that clause.

Actually it does "(1) The right of the members, or any class or classes of members, to vote may be limited, enlarged or denied to the extent specified in the articles of incorporation or the bylaws"

So at that point the CC&Rs become operative.

But what I would question is if indeed RCW 24.o3 is even applicable. 24.03.015 states: "but labor unions, cooperative organizations, and organizations subject to any of the provisions of the banking or insurance laws of this state may not be organized under this chapter".

In any case RCW 64.38 may also be applicable, and 64.38.030 explains the roll of the bylaws independent of the corporate status.

This is all assumiong that you do live in a HOA, and not a COA.

KerryL1 (California)
Posts: 14,550

Posted:

Ah, I was hoping Mark would check in. So, Mark, it says that voting can be denied IF in the Articles or the bylaws. It does not say that the president can deny the right to vote.

So, Todd, that's what you need to read.

MarkM31 (Washington)
Posts: 351

Posted:

Quote:

Posted By KerryL1 on 10/26/2015 11:43 AM
Ah, I was hoping Mark would check in. So, Mark, it says that voting can be denied IF in the Articles or the bylaws. It does not say that the president can deny the right to vote.

So, Todd, that's what you need to read.

I would agree that voting can be denied as per legal bylaws and CC&Rs, but not by fiat.

Which is almost always the case (fiat not allowed). Most of the problems brought to this board seem to be due to boards over stepping their legally defined roles and/or fiat pronouncements by officers, boards or committees.

ToddB7 (Washington)
Posts: 5

Posted:

Ok this opens another issues. Bylaws were created by the current board of directors but these bylaws were never submitted as a public record with the state. Does that mean those are invalid? I will have to get home tonight and read the current CCR's to see what verbiage is in that document.

Todd

MarkM31 (Washington)
Posts: 351

Posted:

Quote:

Posted By ToddB7 on 10/26/2015 12:58 PM
Ok this opens another issues. Bylaws were created by the current board of directors but these bylaws were never submitted as a public record with the state. Does that mean those are invalid?

No, as long as the bylaws conform with the controlling CC&Rs, they are valid. Bylaws are a set of rules and management tools which clarify and assist in running an organization in compliance with the CC&Rs. Like the Constitution, CC&Rs are open to interpretation. In the State of Washington, bylaws are not recorded with the county. It is difficult to attach things and documents to titles post sale, doubly so if the owner of the parcel is not agreeable to such conditions.

I would guess that it is very likely legal and conformable with the CC&Rs for vating to be limited to members in good standing, as long as this rule was passed with consent of the board or membership, and probably pre-dates any notification of election.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Todd

Most states do not require Bylaws to be registered or as part of the deed. Some states
are beginning to do this. It can be costly and time consuming to do so many recommend against doing so.

Ironically in SC where corporations (owner associations) are pretty free to do most anything, our Bylaws are registered with the deed but for only a $25 one time fee, we can register any changes.

KerryL1 (California)
Posts: 14,550

Posted:

But, Todd, you need to read your previous bylaws to see how they may be revised or rewritten.

While it's possible rewriting or revising the bylaws only needed board approval, it's usually the case that a certain % of homeowners need to vote to change bylaws. How to amend the bylaws probably is in them, not in your CC&Rs.

Or are you saying the current board's bylaws were the first ones ever written for your HOA?

KerryL1 (California)
Posts: 14,550

Posted:

ToddB7 (Washington)
Posts: 5

Posted:

Correct. The current board wrote them up and approved them without the communities input.

KerryL1 (California)
Posts: 14,550

Posted:

So, Todd, you're saying that although your HOA is a corporation, it had no bylaws till recently?

Wait, how old is your HOA? Maybe it had no previous bylaws because it's so new?

There's something very confusing here. Are you sure you're talking about bylaws and not, say, Rules & Regulations?

You did have a chance to review your CC&Rs. Do they say anything about your bylaws?

MarkM31 (Washington)
Posts: 351

Posted:

These conversations can be really confusing because sometimes bylaws refer to the managing portion of the CC&Rs. In other instances, people use the board (or general body) rules generated from (as in by) the CC&Rs.

ToddB7 (Washington)
Posts: 5

Posted:

HOA was formed when the community was completed in 1998. CCR's were formed but no Bylaws were created.
Bylaws were added by the current board members around 2 years ago.

I am a past president of the HOA and can confirm there was no Bylaws until the current ones. The CCR's make no reference to Bylaws in them at all.

Todd

MarkM31 (Washington)
Posts: 351

Posted:

But inside the CC&Rs there is operative language on the management of the HOA and election and duties of the board?

KerryL1 (California)
Posts: 14,550

Posted:

Good question, Mark. There must be or how do these Owners know how many directors they must have or how often they must meet or how many officers, etc. etc.?

And aren't WA corporations required to have bylaws?? Now in CA, things that aren't covered in the bylaws are covered by CA Corps Code.

DuaneR (Washington)
Posts: 35

Posted:

There were bylaws written with the CCR's by the Developer in the HOA info book that was turn over to the first Board otherwise how did you know how to operate all these years? sounds like someone wants you to believe that there were no bylaws in the past so they could change them to their liking!

BonnieW4 (Texas)
Posts: 1

Posted:

Does an HOA have to file a tax return or other documentation if it considers itself to be "non-profit"? Also, can there be income from leasing the clubhouse and if it doesn't exceed HOA expensed, still be considered "non-profit"? It would be nice to cover the dues so members could save some of the expense of maintaining the clubhouse and grounds.

KerryL1 (California)
Posts: 14,550

Posted:

Bonnie, please start a new post with a summary of your question in your subject. that way, you're more likely to get replies.

MarkM31 (Washington)
Posts: 351

Posted:

Quote:

Posted By BonnieW4 on 01/24/2016 4:20 PM
Does an HOA have to file a tax return or other documentation if it considers itself to be "non-profit"? Also, can there be income from leasing the clubhouse and if it doesn't exceed HOA expensed, still be considered "non-profit"? It would be nice to cover the dues so members could save some of the expense of maintaining the clubhouse and grounds.

Yes to both.

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