CA: Board Wanted to Raise Dues 20%, But Didn't Approve Budget in Board Mtg.

For HOA in California. Two Board members (majority) want to raise dues to the max allowed (20%) after the new budget was approved via email between the Board members. (There are many who oppose this - there is no emergency reason, no expected large expenses, no official reserve study done to demonstrate we need to increase our reserves and we are putting money in reserves every month).

From my research on Davis-Stirling, it looks like the draft budget must be placed on an agenda and reviewed / approved in an open Board meeting and then sent out according to the civil codes stated etc.

http://www.davis-stirling.com/MainIndex/PreparingBudgets/tabid/1617/Default.aspx

While the budget was sent out in time to meet the codes, the budget was not approved in front of the HOA, nor was it ever on any agenda or discussed among the membership. If that part of the code alone was not met, is that enough to nullify their ability to increase the dues? Would it now require majority membership approval?

Thank you.

Thanks Richard. We are on a Jan - Dec fiscal year and the budget (and all other related / required information) was sent out last week (in time to comply with Civil Code). The Board approved the budget via email only a couple weeks ago. The budget was not on any HOA Board mtg agenda nor was it ever discussed in an open forum. Does this element alone nullify the Board's ability to raise dues 20%? It seems that it would now need majority of home owners to vote on it?

Tim... if the adoption of the budget was not done correctly, how can this still result in an increase in dues by the Board? It seems that they would not have the authority? Two of the three Board members want this (I am the third). It appears that it would need to be approved by a majority of the membership - no? (And if the membership approve it, I'm ok with that as it seems to be proper procedure).

John... in CA, the Board can only approve up to 20% max without majority membership approval (so it can't get worse) or it being an emergency etc. (which it isn't). There also appears to be a process whereby the budget has to be officially approved in a certain way prior to 30 days before the fiscal year etc. They wouldn't be able to back-up etc.

P.S. The Board has not yet approved any dues increase - they are wanting to do it now (after the budget has been approved / sent out etc.)

BTW:

Did the Board give a reason for the increase (reserve study adjustment, too many delinquent accounts, increased expenses, etc.)?

Robin,

Cut to the chase, take them to Small Claims, it's cheap and effective.

P.S. To answer your other question - we don't have any delinquent dues accounts, no reserve study done etc. In fact, our reserves are at their highest amt in several years with very responsible owners etc.

Robin

Nothing personal, but I have issues with people coming to the chat quoting the "it was not done properly argument" when their real issue is what was done, not the "proper procedure".

I can understand/accept you saying I do not like nor believe we need a 20% dues increase so how can I "fight it". I suggest you drop the "procedure argument" and face the real issue head on.

Robin indicated that the Board or PM sent the Annual Packet out last week. The only way the assessment could not go through is IF challenged.

There is nothing about when an increase can be voted on, only it can be done for a year if the budget was not done or sent out late.

If it was done by email, in California, it would require ALL Board members to approve, IF it was an emergency. This was not. Robin, did you approve the budget via email? If not, it is INVALID on its face.

Find me a courtroom and I would get it rescinded.

Robin, has the association done a reserve study at any point in time? If so, you have a start. Anyone knowing how to use Excel can handle the components in house. Reserve Studies, done professionally, leave a lot to be desired, almost as much as attorney's opinions and advise.

Sorry, Richard, but on this one I gotta see a citation to an authoritative source.

Tim

Robin is on the Board. That is why I had asked if she was one of those that approved the no increase budget. If not, the budget was not approved, plain and simple. I know many small associations in California that don't properly approve their budgets. Many of those same associations don't even follow California statues as far as sending out required documents at years end.

As far as the argument due to time complaints, NOPE. Packets were sent out last week. Time enough to post a 4 day notice and approve properly.

Robin

I would strongly urge your to convince the other two Board members to hold off any increase for a while and when they do come back with it, have a game plan and a real reason why they want to do what they are proposing. It's novel they want to increase the reserves, but should have thought about that before approving the budget when they did.

Your PM should have informed you that email meetings where action is taken is not allowed any longer in California. Is it the end of the world, NO. Have them wait, let the dust settle. You could open a can of worms you don't want to open. Some resident might do the same checking you did and cause a fuss you don't need right now.

Have the three of you come up with a viable game plan.

Richard,

We have disagreed on this before.

Per CA Civ. Code §4910, "Electronic transmissions may be used as a method of conducting an emergency board meeting if all directors, individually or collectively, consent in writing to that action, and if the written consent or consents are filed with the minutes of the board meeting. These written consents may be transmitted electronically."

Hence, actions without a meeting are still allowed. They are simply called something else (an emergency meeting). I know it's semantics. There's a similar issue in VA where Associations can no longer impose fines. Associations simply now call them charges. It's the same thing, simply using a different word to make someone happy.

As you stated, unanimous consent is still needed.

However, CA did greatly curtail what is considered an emergency by stipulating, Civ. Code §4923, that an emergency is defined as an issue where "there are circumstances that could not have been reasonably foreseen which require immediate attention and possible action by the board, and which of necessity make it impracticable to provide notice as required by Section 4920."

Now, I fully agree that budgets are not something that could not have been foreseen and that Robin's PM should have never said that the meeting could be done via e-mail. As you pointed out, since Robin did not agree, the results of such a meeting is considered invalid (but may require legal action to invalidate if the Board will not listen).

I'm simply stressing a point that actions without meetings are still allowed, although greatly curtailed. CA simply wants to call them emergency meetings. I'm sure it makes someone somewhere happy.

Thanks Tim - good to know about emergency meetings. This was definitely not an emergency mtg - there were several weeks from the time we received the draft budget to when it needed to be approved/sent out.

As for approval of the budget via email, I didn't object. (And there is nothing in our minutes that states we were consenting to approve the budget via email rather than Board mtg etc.). There was nothing about any of us approving the method etc. (We weren't aware that approving it via email was any exception etc.).

Thanks again for all the useful information.

Tim

I am not an attorney, BUT have worked in the legal profession.

Based on what was provided by Robin, email meetings are not allowed. I am not trying to cite the whole Civil Code, only that portion that applies based solely on what was presented. So I wasn't making a general statement.

Sometimes, the D-S will override, sometimes it will say "unless the governing documents are more restrictive".

Boards in California have the ultimate authority to create and approve budgets, but they must be approved in open sessions.

Holy smokes. Robin, in Ca we generally can rely on Richard. But not entirely. In CA, we generally cannot relay on Tim. I hope I'll have sometime to review al of this tomorrow. but, for now, the whatever-the -heck you/your Board votes on re: a 20% increase for 2016 is, in my view, NOT legit! It is tpoooooo late!

Where is it written that you can have an increase of 20%? If it is allowed by State law, then your Docs would supersede State law. I say this because your Docs can be written so that if you aren't breaking the law, some things can be changed to suit your particular HOA.
For example, we can only raise our assessments by no more than 12% even though the State of FL has no limit.
Read your Docs.

So, Robin, here is my take on the board possibly deciding to raise dues 20% AFTER the budget materials already have been sent out. I'm coming from the Davis-Stirling statutes and the davis-stirling.com site. I'm not an attorney, have no legal background, and my interpretation should be taken with caution.

The 20% increase will not be done in a "timely" manner.

5. "...Distribute the Report. The Annual Budget Report must be distributed to the membership not less than 30 nor more than 90 days before the end of the association's fiscal year. (Civ. Code §5300(a).) ..."

6. "...Penalty for Late Budget. Although boards are allowed to raise dues by up to 20% without membership approval (Civ. Code §5605(b)), the authority is conditioned on timely distribution of a budget report as described above. Failure to meet this requirement nullifies any increase levied by the board. If that happens, any increase for that fiscal year must be approved by the membership, constituting a quorum, casting a majority of the votes. For the purposes of this provision, 'quorum' means more than 50 percent of the owners of an association. (Civ. Code §5605(a).)

In one of Richard's replies, he says Owners must vote on the 20% and I agree. Without this vote, the 20% increase is nullified. Does your PM not know this? It seems to me that your Board needs legal advice before they make what appears to be a big mistake!

Let me ask: what size is your HOA? How much a reserves study might cost you depends on size and number of "components," i.e., items for which you should be reserving.

Is the notice already posted in a public space for next week's open board meeting? Is the item: "20% dues increase in 2016" on the agenda?? All of this must be posted and I hope your PM is aware at least of this law!! Owners might see it and attend. Round up some owners to protest this increase at your required open forum. If you're outvoted, make certain your no vote is in the minutes, which may protect you against a possible illegal decision by the other two.

Yes, sure, the action taken without a meeting to pass your budget with no increase was obviously NOT an emergency, but I don't think I'd quibble about that at this late date. Just make sure you do it right next year! And that you have no other illegal meetings at all.

Robin

The notice is fine. Since it's not an emergency, four day notice is required.

I am sure your CCRs or Bylaws specify any specific form of parliamentary procedure for conducting Board meeting.

My suggestion, if you really feel the increase is unwarranted, get as many, if not all, of the owners to attend the meeting and voice their opinion, and maybe their displeasure, if there is.

Thanks Kerri/Richard (what a wealth of info on this site! ). The notice was posted with NO Open Forum section. I have rounded up as many people as possible (most/all oppose the unnecessary dues increase).

It sounds, Robin, as if the other two directors did not post an agenda at all! They only posted a notice that three's a meeting, right?

Agendas need these in general, and Open forum must be on them in CA.

BOARD MEETING AGENDA

1. Call to Order

2. Open Forum.

3. Approval of Minutes of xxx, xx, 2015

4. Unfinished Business
a. Dues Increase

6. New Business

7. Adjourn

But is almost sounds as this is a Special Meeting of the board, for the dues increase topic only, right? If so, the minutes approval item needn't be on it.

Please tell us, Robin, exactly what the posted notice or agenda says.

Kerry... the meeting notice simply says " The Board of Directors will be holding a meeting as per details below. Notice is being posted... DATE, PLACE, TIME and then AGENDA: 1. Dues increase 2. other item. NOTHING ELSE. They did not include any call to order, open forum, unfinished business, new business etc. Are those required agenda items?

Kerry

Personally, I see nothing wrong with the notice of a meeting and the the topics listed. Is it something I would have prepared, no.

If they have three Board members and less than 20 units, my educated guess is they have meetings quarterly.

It is possible that the PM was not involved in the decision to hold the meeting and may not know. It has happened to me in smaller associations. The PM may have told the two directors than shouldn't and the two said we will.

With a Board of three and two know there is one that doesn't agree with them, it is not uncommon for the two to not include the third.

Exactly what are the two other directors not complying with. I am defending them, but while crude, the posting is legit.

There is a big difference running an association with an onsite manager and all the goodies that go with it and a small community of less than twenty homes.

Since it is posted,Robin and/or the other residents, need to attend and listen to the reasoning behind the increase proposal.

There is nothing that says Open Forum must be listed on the agenda, only that members are allowed to speak during Open Forum. The presiding officer could announce at the beginning of the meeting that members will be allowed to speak at the end for, say, two minutes. By that time, the vote have have already taken place.

I didn't write the crap, lawyers did.