Membership Authority

I live in a 325 single home HOA in South Carolina. We have experienced growing pains over the last two years. At that time the Board decided that a new clubhouse should be built to accommodate our growth, which continues today. We will be 422 homes at build out. The estimated cost of the new clubhouse will be approximately $600,000. Our financial position is very strong and we would be able to make the required payments over the life of the loan.

The new clubhouse has become a very contentious issue.

Our Annual Membership Meeting is in May. Our Board is considering adding a note in the Notice of Meeting which basically would say that "at the annual meeting any member can request recognition and make a motion to build the clubhouse and have the membership in attendance vote yay or nay.

Our governing documents state that the affairs of the Association shall be managed by a Board of Directors. Our by-laws state that "The Board of Directors shall have the power to exercise for the Association all powers, duties and authority vested in or delegated to this Association and not reserved to the Membership by other provisions of these by-laws, the Articles of Incorporation, or the Declaration.

Nowhere in any of these governing documents is the power to expend Association funds reserved to the Membership.

My opinion is that if a motion is made by a member to build a new clubhouse (expend Association funds), that motion should be ruled out of order since it conflicts with our governing documents.

I may need a lawyer on this one, but looking for comments and maybe similar experiences.

Thanks,
Bill

Bill,

The Board may authorize the membership to vote on anything they desire.
Technically, it would be an advisory vote.

My questions would be, has a reserve study been done and are the reserves properly funded.
Has anyone looked into the additional funding toward the Reserves a clubhouse would create.

If the Reserves are 100% funded and the membership is aware of the additional costs associated with the clubhouse (utilities, phone, internet perhaps, cleaning, supplies, furnishings, insurance, Reserve items (roofs, siding, minor plumbing, etc.)) then the membership can make an informed decision. If these things are not known, someone should stand up and ask that these things be done prior to any vote.

Expect assessments to go up.

Our documents say nothing about capital expenditures and SC Law on Hoa's are woefully lacking any substance at all.

As Tim said this would probably be an advisory vote – on its face, a clubhouse may be a good idea, but someone should run the numbers, starting with a reserve study and a review of what this clubhouse would have and how much it would cost to maintain once it’s built.

When you have your annual meeting, why not express some of your concerns and request that instead of a vote to build it or not, an advisory committee be set up to explore the idea in more detail and then a presentation can be made to the entire community, so they can ask questions? After that, give people time to ponder what they’ve learned and then take a vote on whether to build it or not. That way people will be making an informed vote and those who feel strongly one way or another can always campaign among their neighbors to vote and then you'll see who wins out.

You might want to consider volunteering for such a committee as well. Oh, and if the board insists on going through with this, remember you can always rally together your neighbors and vote these folks out to put in people who will do what you want (and you might want to consider running for a spot)

As for your documents not mentioning anything about capital improvements – initial HOA documents are notorious for not addressing a lot of things. Developers use boilerplate versions and have their attorneys fiddle with some of the language to favor them. When the community’s taken over by the homeowners, they don’t always know (nor are they told) that it may be a good idea to review the documents with a HOA attorney so references to the developer can be deleted and perhaps add, subtract or amend a few items so it complements (but not contradict) local and state law (as well as some federal ones).
This might also be a good task for an advisory committee – bring that up as well during the meeting and consider volunteering for that one if it’s ever established.

I doubt SC law will be of any use as typically SC defers to the BOD and the Covenants/Bylaws of an association/corporation especially if not a high rise condo type building. I say to the OP that the answer resides in your Covenants/Bylaws.

Bill,

Does it matter if the boards request to the membership is out of order?

It's typically better to seek input from the membership for such a project then for the Board to make the decision on their own. You won't please everyone. If the majority of the membership is for/against the project, the Board should follow the majority's desire.

Having or not having a clubhouse won't affect home values.

Asking or not asking the membership may ease tensions from those who are in the minority. At least they had a say. This can go a long way to keep neighbors being neighbors vs. splitting the membership.

BillB17 SCarolina : If I understand an intention to borrow part of the estimated $600K for construction, ask how you as a lender or diligencer would handle such a request :

" We want to borrow for a substantial change or alteration to the common elements.

But there was dissension so we never sought nor obtained either a vote nor consent process for this substantial change.

Part of your security as lender might be our promise, a consented loan encumbrance on title and the physical structure itself. But we didn't think we needed owner consents to encumber title.

Don't worry : the opposition will never get control of our Board nor cut off insurance, maintenance etc that would address the physical structure. . ."

Thanks everyone

I think what I gather from the responses to my question is that under our governing documents a vote to approve funding the new clubhouse can only be taken by the BOD, not the membership. I understand the concept that at least an advisory, non binding, vote of the members would be a good thing when considering an expenditure of this magnitude. All of that I agree with.

That being said, we have a pretty typical mindset here that news of the BOD intent to spend $600,000 on a new facility raises some concerns. We have had members draw a petition to the Board against building the facility which received substantial support. However, when the petitioners made their rounds to the membership, they stated that our assessments would go up and that the loan would place a lien against each members' property.

The first allegation is completely false since our Board has committed to building the new facility only if it could be funded at our current assessment structure without any increase or special assessment.

Can anyone provide some insight as to the validity of the statement that the loan would result in a lien against all members' property. My research seems to imply that it would not, but would like to hear from anyone regarding this issue.

Thanks again to all. Seems every time I go to this site for some insight or experience on an issue, I get some great info back.

Bill

Bill

If there is no borrowing (the money comes for Reserves) then there is no note/debt thus no liens.

I have seen an association borrow money and assess each home ($25K) with the provision to pay the assessment within 30 days or finance it out over 2-5 years. In the case of the financing, the homeowner did sign a note with the bank thus creating a lien. The owners did have to agree to borrow the money with 85% approving.

As with any large sum there will be disagreements and expect a lawsuit or two. Even in the above case not all agreed and there was a lawsuit which the HOA won.

I offer the following:

Lending To Community Associations from Findlaw

How Do HOA Loans Work? Q&A from a Bank. See the section on "Does an HOA Loan Require Collateral or Other Security? "

Beg, Borrow or Assess

Bank Loan? Reserves? Special Assessment? Community Associations Should Consider their Options From a MA law firm

Interesting points within that articles were:

Even if owner approval isn’t required, the board should inform owners of the plan to borrow money and communicate the loan costs and repayment terms. It is also a good idea to poll owners at the outset to get their input on financing options. If all the owners or most of them prefer an assessment and are able and willing to make their payments quickly, there is no need for the association to incur the loan costs. If the community is divided on the question, you can collect the assessment from those who prefer that option, borrow the balance of the funds required and allocate payments among the owners who want to pay their share of the project costs over a longer term. If only a few owners want the loan option, it may still make sense for the association to let them pay their share in installments with interest over a specified period of time, avoiding both the loan and the risk that owners unable to afford the lump-sum payment might have to sell their units.

Potentially if the HOA has a loan in a round about way it is a lien on individual members property. After all who do you think pays for the loan from any lending bank ... LOL. If someone is trying to sell their home and the buyer looks at HOA info and there is a loan for a large sum ... guess who in future is potentially taking on responsibility to pay the future bill? Yep ... new home owner to might choose to purchase or might say bite me. This is potentially why you will have your legal battles and what the homeowners are considering.