Conflict of Interest?

Hello, and thank you everyone for having this awesome site.

Our community recently had a new private drive built off of our communities main entrance (which is controlled and maintained by the HOA). The board (3 members) elected that the new private drive would not be part of our association, but that the 8 homes on this private drive would pay an annual fee to our association (they apparently are developing a new HOA for the 8 homes). However, the rabbit hole became more apparent, as the president of our HOA is building a house on that new private drive.

Would that be a conflict of interest for him to remain a board member if he, potentially, could be developing or be involved with that HOA? Can he legally stay a board member and help draft the annual fee for his new HOA in our HOA? He has already asked our county for a zoning variance for a detached garage (which we are not allowed to have in our HOA).

Curious as neighbors around me are asking the same question.

1.) Developer owns the land until the homeowner purchases plot. In this case, current HOA President owns his plot of land (home is not under construction yet), but the remaining 7 lots are owned by developer.

2.) No, the private drive entrance to the tract of property was cut through a section of common area of our main entrance only as of last year. Before this, it was 7 acres that belonged to a property owner that subdivided the 7 acres out to the developer.

3.) We have a Property Development - Annexation article in our Declaration and Bylaws, is that it? It is mentioned as the Declarant, not the board.

Other than that, I don't see anything about common areas other than under "powers" - Repair, maintain, and improve Common Areas.

To note, our CC&R's are original to 2001-2002, with no updates since.

It is not. Developer control ended after last house was built circa 2005/6ish. Developer went bankrupt after. Everything in docs still mentions developer, but board controlled now.

Don't see any conflict of interest. They are President of the current HOA. Who it looks like agreed those living on that street will be responsible for the new street. Plus they agreed to form a new HOA. So it sounds like it's a separate decision altogether.

Potential conflict of interest? Yes.
Actual conflict of interest? Very unlikely.

No assets of you HOA are put at risk.

You will want to make sure that your HOA attorney is involved in drafting the new agreement. You also want to make sure that your HOA attorney does not represent the new HOA.

Your HOA attorney has a fiduciary responsibility to protect the interests of your HOA. If the Pres wants the attorney to do something preferential to the new HOA, your attorney would be violating his own fiduciary responsibilities if he followed those instructions.

If Pres is doing a good job, and nothing you said indicates otherwise, then no reason to take any action as long as everything is fully disclosed. It appears that the other 2 board members were notified and are willing to move forward with the current pres retaining his position as pres.

I would suggest that one of the other board members become the primary contact with your HOA attorney. But that's largely for appearances.

When it gets down to calculating payments, you might suggest an independent committee to work that issue. You could also ask the pres to recuse himself from voting on the amount of the fees.

Then again, i expect that you're going to get some detailed information explaining the basis for the charges and who has the power to change those charges down the road and under what circumstances. I would look to the HOA attorney for guidance there.

KB. regarding your last post, a couple of comments--

A single meeting of an association annually is quite common (the so called Annual Meeting). Most often the purpose of that meeting is to elect Directors of the Association, the meeting often includes an annual report from property management, committee chairs, a budget review and the like. Only occasionally will a vote be taken for other matters. For example, some association documents require a vote of approval for the next year's budget. Other examples include amending the documents of the Association, assessment increases above a certain amount, and expenditures for capital improvements. These tend to be less common to quite rare.

So, the fact your association has only one association-wide meeting annually is very common and you should not read anything into it. If yours is an open meeting state, you should try to attend board meetings.

Regarding amending your documents: if the purpose is to remove references to the developer only, don't spend the money. Most of those passages, if not all, are rendered null and void when control of the association is turned over to the owners. However, if your documents require amendments for other reasons, it may be appropriate to have a general house cleaning and remove references to the developer. It would also be a good time to make other changes which may have been required in day-to-day association operations by force of law, such as updating the language regarding satellite dishes.

In the process of amending the documents for other reasons for one of our clients, the attorney also recommended changes to the language which addressed conducting business from a residence. That language is wildly outdated in probably 90%+ of association documents across the country due to the proliferation of home offices.

Who paid to have the new street installed?

Are you on the board or do you want to be on the board?

I may have missed that in all the "potential" conflict of interests that you seem to be alleging where there is none. Like Melissa stated, you have two separate decisions which you appear to be finding some conflict. No conflict.

I still see no conflict. The vote would be for the entire HOA, one person cannot take that action. The law states nothing on 2nd tier potential conflicts, you will find it very hard to win that argument.

Your only recourse is to ask them to recuse themselves from the vote so it will be noted in the minutes. Otherwise the president has no obstacles to persuade their fellow members to vote the way he/she wants. You can persuade them to vote against the financial decision.

Did the HOA own the property the road was built?

If I lived in your HOA, I would not vote for you.

You might be a great person with tons of empathy for the plight of the disgruntled homeowners, but you don't seem to have a handle on the basics of what skills are needed on a BOD.

You say that you didn't know that you have an HOA lawyer. Well, maybe you don't have one. But you need one now. Not to rewrite everything flawed in your current docs. But to prepare the new docs for the relationship between HOA1 and HOA2. From what you wrote, it would appear to me that HOA2 would not be a separate HOA, but also from what you wrote, it seems that you think it will. What's the relationship between the 2 groups? Who gets to revise the fee structure down the road? Under what circumstances? You need an agreement that can be workable a long time into the future. Will that agreement require homeowner approval or can the decision be made by your BOD alone? In short, you need a lawyer to guide you through these decisions. If you want to become a valuable asset to your HOA, you need to get underneath the surface noise, and find out what's going on. Are you confident that your BOD is getting good advice from an outside expert? If not, is it because you haven't asked the right questions?

You say that your BOD went out of bounds by focusing on sidewalks which was beyond the direct responsibility of the BOD. I applaud their action. It shows me that they are concerned about the curb appeal of your HOA and they are looking for ways to do it without spending HOA money. I'm impressed.

You say that your BOD let an owner get away without maintaining her house. Maybe that owner was diagnosed with stage 4 cancer. If so, I applaud your BOD for not disclosing a homeowner's medical condition. I applaud their restraint in reaching a decision not to apply pressure on someone who is facing end-of-life concerns. I do not know what the real situation is - But I would not add fuel to the noise made by those who are angry that the BOD isn't doing anything about it.

Who cares about dishes? If FCC rules override what's in your docs, then if there's an event that comes up involving dishes, the FCC rules apply. There is no urgency to spend HOA money on what doesn't need to be fixed. When's the last time there was a dish issue in your community anyway.

My situation - I've lived in my HOA for 30 years. We have ancient rules about businesses and vehicles, etc. When I joined my BOD in 2012, I went through our docs several times and identified things that needed fixing. It's now 2019. None of those changes have been made yet. Not because we don't need an update. But because we're still not ready for the battle ahead. It will take years and our BOD will need a lot of stamina to work through the challenges. My #1 job is recruiting. My #2 job is taking the pulse of the community. Some people trust me. Others never will. When the balance is right on a particular issue, we'll move on it. Yet - We never ever go after a laundry list of issues lie the ones you put forward. We know our limits - We're selective - We do our best to work only one or two major issues a year. That's our limit. What's yours?

I say all this because - just maybe - you'll revisit the reason why you haven't been elected to your BOD. If your message is clear, concise, and doable in the eyes of your owners, then you'll get elected. If you set yourself up as the knight in shining armor who's going to get the BOD straightened out, maybe that's not what your people want. My suggestion - Figure out how you can help your BOD move forward on their current objectives. Learn what they do right before you find fault.

My impression so far - I like your current BOD, and would support you if you demonstrated a better understanding of what they're up against.

Thank you all once again, but getting slightly off topic...

- Will ask the Property Maintenance company if we have a lawyer or not, simple as that.

- I've looked at the auditors site and the property that the HOA maintains is owned by the township. That problem is solved.

Other issues can bring up in another thread at a later time. For right now, this helps squelch issues neighbors have been discussing. Thank you for the insight!

I wish you great success.

You can't really make them sign anything unless the requirement is in your governing documents along with the exact word-for-word statement.