Lawful Use of Assessments

Background:  I am a board member in a smallish (under 70 lots) HOA in Northern Virginia.  This is my first post.  I know the documents and the statutes fairly well...enough to know what to ask and look for.  But am I not seeing clearly any more?  If anyone feels like weighing in, I would appreciate it.  To summarize but not go into everything here, I feel I am in the category of MOVE, no solution possible.  I am not ready to resign the board yet and I still feel I have a duty to inform the homeowners, but dither over how.  Below is one small part of the story.  Our current budget includes several hundred dollars for items that are not specified.  The primary purpose of the association is to enhance, protect the value, desirability and attractiveness of the real property which it fails to do.  I feel those goals should have funding priority.  The length of this post is due to quoted governing documents at the end.  

The current matter involves the HOA committees according to the By-Laws and Covenants, and the authority the board has to use assessments for items that do not have recorded authority under Covenant for Assessments.  It appears to me that the only mandated committees are the Architectural Control and Nominating Committees as outlined in the By-Laws.  

Question:  In reading the language in the By-Laws and Covenants, does it appear to anyone that the Board has the authority to use assessments for welcoming gift baskets, or to use funds for a Recreation Committee (called Social Committee in this HOA)?  We do not have any recreational facilities on our premises that require maintaining.  None of these categories are specified in the documents as a lawful use of assessments.  Does anyone have an opinion?  

The HOA has been warned about the lawfulness of charges, fees, fines and collecting for services that are not spelled out in the documents.  Everything from collecting assessments to architectural control rules, to other services, need to be specified in the documents.  I don't feel we have the authority to implement something that may not benefit each homeowner.  The benefit of welcoming newcomers is in the friendly human contact and the materials provided to help them adjust in their new community.  The younger members of the community will benefit from the social committee activities which have always been dependent on volunteer contributions.  Older people will not participate in these events to any degree.  I always contribute to the committees. The last conflict over unapproved use of funds was when the same board member tried to get homeowners to update their landscaping by offering free mulch!   A number of people complained that they should not pay for someone else's obligation no matter how small.  I point out that regardless of the funds, the committees will still manage to do their work and make people happy.  Do we have to pay for it?

QUOTED SOURCES:
The relevant Virginia Statue:  
https://law.lis.virginia.gov/vacodeupdates/title55.1/section55.1-1805/§ 55.1-1805. Association charges. (2020 updated section)Except as expressly authorized in this chapter, in the declaration, or otherwise provided by law, no association shall (i) make an assessment or impose a charge against a lot or a lot owner unless the charge is a fee for services provided or related to use of the common area or (ii) charge a fee related to the provisions set out in § 55.1-1810 or 55.1-1811 that is not expressly authorized in those sections. Nothing in this chapter shall be construed to authorize an association or common interest community manager to charge an inspection fee for an unimproved or improved lot except as provided in § 55.1-1810 or 55.1-1811. The Common Interest Community Board may assess a monetary penalty for a violation of this section against any (a) association pursuant to § 54.1-2351 or (b) common interest community manager pursuant to § 54.1-2349, and may issue a cease and desist order pursuant to § 54.1-2352.

By-Laws:  Article on Committees
Section 1. The Association shall appoint an Architectural Control Committee, as provided in the Declaration, and a Nominating Committee, as provided in these By-Laws. In addition, the Board of Directors shall appoint other committees as deemed appropriate in carrying out its purposes, such as:
(a) A Recreation Committee which shall advise the Board of Directors on all matters pertaining to the recreational program and activities and use of the recreational facilities, if any, of the Association and shall perform such other functions as the Board, in its discretion, determines;
(b) A Maintenance Committee which shall advise the Board of Directors on all matters pertaining to the maintenance, repair or improvement of the Properties, and shall perform such other functions as the Board in its discretion determines;
(c) A Publicity Committee which shall inform the members of all activities and functions of the Association, and shall, after consulting with the Board of Directors, make such public releases and announcements as are in the best interests of the Association; and
(d) An Audit Committee which shall supervise the annual audit of the Association's books and approve the annual budget and statement of income and expenditures to be presented to the membership at its regular annual meeting. The treasurer shall be an ex officio member of the Committee.

Covenants:   Article on Covenant for Maintenance Assessments [see section 2]Section 1. Creation of the Lien and Personal Obligation of Assessments. So long as Declarant is a member, the Declarant, for each Lot subjected to this Declaration, hereby covenants, and each Owner of any Lot by acceptance of a deed therefor, whether or not it shall be so expressed in any such deed or other conveyance, is deemed to covenant and agree, to pay to the Association:
(1) Annual assessments or charges
(2) Special assessments for capital improvements, and (3) Special assessments as provided in Article VII hereof. [Exterior Maintenance]
Such assessments are to be fixed, established, and collected from time to time as provided in the By-Laws of the Association. The annual and special assessments, together with such interest thereon and costs of collection thereof, including reasonable attorney fees shall be a charge on the land and shall be a continuing lien upon the property against which each such assessment is made. Each such assessment, together with such interest, costs, and reasonable attorney’s fees, shall also be the personal obligation of the person who was the Owner of such property at the time when the assessment fell due. Such personal obligation shall not pass to his successors in title unless expressly assumed by them.Section 2. Purpose of Assessments. The assessments levied by the Association shall be used exclusively for the purpose of promoting the recreation, health, safety, and welfare of the residents in the areas subjected to this Declaration and in particular for the improvement and maintenance of the Common Area, services (including street lighting and entrance lights), and facilities devoted to these purposes and related to the use and enjoyment of the Common Area.

One person controls all here. Everything.  Hates laws and argues anything.  Does not provide any authority beyond his own.  Cannot keep board members. It is concerning to me that we have no liability protection (no D&O).  I want an eventual way out that I can respect myself for while somehow fulfilling a duty to the homeowners by warning them.  Thank you for any help.  

My community is similar to yours, although we're condos. No amenities. The only mandated committee is the nominating committee. In addition, our CC&Rs do not address any expenses explicitly except for utilities (and it's limited to a statement noting that including things like water in assessments will provide an unfair advantage to some owners and an unfair disadvantage to others).

A number of years ago we tried having a social committee with a modest budget, and it was not successful - due to committee members believing they should be able to do whatever they wanted and displaying poor judgement. Fortunately the committee self-destructed in less than a year and the board did not re-instate it.

I have misgivings similar to yours. I believe that association funds should be used to benefit all owners equally (as much as possible) and social activities don't do that because a number of them won't participate. This is more noticeable in communities without amenities because they tend to attract people who aren't interested in socializing. Another problem with social events is that they sometimes are geared for only a portion of the community (eg. a wine tasting event for the adults or an Easter egg hunt for the kids) - these things flirt with Fair Housing Law violations, the same way adult-only swim periods in pools so (and don't get me started on that).

The only community I've come across where socializing was actually part of the CC&Rs is a nearby 55-and-older "active adult" community where activities are part of the amenities and the community employs a full-time social director.

Having said that, I understand the benefits of socializing. I think that events should be self-supporting as much as possible. I wouldn't get too upset about a very small budget, as long as the committee keeps good records, is transparent, and remembers that they serve at the pleasure of the board and have no authority of their own.

Is it worth moving over? Maybe. I'm a big advocate of walking away from situations that fit my definition of "unacceptable" and that I can't change. Moving usually involves less wear and tear on your nerves, and less time and money expended. Fighting an HOA often involves legal action, and I personally would never go that route unless there is something unique about my community that I just have to have and can't find anywhere else. I've yet to come across a community that is so wonderful that I can't find a replacement for it.

-- SarahW4, thank you for quoting Virginia statute and your governing documents. This helps enormously. I feel like I am strict regarding assessments only being used as state statute and the governing documents direct. My take:

-- For the spending of the membership's assessments, the Virginia statute refers to "express" authorization in the Declaration. You quoted your Declaration as follows:In my opinion, gift baskets do not promote the recreation, health, safety and welfare of the residents and certainly have nothing to do with maintenance of the common area. Put enough sugar or allergens like peanut oil-foods in the gift baskets, and I might make an argument that the gift baskets are anti-health, anti-safety, and anti-welfare of the residents.

-- Regarding no liability protection (no D&O):
The Virginia HOA statute does require certain insurance. See 55.1-1827 (B).
The Virginia Nonstock Corporation statute does not have a requirement.
Do your covenants require that the HOA have D&O insurance?

-- Regarding offering Owners free mulch, so as to promote the beauty of non-common areas: No, this isn't allowed. If an Owner's property is unsightly, no doubt the HOA has covenants that would allow the Board to issue a notice of violation to remedy the unsightly-ness.-- I think this is about (1) picking one's battles; and (2) being able to have no internal conflict once the battle is picked. I think the best elected government officials do this well, and so are able to cause progress. But of course it's not like any elected official can be liked by everyone and at the same time, accomplish anything. Actor Paul Newman's line comes up here now and then: "If you don't have enemies, you don't have character."

Thank you so much! You all have provided some wonderful answers and thoughts. I want to respond more fully later but I do not have time right this minute. I have sent a response to the board and these comments helped. The issues with this association are enormous--the committee expenses are small compared to the other subjects. They are working on budget (one person is). I am very happy there is not the level of hostility toward owners that there once was. Another fine member is responsible for that improvement. Yes, one person has tainted nearly everything and a couple of people enabled along the way. It is fascinating situation (and depressing).

More later.

There are some really excellent comments here but It is hard to answer everyone individually. I will try to cover the comments and questions below, but I believe I need a new post and subject line:

Board Profile: The 10 member board is controlled by one person and almost everything that has happened is a result of this influence. The level of control requires enormous energy. Discouraging education and facts is one method of control. There are at least two main enablers. I am not one of them. Yes, it is the community's fault this happened which prompted me to join the board. When new people join they are not informed, are easily manipulated and generally go with the flow. They don't last long and soon resign or retreat when they discover they do not have equal say and are not respected. The board meetings are typically 2.5 - 3 hours and consist primarily of two dominant people talking to each other--two uninformed people. The present board has four who stopped attending meetings but hover, watching rather than resigning. There are two who sometimes miss meetings. The people who don't attend are not voted off after the three required missed meetings (By-Laws). If the authoritarian director does not address a problem no one else will--there is dead silence (which is why there is no D&O). One director has attended only one meeting in eleven months yet still votes by email when asked. The long controlling behavior, its consequences, and possible remedies are what I am debating with myself and one other person. Prior to this date many stands have been taken and there have been some victories--not without a battle. Who wants to be on a combative board and fight constantly for honesty, respect for the law and ethical behavior?

Issue of Committee Funds: No, I will not move over this question which is a tiny part of my HOA problem. Yes, flexibility is important and I am flexible about the social committee but our common area landscaping has been deficient for years. It was last done twenty years ago and has slowly dissipated. When I joined the board no one understood the obligation to keep it up. The appearance of the private lots are not being enforced. Pavement, fences and retaining walls are good (after much urging). Trees are being removed due to disease or safety issues only after loud complaining but I do not see a replacement plan. I feel we have a duty to prioritize spending and our budget is not reflecting a required 2021 reserve study, funds to cover planned document revisions, and a proposed audit. I questioned the committee expenses being added to the budget while the other items were not but are still actively discussed. Rhetoric denying the need for a professional reserve study has been taking place for one year.

D&O / Fidelity Bond insurance: HOA is under a statute of limitations for a threatened lawsuit for 2.5 more years. For this reason HOA is unable to get D&O. HOA has Fidelity Bond Ins. The board members have been informed of fiduciary duties and the business judgment rule but it is not understood and not being practiced. They feel safe because they believe insurance will protect them, even without D&O. Director tells them they have D&O (in the general policy).

Authority to charge fines, late fees, administration charges and use of assessments: The HOA was cautioned in a letter from the association lawyer that the HOA is only allowed to file liens for delinquent assessments, to suspend privileges, and to take legal actions for delinquent assessments (Virginia). That's it--the governing documents are old (1970). There is case law limiting architectural restrictions, charges for community services, the requirement to provide equal benefits to owners, all of which require articulation in the documents to allow use of the assessments or to charge an additional assessment against a lot. I have seen documents with long descriptions of allowable assessment uses and charges under a covenant for assessments. It makes me question the newly requested committee budgets when we have so little money and vague authority. They are new committees and are not described in our dues collection policy that outlines uses of assessments. In Virginia we have a current 10-person limit for gatherings requiring social distancing and mandated mask wearing outdoors when closer than six feet. We don't see an end to this pandemic and I wonder why a social committee was formed at this time. It was part of a sudden collection of ten documents sent to the homeowners in one email.

Nitpicking?: Fair point. Let me know after I post more. The constant distortion of information flowing from one person has a negative effect on the board and the community.

Resignation: Good advice. I am working on it. I will turn it over to the community in some form and resign from the board. It must be accomplished in as neutral a way as possible without drama. Resignation does not mean I cannot continue to work for the community. If no one is interested in change there is nothing more for me to do. In the past, board hubris has been addressed with a legal letter which stopped the objectionable activity. The current matter is really systemic.

I am interested if anyone ever finds solid references to gift baskets, especially if they are restricted under 501(c)(4). I have not actually found any HOA that supports gift baskets. All authorities (HOA law practices, management companies, CAI, HOA online resources) seem to encourage welcoming "materials" to help people adjust to their new community.

These perspectives are valuable and I appreciate your support. I will post another subject soon and you can decide whether it is suitable for discussion on this forum. I think it has some unique aspects.