No Board, No Quorum

MeM1 (Arizona)
Posts: 12

Posted:

Hi all,

We are in a difficult situation with our HOA. Long story short, the three-person Board resigned because a group of homeowners was going to remove them for holding illegal meetings and changing guidelines and rules without a meeting. We went through the process of a special election before holding an Annual Meeting (something we haven’t had since 2019), but our quorum is SIXTY PERCENT. We had 33% vote, and with many homes owned by people renting them out, reaching quorum seems all but impossible.

Has anyone dealt with this type of situation? I have looked into petitioning superior court to lower our quorum rate because at this point we will never have another Board and do not trust the management company to do anything in our best interests.

AugustinD
Posts: 3,698

Posted:

-- So there's no one steering the ship, overseeing the manager, overseeing everything.

-- Is there a manager? How is she or he paid? Do you trust the manager? If so, work with the manager on all of the following:

-- Is there a HOA attorney on retainer? If so, you should assume a bit of a leadership position for just a short while, and call her or him immediately. Explain the situation. Ask for her or his advice. Tell her or him: "Your bill will be paid soon." Pray he or she is not a jerk.

-- You might try the phone numbers at this site and ask your question: https://www.azoca.gov/resources/faqs/open-meetings-law-faq/

-- I would prefer to read your governing documents before answering, but from experience, I am pretty sure this situation is not covered. I think an Arizona HOA attorney would say: "You all now have the right to 'do the best you can' to comply with the covenants. Be reasonable. Call the meeting and, regardless of whether quorum is met, elect three people to serve on the board. Then prepare for the annual meeting and so annual election. I advise that this temporary (and not quite lawful) board not do anything over the top when it comes to decision-making. If this temporary board (and not quite lawful) board gets too cute and pulls shenanigans, your HOA could easily end up with an incredibly expensive, court-appointed receiver. Here me now: 'Receivership' is a four letter word in the HOA lexicon. Avoid it at all costs"

-- It's pretty shabby for all three directors to resign at once. What these clowns should have done is something like this: Two resign. The third remains and appoints a new director. The two directors now appoint a third director.

SheliaH (Indiana)
Posts: 6,964

Posted:

You know what they say - be careful what you wish for, you may get it. There are times when recalls are necessary, but people tend to forget they have to plan for what happens if they SUCCEED just as much as if they fail.

If you were part of that group of homeowners who wanted to sack the previous regime, the usual steps are to petition the board for a special meeting where all of your concerns were discussed, the board would have a chance to explain themselves, and then the homeowners could vote on whether to remove them. Of course, all of this needs to be done according to your documents, which usually address how special homeowner meetings are to be called.

You said your documents call for a 60% quorum, which seems really high - are you sure you're talking about the annual meeting? I can see that type of percentage for homeowner approval of amendments to the documents - ours is 10% for our annual meeting, and people can send in proxies to establish quorum and/or nominate someone or themselves to vote on their behalf (or designate the Board president). If you show up after the proxy was mailed in, the proxy's canceled and you vote as usual.

Anyway, you said you haven't had an annual meeting since 2019 and only 33% participated this year, and that tells me you've got bigger problems than this board. In fact, that type of apathy is precisely why your board got away with illegal meetings and changing guidelines. If the HOMEOWNERS (all of them) don't take the time to pay attention to what the board is doing and at least attend the annual meeting, they end up shocked and dismayed when they find out about "illegal meetings" and who knows what else. That's another thing your group should have addressed - how do you get enough people to show up so you can get rid of the old regime?

So, what's next? Your group will have to call a special meeting, explaining that the association is in need of a board of directors and you'd like to use this meeting to nominate and vote for candidates. You'll have to send a strongly worded letter explaining what may happen if there is no board - risk of receivership. You may want to use the search function on this website to look for old conversations on the subject (don't write a response because those conversations are closed). You will note HOAs in receivership is a really bad idea, very expensive and could wreck your property values because no sane person wants to live in a community where a court will dictate what happens via the receiver that it appoints.

Perhaps some in your group might be willing to serve as the new board (yes, that means you may need to step up your dang self). I don't know what the relationship between everyone and the old regime is, but you're going to need to do some sort of transition, meaning someone is going to have to talk to them about making sure financial information, budgets, contracts, and that stuff is available, complete and accurate. You may need to get the association attorney to work with you in blasting the information out of the old group if necessary.

It's true that the old board should have done the responsible thing by announcing their resignation effective, say 30 days hence, or announce they weren't running again, and then asked for volunteers to take over. Then there could have been a transition period before they walked off into the sunset (at least until an audit showed funny business with the money). They probably quit out of spite because they knew they were on their way to be sacked, but sometimes the way you leave is more important than how you enter. I hope you have a property manager that can meet with the new board quickly to try to get things stabilized. Fasten your seat belts - you may be hitting some serious turbulence before the plane gets to calmer air. Good luck!

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

MaxB4
Posts: 3,513

Posted:

Quote:

Posted By SheliaH on 04/16/2021 3:37 PM
You know what they say - be careful what you wish for, you may get it. There are times when recalls are necessary, but people tend to forget they have to plan for what happens if they SUCCEED just as much as if they fail.

If you were part of that group of homeowners who wanted to sack the previous regime, the usual steps are to petition the board for a special meeting where all of your concerns were discussed, the board would have a chance to explain themselves, and then the homeowners could vote on whether to remove them. Of course, all of this needs to be done according to your documents, which usually address how special homeowner meetings are to be called.

You said your documents call for a 60% quorum, which seems really high - are you sure you're talking about the annual meeting? I can see that type of percentage for homeowner approval of amendments to the documents - ours is 10% for our annual meeting, and people can send in proxies to establish quorum and/or nominate someone or themselves to vote on their behalf (or designate the Board president). If you show up after the proxy was mailed in, the proxy's canceled and you vote as usual.

Anyway, you said you haven't had an annual meeting since 2019 and only 33% participated this year, and that tells me you've got bigger problems than this board. In fact, that type of apathy is precisely why your board got away with illegal meetings and changing guidelines. If the HOMEOWNERS (all of them) don't take the time to pay attention to what the board is doing and at least attend the annual meeting, they end up shocked and dismayed when they find out about "illegal meetings" and who knows what else. That's another thing your group should have addressed - how do you get enough people to show up so you can get rid of the old regime?

So, what's next? Your group will have to call a special meeting, explaining that the association is in need of a board of directors and you'd like to use this meeting to nominate and vote for candidates. You'll have to send a strongly worded letter explaining what may happen if there is no board - risk of receivership. You may want to use the search function on this website to look for old conversations on the subject (don't write a response because those conversations are closed). You will note HOAs in receivership is a really bad idea, very expensive and could wreck your property values because no sane person wants to live in a community where a court will dictate what happens via the receiver that it appoints.

Perhaps some in your group might be willing to serve as the new board (yes, that means you may need to step up your dang self). I don't know what the relationship between everyone and the old regime is, but you're going to need to do some sort of transition, meaning someone is going to have to talk to them about making sure financial information, budgets, contracts, and that stuff is available, complete and accurate. You may need to get the association attorney to work with you in blasting the information out of the old group if necessary.

It's true that the old board should have done the responsible thing by announcing their resignation effective, say 30 days hence, or announce they weren't running again, and then asked for volunteers to take over. Then there could have been a transition period before they walked off into the sunset (at least until an audit showed funny business with the money). They probably quit out of spite because they knew they were on their way to be sacked, but sometimes the way you leave is more important than how you enter. I hope you have a property manager that can meet with the new board quickly to try to get things stabilized. Fasten your seat belts - you may be hitting some serious turbulence before the plane gets to calmer air. Good luck!

Proxies are allowed in Arizona

MaxB4
Posts: 3,513

Posted:

Quote:

Posted By SheliaH on 04/16/2021 3:37 PM
You know what they say - be careful what you wish for, you may get it. There are times when recalls are necessary, but people tend to forget they have to plan for what happens if they SUCCEED just as much as if they fail.

If you were part of that group of homeowners who wanted to sack the previous regime, the usual steps are to petition the board for a special meeting where all of your concerns were discussed, the board would have a chance to explain themselves, and then the homeowners could vote on whether to remove them. Of course, all of this needs to be done according to your documents, which usually address how special homeowner meetings are to be called.

You said your documents call for a 60% quorum, which seems really high - are you sure you're talking about the annual meeting? I can see that type of percentage for homeowner approval of amendments to the documents - ours is 10% for our annual meeting, and people can send in proxies to establish quorum and/or nominate someone or themselves to vote on their behalf (or designate the Board president). If you show up after the proxy was mailed in, the proxy's canceled and you vote as usual.

Anyway, you said you haven't had an annual meeting since 2019 and only 33% participated this year, and that tells me you've got bigger problems than this board. In fact, that type of apathy is precisely why your board got away with illegal meetings and changing guidelines. If the HOMEOWNERS (all of them) don't take the time to pay attention to what the board is doing and at least attend the annual meeting, they end up shocked and dismayed when they find out about "illegal meetings" and who knows what else. That's another thing your group should have addressed - how do you get enough people to show up so you can get rid of the old regime?

So, what's next? Your group will have to call a special meeting, explaining that the association is in need of a board of directors and you'd like to use this meeting to nominate and vote for candidates. You'll have to send a strongly worded letter explaining what may happen if there is no board - risk of receivership. You may want to use the search function on this website to look for old conversations on the subject (don't write a response because those conversations are closed). You will note HOAs in receivership is a really bad idea, very expensive and could wreck your property values because no sane person wants to live in a community where a court will dictate what happens via the receiver that it appoints.

Perhaps some in your group might be willing to serve as the new board (yes, that means you may need to step up your dang self). I don't know what the relationship between everyone and the old regime is, but you're going to need to do some sort of transition, meaning someone is going to have to talk to them about making sure financial information, budgets, contracts, and that stuff is available, complete and accurate. You may need to get the association attorney to work with you in blasting the information out of the old group if necessary.

It's true that the old board should have done the responsible thing by announcing their resignation effective, say 30 days hence, or announce they weren't running again, and then asked for volunteers to take over. Then there could have been a transition period before they walked off into the sunset (at least until an audit showed funny business with the money). They probably quit out of spite because they knew they were on their way to be sacked, but sometimes the way you leave is more important than how you enter. I hope you have a property manager that can meet with the new board quickly to try to get things stabilized. Fasten your seat belts - you may be hitting some serious turbulence before the plane gets to calmer air. Good luck!

Proxies are NOT allowed in Arizona

TimB4 (Tennessee)
Posts: 21,059

Posted:

The outgoing board should have appointed someone to the board before resigning.

That said, I think you should have the election without a quorum and move on.
If someone wants to challenge it, say fine, the choice is receivership or this.

I do not recommend receivership (however, that would be the correct thing to do - petition the court for a receiver).

MeM1 (Arizona)
Posts: 12

Posted:

Thanks, everyone, for your replies. I'll try and cover everything here.

Funny enough, no community manager. After going back and forth with her on issues where she was incredibly unprofessional, she was "no longer with the company" in January. We are told it's a "team effort" of everyone in the management company working with us. The two meetings we've had on Zoom to talk about this issue, the Division VP, who no one has ever talked to, showed up and tried to take charge of the meeting along with the attorney.

The attorney wouldn't provide any information to the homeowners because she said she can only tell that privileged information to the Board itself in Executive session. We did get her on the record stating 60% quorum is absurd and will use that against her if necessary. Her boss was in the informal meeting held a month or so ago and told us "the longer this shit goes on, the more you pay my kids college tuition," so they're really working with the classiest of lawyers here.

Our governing docs are the most plain and basic docs I've ever seen. Of course it doesn't cover a situation like this, but it does discuss how quorum can be reduced by half if there is a vote needed about raising assessments.

The Board resigned in a very martyristic fashion. Instead of facing the community for the issues they've caused, they wrote a letter to the community talking about how there was financial malfeasance by the previous management company (something that was never investigated nor found in financials), how they were just trying to better the community, and took their ball and went home.

Enough of a cluster#### for ya?

MeM1 (Arizona)
Posts: 12

Posted:

Thanks, everyone, for your replies. I'll try and cover everything here.

Funny enough, no community manager. After going back and forth with her on issues where she was incredibly unprofessional, she was "no longer with the company" in January. We are told it's a "team effort" of everyone in the management company working with us. The two meetings we've had on Zoom to talk about this issue, the Division VP, who no one has ever talked to, showed up and tried to take charge of the meeting along with the attorney.

The attorney wouldn't provide any information to the homeowners because she said she can only tell that privileged information to the Board itself in Executive session. We did get her on the record stating 60% quorum is absurd and will use that against her if necessary. Her boss was in the informal meeting held a month or so ago and told us "the longer this shit goes on, the more you pay my kids college tuition," so they're really working with the classiest of lawyers here.

Our governing docs are the most plain and basic docs I've ever seen. Of course it doesn't cover a situation like this, but it does discuss how quorum can be reduced by half if there is a vote needed about raising assessments.

The Board resigned in a very martyristic fashion. Instead of facing the community for the issues they've caused, they wrote a letter to the community talking about how there was financial malfeasance by the previous management company (something that was never investigated nor found in financials), how they were just trying to better the community, and took their ball and went home.

Enough of a cluster#### for ya?

MeM1 (Arizona)
Posts: 12

Posted:

How would you recommend doing so? We just had a special election where we couldn't go forward because we only received 33% of the vote.

We do only need 25% of the membership (which we can get) to call a special meeting, but I don't know if they'll allow us to nominate a Board at that meeting.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Ya, that's a cluster.

You may want to inform all of the owners that the next legal step is receivership, as Tim mentioned. This is a painful and expensive reality when you don't have a board. Receivers are paid well, sometimes more per hour than an attorney. And they run the association as they see fit, homeowners have no say. If the receiver says your assessments will double - a not unrealistic possibility, because you have to pay your bills as well as the receiver - then your assessments are double.

Most associations that go into receivership quickly get their acts together.

It's unfortunate that the lawyer won't talk to you, but if his firm limits their clients to community associations, then they can't talk to homeowners or give any kind of advice to them. But you may-probably need legal advice to steer this ship - you may have to get together with a group of like-minded owners and buy a few hours of guidance from a lawyer that is knowledgeable about community association law. Perhaps the local bar association can point you in the correct direction. (We found our association lawyer that way, and it was one of the best decisions we made. That law firm specializes in community association law, and they provide free quarterly training for their clients to help educate board members. I can't say enough good things about the value of that training.)

I agree that the 60% quorum for an annual meeting is unusually high - ours is 20% and we use proxies. However, if this is in your bylaws, then they must be legally amended, either by a functioning board or by a vote of the membership (your bylaws or AZ law should say which it is). And all the rentals don't help.

So....

Find some like-minded neighbors to work with.

Educate yourselves! There are plenty of resources on the web that provide general information for board members. Also read your governing documents thoroughly as well as Arizona law that governs community associations. This stuff is a lot more complicated than people who've never served on a community association board can imagine. It may also help you understand how and why past boards messed up.

Find a good lawyer if you need one. You'll want to know how to petition for receivership as well as how to stay out of it. And do it soon: you gotta pay the bills.

You may or may not need a property/community manager. Smaller HOAs with knowledgeable board members can often do without. A good PM is a valuable partner, and it's worth putting effort into the search.

Understand that you'll make your own share of mistakes, or at least wish you'd done some things differently when you have several years of experience under your belt. Just try to avoid the illegal stuff (which is why education is near the top of my list).

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By TimB4 on 04/16/2021 6:18 PM
I think you should have the election without a quorum and move on. If someone wants to challenge it, say fine, the choice is receivership or this.

After reading the OP's further elaboration, in my experience, TimB4's response above nails it. Regarding receivership and what the "correct thing to do" is, I believe foregoing the quorum requirement, under these fairly rare circumstances, is the "correct thing to do," legally and ethically. My reasoning: Foregoing the quorum requirement is not illegal until someone petitions an Arizona court for receivership and wins. To back up my claim, here's the relevant part of Arizona Revised Statutes (see ARS 10-3304): "A corporation's power to act may be challenged by any of the following... In a proceeding by the corporation, directly, derivatively or through any receiver, trustee or other legal representative, against an incumbent or former director, officer, employee or agent of the corporation ... " -- https://www.azleg.gov/ars/10/03304.htm

If an Owner wants to challenge the temporary leadership elected without a quorum in this instance, then they may do so using a "derivative action" filed in court. No challenge, no problem. By the time the court gets around to hearing the lawsuit, a proper election is likely to have been completed.

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By MeM1 on 04/16/2021 6:58 PM
We did get her on the record stating 60% quorum is absurd and will use that against her if necessary.

Uh huh. I suppose you mean that, if your group went ahead and elected a temporary leadership without the covenant-required board, and then someone took your group to court (in what is called a derivative action on behalf of the corporation) to throw you brave souls out and get a receiver appointed, the judge is going to be all over the attorney's opinion. Let's see if some bozo challenges the election-without-a-quorum first, okay? And if you get on this temporary (and not quite lawful) board, then I hope you will allow me this suggestion: Avoid using blustery talk.

Quote:

Posted By MeM1 on 04/16/2021 6:58 PM
Her boss was in the informal meeting held a month or so ago and told us "the longer this shit goes on, the more you pay my kids college tuition," so they're really working with the classiest of lawyers here.

Do you realize that many HOA/condo attorneys would see this situation as a cash cow and exploit it to line their pocketbooks? Three cheers for this (boss) attorney's candor and thus in my opinion, real class.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Tim and Aug offer the best solution.

MeM1 (Arizona)
Posts: 12

Posted:

Well, aren't you just a peach.

How do you get the management company to recognize the nominated, interim Board as official then? They'll be all over the "you don't have quorum, you tried, you have an Annual Meeting coming up that will decide things..."

MaxB4
Posts: 3,513

Posted:

Quote:

Posted By MeM1 on 04/17/2021 9:54 AM
Well, aren't you just a peach.

How do you get the management company to recognize the nominated, interim Board as official then? They'll be all over the "you don't have quorum, you tried, you have an Annual Meeting coming up that will decide things..."

Yes, I would like to hear Tim and Aug answer to the question poised to them.

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By MeM1 on 04/17/2021 9:54 AM

How do you get the management company to recognize the nominated, interim Board as official then? They'll be all over the "you don't have quorum, you tried, you have an Annual Meeting coming up that will decide things..."

I know; I was thinking about this.

How far away is the annual election?

Do you trust the management company to at least run a fair election? Or do you think management will try to put people on the board that do inappropriate things and possibly favor the management company?

Here's my suggestion:

-- I cannot tell whether the group of owners told the HOA attorney that the three directors resigned. Did they? If so, what was the response?

-- Someone (not sure who) needs to have an exchange like the following with the (apparently dumb) management company:

Owners or their attorney: Who is the Board right now?

Manager: They all resigned. Our company will just run the show until the annual election.

Owners or their attorney: A board is required by Arizona statutes and the covenants, to oversee management. Aren't you (management company) violating the law?

Manager: We're doing the best we can. Sue us.

Owners or their attorney: Are you against a group of owners providing direct oversight of the election?

Manager: It depends.

Owners or their attorney: Do you realize we could sue you (management company) in a derivative action? Do you really want to spend a lot of money on attorneys? What is unreasonable in our request to you to have a group of owners, voted on by the membership at a properly noticed meeting, though granted without a quorum, have input to the management before the election happens?

Report back what management says.

Else lawyer up.

MeM1 (Arizona)
Posts: 12

Posted:

Annual Meeting is a month from now. Do we trust them to run a fair election? Yes. Do we know we won't hit quorum? Also, yes. Hence the pickle we're in.

That conversation happened last week when we didn't hit quorum in the special election. The management company stayed silent except to tell us to get votes.

The problem is is that we caught them breaking the rules with the previous Board, know they're going to be replaced with a new Board, so they're doing everything they can to delay and continue taking in their monthly fee.

MeM1 (Arizona)
Posts: 12

Posted:

Oh, and the attorneys absolutely know the Board resigned. They stayed the course as the management company get votes and wouldn't say much else because it was all privileged information to a Board, not homeowners.

MaxB4
Posts: 3,513

Posted:

I'll answer a few of the responses.

1) If you can't trust the management company to run a fair election, have the attorney run it or have them get a neutral third party.

2) I pretty sure word got back to the attorney the directors resigned.

3) Why is the management company dumb? They didn't cause this mess. This is on the owners. They knew what they were getting into. You can't have proxies in Arizona. First, I would never run an association like this with that high f quorum. Always going to lead to problem. The owners need to fix the problem, but only if they have people will to serve. If not, have the attorney investigate receivership.

4) please cite where the Board is to oversee management. Actually, it is the Board who is responsible for overseeing the operations of the association.

5) The attorney stating they can't speak to the membership is bull$hit. They represent the association as a whole. They should be smart enough to figure out how to right the ship.

You need to do two things and in this order:

1) Find enough owners that actually want to take ownership and serve as directors

2) Amend the Bylaws to eliminate the need for quorum for the election of Directors.

Can't get #1, forget #2.

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By MeM1 on 04/17/2021 11:24 AM
Annual Meeting is a month from now. Do we trust them to run a fair election? Yes. Do we know we won't hit quorum? Also, yes. Hence the pickle we're in.

Thanks for hanging in there. Now I get it: Both Special Meetings of the Membership and the Annual (election) Meeting of the Membership have a quorum of 60%. Seriously: Holy mackerel.

I think it's a fact that both the management company and the HOA attorney are on mighty shaky ground taking orders from... Whom? No legal entity of which I can think. The MC may have a contract, and I bet this is still legally in effect, even without a lawful board. But if I were this MC, I would be proceeding with caution. The MC and arguably the HOA attorney are kinda (or actually) acting "ultra vires." Most or all states have statutes prohibiting this. It's a big deal, or should be considered thusly.

I think I might try the option given in ARS § 32-2199.01: petition the Arizona Department of Real Estate for a hearing, on account of the MC acting "ultra vires" (as if it were the Board). See https://azre.gov/consumers/hoa
Notice that the statute prohibits the MC from representing the HOA unless it has the authority of the Board. No Board, no authority. This might get you somewhere. It costs $500 right off the bat. Your group might be better off spending this on a consultation with an attorney.

An Az law firm put together the relevant statutes: https://www.carpenterhazlewood.com/wp-content/uploads/2020/10/CHDB-AZ-Statues-Book-2019-2021.pdf

I believe in California that HOAs having quorum problems in the past have successfully petitioned to reduce the quorum number, pursuant to a California statute. The California HOA/condo statute may say more on this, but I do not want to bother with it, since Arizona is not California. My point is that the suggestion in your first post, about petitioning the appropriate Az court, may have a lot of merit. You really have to talk to an attorney. It's entirely possible the attorney will say that your groups' hands are tied: Go get the 60% quorum.

Maybe I will take a look for Arizona case law on absurdly high quorum requirements.

Quote:

Posted By MeM1 on 04/17/2021 11:24 AM
That conversation happened last week when we didn't hit quorum in the special election. The management company stayed silent except to tell us to get votes. problem is is that we caught them breaking the rules with the previous Board, know they're going to be replaced with a new Board, so they're doing everything they can to delay and continue taking in their monthly fee.

I hear you.

MeM1 (Arizona)
Posts: 12

Posted:

As to your #3: the management company allowed the Board to make changes without a meeting that set this all in place. It was their irresponsibility that led us down this path. The homeowners received no training on what they can and can't do, it's up to the management company to tell them that. They didn't.

As to your #1 solution, that's not the problem as I stated. We had SIX homeowners run, but only 20 vote. The problem is getting quorum. #2 would come if we could just get #1.

MeM1 (Arizona)
Posts: 12

Posted:

Yeah, I had thought I saw 10% quorum for Annual Meeting, but the more I read and the attorney confirmed it's 60%. It's mind-boggling. Even in a small community, having more than 50% is absurd. Last Annual Meeting in 2019, five homeowners voted. Apathy much?

At this point, none of those involved are willing to put out that kind of money to get this changed. Sure, not much will change, but I would hope they management company would direct the attorney to do something if/when we don't hit quorum at the Annual Meeting. I'd much rather have everyone pay to have this quorum thing reduced instead of the handful who care.

BrianP16 (New Hampshire)
Posts: 4

Posted:

I believe at this point the State may have to take over the association until you can have a official meeting to vote in a new Board of Directors.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Quote:

Posted By MeM1 on 04/17/2021 12:07 PM
As to your #3: the management company allowed the Board to make changes without a meeting that set this all in place. It was their irresponsibility that led us down this path. The homeowners received no training on what they can and can't do, it's up to the management company to tell them that. They didn't.
... snip ...

Actually, I disagree. The manager works at the direction of the board - they're not responsible for telling board members how to do their jobs, and have no legal authority to do so.

Of course it would be nice if managers were savvy enough to understand when the board is directing them to do something that violates the governing docs and to refuse to go along - and the better managers do understand this - but that's a far cry from transferring legal responsibility to the manager.

AugustinD
Posts: 3,698

Posted:

Arizona courts have produced one decision that seems to offer a lot of guidance for the OP's case: from 2010, Vanderran v. Cambria Ocotillo Homeowners Association and a bunch of other defendants. See https://law.justia.com/cases/arizona/court-of-appeals-division-one-unpublished/2010/cv090227.html It is "unpublished" and so has minimal precedential value. Still it has guidance on how to get the quorum reduced. From the decision:

===Start Excerpt===
After the entire board resigned, the HOA was unable to
conduct business. A meeting to elect a new board was properly
noticed to members but it was unlikely that the necessary quorum
would be present at that meeting. Several homeowners, including
Appellees Mertes, Turner, and Freeman filed a claim in Maricopa
County Superior Court pursuant to A.R.S. § 10-3160 (2004), which
provides for appointment of an election judge when it is
“impractical or impossible for any corporation to call or
conduct a meeting of its members, delegates or directors, or
otherwise obtain their consent, in the manner proscribed by its
articles of incorporation, bylaws[,]” etc.1
=== End Excerpt ===

ARS Section 10-3160 today states the same or similar, per https://www.azleg.gov/ars/10/03160.htm

A 2017 Arizona appeals unpublished decision quotes the restatement (a compilation of rules of law derived from appeals courts nationwide) on when a quorum might have to be reduced. Seehttps://law.justia.com/cases/arizona/court-of-appeals-division-two-unpublished/2017/2-ca-cv-2016-0219.html

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By MeM1 on 04/17/2021 12:10 PM
Yeah, I had thought I saw 10% quorum for Annual Meeting, but the more I read and the attorney confirmed it's 60%. It's mind-boggling. Even in a small community, having more than 50% is absurd.

For what it is worth, nationwide, such a high quorum requirement is rare indeed. I think the average number for quorum for a meeting of the HOA membership is on the order of 25%. One point being that a judge is going to understand this, and ARS 10-3160 seems to contemplate this problem arising.

MaxB4
Posts: 3,513

Posted:

What Augie didn't tell you in suggesting spending your hard earned money in filing a suit against the management company is your odds in prevailing. On the site they asked your review, it show 7 petitioners (you) prevailed and 34 Respondents (MC). I wouldn't be going to Las Vegas on those odds.

You can go out and file all the derivative lawsuits until you're blue in the face, it doesn't fix the underlying problem, QUORUM! This is NOT the management company's problem, this is the owners problem. You gave to deal with it.

I dealt with a similar situation some years ago. We haven't had elections for many years, because not enough people showed up and voted. We had over 300 homes so no small task. We started the process in Late January and had new Bylaws signed by Mid Aug with over 240 votes. So now the association has no quorum requirement for elections and if the owners don't like the outcome they can vote again the next year. Remember, these rules were in place when the owners moved in. Courts will not throw out the quorum requirement for elections, they may for special assessments or amending governing documents.

MaxB4
Posts: 3,513

Posted:

Quote:

Posted By AugustinD on 04/17/2021 12:27 PM

Posted By MeM1 on 04/17/2021 12:10 PM
Yeah, I had thought I saw 10% quorum for Annual Meeting, but the more I read and the attorney confirmed it's 60%. It's mind-boggling. Even in a small community, having more than 50% is absurd.

For what it is worth, nationwide, such a high quorum requirement is rare indeed. I think the average number for quorum for a meeting of the HOA membership is on the order of 25%. One point being that a judge is going to understand this, and ARS 10-3160 seems to contemplate this problem arising.

Actually, as most of the older Bylaws have never been updated, the average is a majority of the owners, 50% plus 1, which was their original language.

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By MaxB4 on 04/17/2021 12:32 PM
What Augie didn't tell you in suggesting spending your hard earned money in filing a suit against the management company

I said the OP should consult an attorney.

Quote:

Posted By MaxB4 on 04/17/2021 12:32 PM
Courts will not throw out the quorum requirement for elections, they may for special assessments or amending governing documents.

Wrong.

AugustinD
Posts: 3,698

Posted:

Quote:

Actually, as most of the older Bylaws have never been updated, the average is a majority of the owners, 50% plus 1, which was their original language.

We have been over this before. You can't prove anything. We disagree. More importantly, so what. I say: Focus on the OP's needs.

MaxB4
Posts: 3,513

Posted:

Quote:

Posted By AugustinD on 04/17/2021 12:27 PM

Posted By MeM1 on 04/17/2021 12:10 PM
Yeah, I had thought I saw 10% quorum for Annual Meeting, but the more I read and the attorney confirmed it's 60%. It's mind-boggling. Even in a small community, having more than 50% is absurd.

For what it is worth, nationwide, such a high quorum requirement is rare indeed. I think the average number for quorum for a meeting of the HOA membership is on the order of 25%. One point being that a judge is going to understand this, and ARS 10-3160 seems to contemplate this problem arising.

I am sure this is based on personal experience.

JeffT2 (Iowa)
Posts: 880

Posted:

Quote:

Posted By MeM1 on 04/16/2021 6:58 PM

The Board resigned in a very martyristic fashion. Instead of facing the community for the issues they've caused, they wrote a letter to the community talking about how there was financial malfeasance by the previous management company (something that was never investigated nor found in financials), how they were just trying to better the community, and took their ball and went home.

I would look at the way in which the board resigned.

From AZ Nonprofit Corporation Act:
"10-3807. Resignation of directors
A. A director may resign at any time by delivering written notice to the board of directors, its presiding officer or the corporation."

If any one of the directors did not deliver written notice in that way, then that director may still be a board member.

A verbal resignation is very questionable and may not be valid.

If the letter to owners was the only resignation and it was not signed by all directors, then whoever did not sign it is still on the board.

Whoever is still on the board can appoint new board members...

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Me

Bickering aside, have you been shown how you can get a BOD in place?

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By JeffT2 on 04/18/2021 2:41 PM

Posted By MeM1 on 04/16/2021 6:58 PM

The Board resigned in a very martyristic fashion. Instead of facing the community for the issues they've caused, they wrote a letter to the community talking about how there was financial malfeasance by the previous management company (something that was never investigated nor found in financials), how they were just trying to better the community, and took their ball and went home.

I would look at the way in which the board resigned.

From AZ Nonprofit Corporation Act:
"10-3807. Resignation of directors
A. A director may resign at any time by delivering written notice to the board of directors, its presiding officer or the corporation."

If any one of the directors did not deliver written notice in that way, then that director may still be a board member.

A verbal resignation is very questionable and may not be valid.

If the letter to owners was the only resignation and it was not signed by all directors, then whoever did not sign it is still on the board.

Whoever is still on the board can appoint new board members...

Jeff might be on the right track. Get at least one of the 3 who resigned to rescind his letter of resignation and begin forming a new BOD via appointment. Every chain has a weak link. Find the weak link.

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By JohnC46 on 04/18/2021 2:50 PM
Jeff might be on the right track. Get at least one of the 3 who resigned to rescind his letter of resignation and begin forming a new BOD via appointment. Every chain has a weak link. Find the weak link.

Seriously: Sure, rescind the written resignation, even if the statutes and covenants do not offer this as a way of getting on a board (and they do not). At this point, I think those with power at this HOA do not care about legalities. (And here, the power comes from those with a contract with the HOA; or simply the loyalty of one person to another.) I predict the management company, possibly abetted by the former directors, will step all over the OP and his/her group until the OP's group lawyers up and exercises the ARS Section 10-3160 option, to get rid of the quorum and get a new board.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Me,

I was unaware that there was a management company.

My suggest will cost some funds but should be well worth it.

1) Have the MC set a date for elections (zoom, in person, both)
2) Write a letter similar to the following:

As you are aware, the existing, board resigned in mass. Due to the way the board resigned, the membership is left with two options:
a) elect a new board
b) petition the court for receivership

There have been many meetings in the past but we failed to have the number of participants to reach the quorum outlined in our governing documents (60%). Without a quorum, an election can not occur.

There will be another meeting on mm/dd/yyyy at hh:mm.

We encourage you to participate and vote.

Failure to reach a quorum will result in a petition to the court for receivership.
If a receiver is appointed, you should expect assessments to increase a loss of say on how things are done. A receiver answers to the court and not the membership.

As an example of receivership: Currently, any special assessments require membership approval. However, if the receiver believes that funds are low, they may request permission from the court for a special assessment. If the court gives its approval, the special assessment would occur without any input or vote from the membership.

I expect that you agree receivership is not the best option for you and your neighbors. Therefore, please participate in the next meeting.

To participate you may:
a) Attend - details
b) Participate via zoom - details
c) Participate via telephone - details

Thank you.

If you don't have participation, petition the court for receivership.
It is likely that the court will appoint the current MC as the receiver.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Oh, mail the letter, also hand deliver the letter (multiple times) and knock on doors to explain the issue.

MeM1 (Arizona)
Posts: 12

Posted:

Quote:

Posted By JohnC46 on 04/18/2021 2:47 PM
Me

Bickering aside, have you been shown how you can get a BOD in place?

LOL, I sure do miss message boards...

Sure, there's been a few options. Basically, we have to get an attorney, something none of us are ready to handle financially. It's not something I didn't know, however.

MeM1 (Arizona)
Posts: 12

Posted:

Quote:

Posted By AugustinD on 04/18/2021 3:04 PM

Posted By JohnC46 on 04/18/2021 2:50 PM
Jeff might be on the right track. Get at least one of the 3 who resigned to rescind his letter of resignation and begin forming a new BOD via appointment. Every chain has a weak link. Find the weak link.

Seriously: Sure, rescind the written resignation, even if the statutes and covenants do not offer this as a way of getting on a board (and they do not). At this point, I think those with power at this HOA do not care about legalities. (And here, the power comes from those with a contract with the HOA; or simply the loyalty of one person to another.) I predict the management company, possibly abetted by the former directors, will step all over the OP and his/her group until the OP's group lawyers up and exercises the ARS Section 10-3160 option, to get rid of the quorum and get a new board.

Yeah, getting one of them to rescind their resignation (something that I'm not even sure could work at this point considering it's been more than a month and there's been a failed special election to replace them already), is about as likely as unicorns being appointed to the Board. There's a reason they resigned. They cared more about their personal agenda than the community, and that's not going to stop now. They're not going to come back to save the community and appoint their successor.

MeM1 (Arizona)
Posts: 12

Posted:

Quote:

Posted By TimB4 on 04/19/2021 4:46 AM
Oh, mail the letter, also hand deliver the letter (multiple times) and knock on doors to explain the issue.

Yeah, we were already going with this strategy. However, when you're dealing with a small community where a third already voted, a third is out of town/state rental properties, another 10-15% is friends of or the people who resigned, it's a mighty steep hill to find another third to vote.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By MeM1 on 04/19/2021 9:04 AM

Posted By TimB4 on 04/19/2021 4:46 AM
Oh, mail the letter, also hand deliver the letter (multiple times) and knock on doors to explain the issue.

Yeah, we were already going with this strategy. However, when you're dealing with a small community where a third already voted, a third is out of town/state rental properties, another 10-15% is friends of or the people who resigned, it's a mighty steep hill to find another third to vote.

Me
You will need to explain the alternative is receivership and the negatives of such such as typical receiver costs, the receiver can spend as much as they want and bill the owners thus creating a Special Assessment the owners do not have to agree with, and they can spend any Reserves. Scare the people.

SheliaH (Indiana)
Posts: 6,964

Posted:

Somewhere these former board members are laughing their heads off - HA! We quit and they're running around and kicking like a flock of dead chickens trying to take over d they don't have the first clue how to do it.

However, they don't realize this decision to quit en mass will return to bite them in the ass if the community goes into receivership. The may think well, we'll just sell out homes, not renewing that may take a long while and they may be lucky if they make any type of profit.

Right now this does seem overwhelming because the off site investor/owners don't care as long as the rent checks don't bounce and 10 - 15% of the ones who live there may not want to cooperate because their friends with the old regin. That will cbs ge when the reality of the financial impact slaps them several times in the face and d wallet. You do have a long road ahead but you can do this. Just slow down some and think carefully through every step you'll need to take. Gbood luck!

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius