Conflicting views from HOA attorneys - Texas

Started by MarleneS • 15 replies • 1852 views

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MarleneS (Texas)
Posts: 7

Posted:

Our Association is still Declarant controlled. The Declarant/Developer is also the president who hires the attorneys, CPAs, etc. The President/Declarant wants to raise the dues, but knows that he won't receive the proper amount of votes because our budget for next year does not support an increase of dues. Our former attorney gave a written opinion (based on the CCRs) that in order to raise dues the vote must obtain 80% approval from the Board of Directors (basically 4 out of the 5 members.) It's very clear in the CCRs. Our President now has fired the attorney and gone with another attorney who happens to also be his personal and business attorney (as developer.) This attorney has issued his written opinion that the Declarant can do what he wishes including raising the dues. I and another board member see this as a conflict of interest.

What recourse do we have? We see this as a clear violation of our CCRs and if he does send out it would be illegal, but we're not quite sure what we can do since the new attorney supports the President's/Declarant's views.

Any help would greatly be appreciated. We're in Texas.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Marlene, Well the most confusing thing I read is the different positions by the two lawyers. Texas may be different somehow, but, by your own admission it states you are still developer controlled. To me that means the developer can do pretty much anything he wants. Now, I am sure you could take him to court if anyone wanted and object to the dues increase. But I can't see how your CC&R's has anthing to do with it. They don't become the associations CC&R's until they are turned over by the developer. As far as I have heard the documents that you will be governed by are not the documments the developer goes by.
Now if somewhere in the past, for whatever reason your homeowners held a meeting and voted on some issue of the developer, you might (as a group with all onwers participating make some claim that you are a valid association). But until you are listed as a corporation comprised of home owners and you have a License by the state and meet all the states requirement to be a corporation, you are nothing or next to nothing.

The above opinion is so far removed from what I am understanding in your post, I really think you have to get with your lawyers and find out what you are.

I am not surprised the Presidents attorney says the developer can do anything he wants, because normally he can and sometimes he pays a price with bad press, etc, etc. You say you have 5 BOD. Let me guess and say the president has at least a controlling interest and a majority on the Board. Even at that that leaves two BOD that may be appointed by the president and are owners of property, just like you. What do they say?

Clarify what you are and who is running what. If you don't like it get the owners together at a Town Hall Meeting to discuss your positions, Sit down with developer when you know what's about and have a little eye contact.

I am sure you will hear more from here.

BrianB (California)
Posts: 2,820

Posted:

i tend to agree with robert.. in most cases, while the declarant has control, the deck is stacked, he deals, and he can redo/shuffle again at will. He either IS the board, or the board is him, his construction manager, his accountant, his nephew, and his wife. Even at turnover, depending on the conditions, declarants often own two or three or five votes for every unsold lot, and thus, still have a lot of power until they are completely sold out.

IMO, buying in a declarant owned HOA is tricky and risky, especially in today's market when it might be YEARS before they sell their lots and turn over control. Until then, you signed a contract with a dictator.

KirkW1 (Texas)
Posts: 1,665

Posted:

I would guess that not only is it possible, but it is likely that your CC&Rs address the issue. But there is also a good chance that they give the declarant extreme latitude and power.

The simply unfortunate fact is that regardless of what your documents say, it could come to a matter of you being willing to hire an attorney to force the issue.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Yes, he can increase the dues - but by how much should be in those documents, too.

Have a work session of interested residents meet and go over all these documents so you know where you stand. Give each person a page or two to study, then meet and hash over just what the rights are of this declarant.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Marlene,

W/o seeing your docs it's hard to say what the declarant can or cannot do with regard to raising the assessments. As others have said, in most instances, while still in control, the declarant can pretty much do as he pleases. From the numbers you gave (4 of the 5 directors) it sounds like a majority vote of the board is required to raise the assessments. Who is on this 5-member board?

The second attorney's opinion doesn't sound plausible to me unless there is a provision in the declaration which says the declarant alone has the right to raise the assessments while still in control. Otherwise, it would be a board action. In some instances it might require a vote of the members. Also, state law may come into play. In AZ, if the raise exceeds 20% of the prior year's assessment, a vote of the members is required and there is no exemption that applies to assn's still under declarant control.

MarleneS (Texas)
Posts: 7

Posted:

Thank you for all the replies! The association is led by a Board of Directors composed of the one appointed (the president/declarant) and four (4) elected. Of the four (4) elected the Declarant can use his majority votes (he has four votes to each property owner's one) on two (2) of those seats. The remaining two (2) are elected by the residents. Which basically means he controls three (3) out of the five (5) seats.

Our CCR's state "After the Association assumes responsibilities (which we have), the Assocation may adjust such rates pursuant to the rules and regulations of the Association. The annual assessment per lot may be increased, but no more than once each twelve (12) months and no increase shall be more than $25.00 per year up to a maximum of $400.00 per year. any additional inrease beyond the maximum of $400.00 per year mus tbe approved by eighty percent (80%) of the board of directors of the Association."

Apparently this issue come up before when I was not a board member and our previous attorney's written opinion stated that an 80% majority of the Board was needed. Now with the Declarant's personal attorney he states otherwise.

I believe the declarant is sending out bills today with the dues increase without holding a vote. Not sure what to do!

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By MarleneS on 10/06/2008 12:24 PM
Thank you for all the replies! The association is led by a Board of Directors composed of the one appointed (the president/declarant) and four (4) elected. Of the four (4) elected the Declarant can use his majority votes (he has four votes to each property owner's one) on two (2) of those seats. The remaining two (2) are elected by the residents. Which basically means he controls three (3) out of the five (5) seats.

Our CCR's state "After the Association assumes responsibilities (which we have), the Assocation may adjust such rates pursuant to the rules and regulations of the Association. The annual assessment per lot may be increased, but no more than once each twelve (12) months and no increase shall be more than $25.00 per year up to a maximum of $400.00 per year. any additional inrease beyond the maximum of $400.00 per year mus tbe approved by eighty percent (80%) of the board of directors of the Association."

Apparently this issue come up before when I was not a board member and our previous attorney's written opinion stated that an 80% majority of the Board was needed. Now with the Declarant's personal attorney he states otherwise.

I believe the declarant is sending out bills today with the dues increase without holding a vote. Not sure what to do!

Marlene,

First of all the declarant only has one vote on the BOD. The fact that he has so many unsold lots, which gives him additional votes, this does not apply to voting as a board member; this only applies to voting in an election. If there are only 2 members on the 5-member board, the declarant has control because the other 2 were probably appointed by him.

Now, regarding the assessments. If the assessments have not yet reached $400/yr, they can only be increased by $25 -- PERIOD. How much is the declarant raising the assessment?

One question. If the members have taken control of the assn, (you said they have) why is the developer still on the board? When transition occurs, the developer is no longer involved in the HOA regardless of the fact that he may still own some unsold lots.

MarleneS (Texas)
Posts: 7

Posted:

The Declarant retains one vote for every lot sold or unsold. In one of the sections he retains four votes for every lot sold. That is why he has a majority. You are correct he does not have complete control of the Board, but basically he has three of the Board seats because he uses his votes to vote three members he selects (all family members.) He is not in control per se because we do have a Board, however because the CCR's give him control and administration of the "maintance fund" (all dues collected) and he has majority votes he does in essence control our community He will not be completely out for a while, we are in a transition period where two elected residents sit on the board.

Currently assessments are at $600.00 he wants to raise them $100.00 which is unnecessary, our budget for next year doesn't support that.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Marlene: If your documents say:

"After the Association assumes responsibilities (which we have), the Assocation may adjust such rates pursuant to the rules and regulations of the Association. The annual assessment per lot may be increased, but no more than once each twelve (12) months and no increase shall be more than $25.00 per year up to a maximum of $400.00 per year. any additional inrease beyond the maximum of $400.00 per year mus tbe approved by eighty percent (80%) of the board of directors of the Association."

The "Association" is not defined - but I think it means the governing entity: the Board.

This means that the increase can range from $25 TO $400 AND anything over that needs the 80% vote of the BOARD members.

A majority vote is needed by the BOARD for a regular increase, AND over the $400, it needs 80% approval vote of the board.

So your BOARD has a LOT of power!!!

RobertR1 (South Carolina)
Posts: 5,164

Posted:

I would likr to see the answer to MaryA'a question? How did the develper get on the Board?

I would also like to know if you all have a State Business License, also Corporation License. Whose name is it under, surely not the developer if the Association has received turn over. Don't you have to be an owner to belong to the association? Does your documents refer to multiple properties owned by a single owner.

MarleneS (Texas)
Posts: 7

Posted:

The Association does have a business license under the Association's name 504(c)3.

You do not have be a property owner to be a member of the Board (something the declarant wrote into the CCRs.)

Yes our CCRs do address multiple properties owned by a single person, that individual gets one (1) vote per lot owned. "no more than one vote shall be cast per lot in the event of multiple owners."

RobertR1 (South Carolina)
Posts: 5,164

Posted:

RE: Conflicting views from HOA attorneys - Texas
Message: The Association does have a business license under the Association's name 504(c)3.

You do not have be a property owner to be a member of the Board (something the declarant wrote into the CCRs.)

Yes our CCRs do address multiple properties owned by a single person, that individual gets one (1) vote per lot owned. "no more than one vote shall be cast per lot in the event of multiple owners."
********************************

The other question was are you a corporation and what kind?
How in the world can the Declarant write anything into the the CC&R's with out owner approval. Did he amend the CC&r's?
Is it correct the Developer is the President of the Board? That has to take a vote of the owners, so you all voted him in or accepted him at turn over which amounts to the same thing. Have you thought about recalling him? Has he closed that door also? Am I right in understandinging he has relatives, that are not owners of property on the Board and where do these people get a vote from? Are you saying they can only vote on Board Matters and not on Owner matters?
Do you have any owners of property on the Board? How can you allow members of the Board to vote if they don't own property. A single owner of a lot (from what you posted)gets one vote, if you are not a lot owner you get no votes and I bed that would include Board votes and general voting.
In your master deed, the first page is usually a Declaration, have you looked at it closely. How about your state statutes, do any of them override any of your covenants.

Look, I have no idea what is going on here but I would not be comfortable living under this kind of control. If nothing else, I would make a mighty effort to understand how you all got in such a spot. I sense there may be some legal standing at this point by the developer, but if nothing else there should be a time frame specified. And last I would find me the best association lawyer I could find on my own, waltz into his office, show him what you got and cut a deal for a critical revue.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By MarleneS on 10/06/2008 1:24 PM
The Declarant retains one vote for every lot sold or unsold. In one of the sections he retains four votes for every lot sold. That is why he has a majority. You are correct he does not have complete control of the Board, but basically he has three of the Board seats because he uses his votes to vote three members he selects (all family members.) He is not in control per se because we do have a Board, however because the CCR's give him control and administration of the "maintance fund" (all dues collected) and he has majority votes he does in essence control our community He will not be completely out for a while, we are in a transition period where two elected residents sit on the board.

Currently assessments are at $600.00 he wants to raise them $100.00 which is unnecessary, our budget for next year doesn't support that.

Marlene,

The votes the declarant has because of unsold lots only comes into play for elections. On the board he "technically" only has one vote; but I understand he also has the votes of the two appointed members so he does rule the board. This is not uncommon. While still in control, the declarant usually does have the upper hand. When you say you are in transition because 2 members sit on the board, is not quite true. Transition means the declarant is turning over the assn to the members -- this doesn't take months or years to accomplish. I know of master assn's where the declarant is in control for 10-20 years. For the better part of that time there will be 1 or 2 members on the board. Sounds like that is what your declarant is doing.

Regarding the increased assessment; since the assessments are over $400, 80% of the board must vote on it. Since he only controls 3 votes and 80% = 4 votes, he must get one of the member board member's to vote on the increase. If the board did not vote on the increase then he did not go about it legally. BTW, are your assessments $600/mo or $600/yr! An increase of $100 is only a 6% raise. I don't understand your logic that your budget doesn't support an increase. Please explain what you mean by this.

JeanK (Texas)
Posts: 1

Posted:

MarleneS,

I encourage you to go to Texas Legislature online http://www.legis.state.tx.us/Home.aspx Go to Statues and then to Property Code then to Title 11 Restrictive Covenants. Depending on the population of your county different statutes apply. Texas law trumps Developer's declarations and the legislature has amended some laws to improve the rights of property owners to control the voting process, CC&Rs and assessments. For example: Chapter 211 of Title 11, became law in 2005, giving POAs in small counties (under 65,000) the ability to establish procedures for amending CC&Rs to give us control of our future. There have been a number of changes to Title 11 in the last few years.

KirkW1 (Texas)
Posts: 1,665

Posted:

Marlene,

Based on what you have posted I would say that the maximum your dues can be is $400 without 80% of the BOD voting otherwise.

Having said that, there is a simple reality here. To force the issue you may have to file suit in a court of law. The simple reality is that rules and laws are broken every day. There is nobody in government who is going to take this issue up on your behalf. So the question is, do you care enough to retain an attorney?

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