Concerns with HOA/Maintenance Corp

Started by GerryH • 12 replies • 1425 views

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GerryH (DE)
Posts: 43

Posted:

I'm having growing concerns about the practices of our hoa/maintenance corp and wanted to get some feedback and input. I've been only recently elected to the board because a number of other homeowners share some of the concerns about the direction of the previous boards. However, I don't think they (the community) really understands potentially all of the issues. As I begin to find out more and more I'm getting even more concerned. So here's a break-down of the background, some of the actions and my concerns.

First, this is a new development. The builder only turned over the common areas during 2007. The builder's interest (or rights regarding the by-laws, etc) ended mid-2007.

The by-laws, convenants and declaration of restrictions all state that any additions, modifications deletions require a vote by all of the members and a 67% approval rate.

These documents also state that any resolution may be brought up by any board member or 20% of the members, but any resolution by the board modifying these docs must be approved by the community (67%).

The documents also state that the declaration (Builder) has the soley rights to these documents until the builders percentage ownership in the community is 10% or less.

So, in July 2006, when the community was less than half built out, the then board passed three "adminstrative" resolutions which changes aspects of the by-laws and articles of incorporation. These changes aspects defining "late payments" and introducing a late fee which is not part of any original doc. The original docs only permit interest and explicitly defines late as 30 days.

Then in Feb 2007, when the community was only 2/3 built out, and a lot of homes under construction with the builder, the board at the time passed another "administrative" resolution adding additional restrictions, about 20 pages. Again no vote by the community, but also keep in mind that the builder still have more than 10% ownership and I believe controlled those documents.

My points are that they "adminstrative" resolutions which significantly changed these docs, and especially the additional restictions were never approved by the community. There position, and the position of the outside management company is that the board has the right to make any changes deemed fit if they feel the documents are deficient or missing information. My argument is that the board can then deem everything deficient and act unilaterially for everything and therefore eliminate the need for any community vote. More importantly it violates the spirit and intent of these documents.

Ok, so onto other things.

No board minutes or community meeting meetings are ever kept or made available.
No financial statements are provided on a consistent basis. One was only provided at the last meeting after I asked numerous times. These financials also raise another issue.

My position is that full financial status should be provided at least on a quarterly basis, and all of the other documents include board meeting minutes be made available. Note, board meetings are solely board members.

As I looked at the financials, I had other concerned raised as well. note, the association fees were originally established by the builder. There appears to be some hoarding of cash and a significant surplus. Just as a reference we pay over $100/month for the association fees. Almost every account has been running significantly under budger (for the last two years), plus 10% of the total projected fees being allocated to a contingency account, and another 10% going to a reserve account.

I'm looking at reducing the overall fees and see where we can reduce some costs as well. As I start to push some of these issues, I'm finding out other info and some of the comments being made by current and prior board members are concerning. For example, I'm been told that they don't want to reduce the fees because the "homeowners are used to paying them". Another one, is that they would rather build up the surplus for future capital improvements without having to go back to the community to vote for a special assessment and/or vote to allocate the money. Basically, to build up cash surpluses to be used years in the future not for maintenance activities but for capital improvements (new items). I find this whole situation troublesome and don't believe it falls within the responsibilties of the maintenance association.

So, I'm looking for feedback, am I incorrect in any of my positions, or do others agree with how these boards have been acting?

I mentioned I've recently been elected to the board (within the last two weeks), but it's only me and one other person who is new to the board the others (3) were re-elected because no one else new ran.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Wow - long post.

Just three thoughts:

1. Boards have the power to pass what you call "administrative resolutions" (AKA Rules and Regulations, Policies and Procedures) AS LONG AS they are not in CONFLICT with the Articles, CCRs and/or Bylaws. Look in your Bylaws under Board Powers or Purpose. See if any CONFLICT with your main governing documents.

2. The board is not under OBLIGATION to provide unsolicited minutes and financial reports to Members. Some boards so, even posting minutes and reports on the web. Members can REQUEST them and the board must comply. Apparently your board has a "Don't give unless asked" mentality. You can always encourage a change in that, now that you are on the board.

3. Capital Improvement Funds are perfectly permissable. BUT - the purpose of them should be stated somewhere. (motion in the minutes to start saving for a clubhouse or something) In other words, ALL funds must be designated for purpose. The IRS does not like not-for-profits to have pools of money sitting around without a specific purpose.

GerryH (DE)
Posts: 43

Posted:

Susan, that's for your reply. Let me provide some additional info:

1. All of these docs indicate that any mods,deletions, additions, need to be approved either by 67% or 75% of the community. They also state that any single board member may present a change or 20% of the members but any resolution must be approved by the percentages mentioned above. I personnaly had 3 attorneys review the docs and all confirmed these particular changes were not passed in accordance with the by-laws. One attorney sent the current president a letter reviewing that info.... No response. The other old/current board members argue that the "ability to adopt rules and regulations" give them that ability.

2. In regards to minutes, I asked for a copy of the last 12 months minutes months ago, no reply. Somewhat relating to this is during any community meetings, no attendance is taken, no minutes are taken as far as I ever seen, and no motions are recorded.

3. In regards to the capital improvement your comments are on point. There has never been any motion or vote to begin to build up funds for any specific capital improvement. The comments I received back during one-on-one discussions with different board members is that they just want to build up the cash and allocate later. Our by-laws say that 52% need to approve any increase in assessments or special assessments. Although the by-laws are not clear in terms voting for beginning a cash reserve for a specific item, I would think the same percentage would apply.

Gerry

GerryH (DE)
Posts: 43

Posted:

Let me phrase the minutes question another why, it a valid agrument that the board meetings are private and therefore do not have to provide meeting note or minutes for those meetings to the general community?

Some board meeting minutes I've found from other communities also indicates how each board member votes on a topic/issue. Is this the normal practice?

SusanW1 (Michigan)
Posts: 5,202

Posted:

Gerry - The burden of proof will be for you to define "changes" - you claim that they are AMENDING the current documents; they seem to claim that they are simply fleshing out the procedures for what is in the documents.

You are going to have to be more specific about WHAT was actually CHANGED (amended) that you are upset about.

What is a "community meeting"? Board Meetings and Annual Meeting of the Membership should have minutes. Committee meetings, gatherings, community meetings, etc. are not obligated to have minutes, since they are not the "legal" record of the HOA. These type of gatherings can't even entertain motions, since they have no power. There can be a consensus, though, and those thoughts taken to a Board meeting for request for action.

Are you able to obtain the last year's minutes for your review? I suggest that you read all that over to get a sense of what this board is doing.

GerryH (DE)
Posts: 43

Posted:

Thanks, you are also raising some good questions. The board meets once per month. The annual meeting is in december. Community meetings are meetings which the board calls during the course of the year, sometime qtrly sometimes 3 times a year. I'm confused on the one point you mentioned, if I understood your statement "Committee meetings, gatherings, community meetings, etc. are not obligated to have minutes, since they are not the "legal" record of the HOA. These type of gatherings can't even entertain motions, since they have no power. ", no motions can be brought to the floor during these meetings? Also, even if a motion was, if the by-laws still require a 67% population approval, that would still have to occur anyway correct?

Ok some examples,

1) Late Fees. The articles of incorporation and the by-laws both clearly state the payment for the association fees and the remedies available. They original docs explicitly states the remedies including interest after being 30 days late, and liens. Neither doc indicates late fees. Again, both docs require a 67% community approval to approve any mods, deletions or additions. The admin resolution added the late fee and change the definition of late from 30 to 10 days. As I mentioned three attorneys reviewed and confirmed that they did not believe these were approved appropriately by the by-laws.

2) In terms of the other significant change. As mentioned, the original CCR's provided by the builder included certain restrictions, but were limited. In Feb 2007, when only have of the developent was completed, the then board instituted an admin resolution called "architectural guidelines and standards" which included much more restrictions that were included in the CCRs or declarations. For example:

* Can not have more than 3 lawn ornaments
* A maximum of 2 statues
* Nothing to exceed 32" in height. This has been applied to some neighors with artificial trees next to front door. Anyother example, a few homeowners had built stone pillars at the end of the driveways (yes approved by the board), then someone measures to be sure they are under 32". One homeowners was told his were 1" over.
* No flagpoles (not in original restrictions)

Again about 20 pages worth. Many homeowners, if not most, are extremely upset about this and have expressed comments such as "feeling like they are in prison".

The point is that they restrictions were not part of the CCRs/declarations everyone signed/agreed to when they purchased or signed the agreement to purchase the property. I don't believe they were passed by the community appropriately. In another post on this site I saw something that indicated if they are "guidelines" they are not enforceable anyway.

Thanks. I realize this is long but I hope this helps clarify.

Gerry

JohnB7 (South Carolina)
Posts: 176

Posted:

As per Merriam Webster online:

fas-cism : 2: a tendency toward or actual exercise of strong autocratic or dictatorial control

Welcome to the wonderful world of HOA living ... to which you agreed when purchasing!

(please remember that Mussolini was elected)

The USA Constitution guaranttees one the right to enter a contract waiving one's rights !

LET THE BUYER BEWARE

MaryA1 (Arizona)
Posts: 7,043

Posted:

Gerry,

Wow, you've provided quite a bit of info and have a number of issues/questions. I'll try to tackle your initial post at this point.

1) changes to the bylaws, covenants & declaration restrictions: per the info you posted, this definitely requires a 67% vote of the members.

2) a board member or 20% of the members may propose a resolution; but it can only be put into effect by a 67% vote of the members.

If the board is performing either of the two actions mentioned above w/o obtaining a 67% vote of the members they are in violation of the gov. docs. Most assn docs also allow the board to interpret the gov. docs. and also to adopt regulations w/o a vote of the members. Check you docs for this and if allowed, perhaps the board is confusing a board-adopted regulation with a resolution. Another thing to keep in mind is that any board-adopted regulation cannot be contrary to any article in the gov. docs. and any interpretation of a covenant or bylaw article cannot change the meaning of that covenant or bylaw.

3) Late fee: If the board-adopted resolution allowing late fees was an "addition" to the original declaration or bylaws then it should have required a 67% vote of the members. In other words, if late fees was not addressed in the original declaration or bylaws, then this is an addition which requires a member vote. This might be addressed in the declaration under "assessments" and may state: "any assessment not paid within 15 days of the due date shall be deemed delinquent and shall bear interest at the default rate in addition to a flat $10 administrative charge (late fee) per late occurrence." In the bylaws it may be under "Powers of the BOD" which may state the board has the power to ". . .impose charges for the late payment of assessments. . .". Also in the declaration may be a provision giving the board the authority to adopt rules pertaining to the collection of assessments. If so, this provision would most likely outline what these rules might address. These would be board-adopted rules that do NOT require a vote of the members.

4) I can't comment on the additional resolutions (about 20 pages) added in Feb '07 as to whether they might be board-adopted regulations or resolutions as you didn't elaborate on them. However, if they consisted of "additions, deletions or modifications" to the original bylaws and/or declaration they would qualify for the 67% member vote. If they only interpreted an existing bylaw or covenant restriction or made a rule regarding an existing bylaw or covenant restriction then they may be approved by the board, IF that is defined in the declaration. (Refer to the para after #2 above.)

5) Minutes should be kept for all meetings of the assn: member meetings, board meetings, committee meetings. Check your bylaws under duties of the officers -- this should be stated in the Sec's duties.

6) Financial statement should be prepared every month; or at the very least quarterly. If the board meets monthly, it would be standard to have a treasurer's report at which time the treasurer would review the financial statement for the preceding month. At the annual meeting, the treasurer should review the year-end financial statement and also go over the budget for the upcoming year. Your bylaws may have a provision stating it is the "duty" (under powers and duties of the BOD) of the BOD to ". . .keep a complete record of all of its acts and corporate affairs and to present a statement thereof to the members at the annual meeting. . .".

7) Some assn bylaws have a provision titled "Books and Records" which states the books, records and papers of the assn shall at all times, during reasonable business hours, be subject to inspection by any member. . ." or something to that effect.

8) I certainly wouldn't call placing funds in a contingency and reserve fund "hoarding", but rather sound fiscal practice. A reserve study should be conducted to earmark all the assests subject to future repair, maint or replacement. Monies are placed in a reserve fund monthly so that when the major repair, maint or replacement occurs the funds will be available to cover the expense. The reserve study will state how much $$$ should be in the reserve fund and how much $$$ should be allocated each month. A contingency fund is sometimes maintained to cover insurance policy deductibles and provide a "cushion" for the operating fund if needed. The contingency funds is generally approx. 3% of the budget.

9) A budget comparison of income and expenses should be a part of the financial statement which can be an additional column for the budget amount and another column showing the incr or decr. The budget can be adjusted accordingly and these increases or decreases should be taken into account when preparing the budget for the coming year. I would not recommend decreasing the annual assessment; this usually comes back to bite you. In many instances if you decrease it one year you'll just have to increase it again in a year or two. IMO, it's best to just increase your allocation to the reserve fund.

You stated: "Another one, is that they would rather build up the surplus for future capital improvements without having to go back to the community to vote for a special assessment and/or vote to allocate the money. Basically, to build up cash surpluses to be used years in the future not for maintenance activities but for capital improvements (new items). I find this whole situation troublesome and don't believe it falls within the responsibilties of the maintenance association."

Frankly, this is a wise position to take. The board should always be concerned with what might be required in future years and prepare for it in the present. Otherwise what happens is that a special assessment is required to make up for the shortfall that a reserve fund would have provided. Members do NOT like special assessment because they are generally in the thousands of dollars and are sometimes required to be paid, in full, immediately. In many instances the board has the authority to determine when, and how, the special assessment must be paid.

As a new board member, I would suggest you review all your gov docs and become thoroughly familiar with them. Also find out if there are state laws governing HOAs, and if so become familir with them also. Oftentimes, the state laws are more restrictive than your gov docs. or may address topics not covered in your gov. docs.

BTW, the comments in quotes in my response are sections taken from my gov. docs. Most gov. docs. are quite similiar so you may find sections in yours that are comparable to what I've quoted.

Hope some of this is helpful to you. :-)

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By GerryH on 12/06/2008 7:20 AM
Susan, that's for your reply. Let me provide some additional info:

3. In regards to the capital improvement your comments are on point. There has never been any motion or vote to begin to build up funds for any specific capital improvement. The comments I received back during one-on-one discussions with different board members is that they just want to build up the cash and allocate later. Our by-laws say that 52% need to approve any increase in assessments or special assessments. Although the by-laws are not clear in terms voting for beginning a cash reserve for a specific item, I would think the same percentage would apply.

Gerry

Gerry,

I doubt there is a requirement in your gov. docs. for a membership vote to establish a reserve fund. As I mentioned in an earlier post, establishing a reserve fund for future repair, maint and acquisition of capital assets is a very prudent thing to do.

Making motions and voting on policies and certain actions of the board is, of course, what should be done; however, some boards just never adopt proper operating procedures. The fact that a vote was never taken to establish a reserve fund doesn't mean that fund is "illegal". The board Pres. should set the tone for how the board operates. If he/she doesn't, in many instances procedures go by the wayside. This is unfortunate; however, it's not unusual. As a new board member, perhaps you can be instrumental in getting the board on the right track. After the board has discussed an issue and it appears that an action will be taken, if the Pres. doesn't call for a motion, don't be afraid to speak up and say, "shouldn't we make and motion and vote on this?". If minutes aren't being taken, as why! Perhaps you can be the new secretary.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By GerryH on 12/06/2008 7:29 AM
Let me phrase the minutes question another why, it a valid agrument that the board meetings are private and therefore do not have to provide meeting note or minutes for those meetings to the general community?

Some board meeting minutes I've found from other communities also indicates how each board member votes on a topic/issue. Is this the normal practice?

Gerry,

The fact that your board meetings are not noticed and members do not attend is not unusual. Some states have open meeting or sunshine laws which require all meetings of the assn to be noticed and open to the members. However, most states do not have these requirements. Communication with the members is very important, especially when the board meetings are not open to the members. The board should have a monthly or quarterly newsletter in which they can inform the members of certain actions taken, goals, etc. Sending a letter to the members periodically informing them of what's been happening in the assn is another good way to communicate. No communication from the board usually leads members to think the board is hiding something; perhaps not operating properly. It's far best to be open with the members.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Gerry,

In one message you commented on the architectural guidelines the board adopted w/o a vote of the members. Have you checked your declaration for an article title "Architectural Control", or something to that effect? This article usually will authorize the formation of an Architectual Committee which will have the responsibility and authority to control the architectural character of the assn. The Architectural Committee may also have the authority to adopt rules covering the use of the property and also to serve as guidelines to be used in rendering their decisions. These rules do not require a vote of the members. Frankly, IMO, I think they should. Some states may have laws requiring the members to be notified and allowed to comment b/4 the rule is adopted and some assn docs may also require this; however, most do not. It's always been my opinion that these board-adopted rules are what cause most of the problems that assn's have. Having said that, these rules are enforceable the same as the rules contained in the original declaration. As long as the declaration has given the board, or in this case the Architectural Comm, the authority to adopt rules, they become the same as any rule originally contained in the declaration.

SusanW1 (Michigan)
Posts: 5,202

Posted:

A board passed motion to establish ANY fund is a CYA gesture for when and if the IRS wants to know why you have so much $$ lying around, without a "defined purpose."

We had a court case some years ago and were pleading "broke" status. Some smart lawyer showed the judge our complete financial statement, which showed we had a huge amount of $$, and we lost the case (not due to that entirely)

Point is, that if someone had said, "Yes, Judge, but that huge pot is a RESERVE Fund amount and is restricted to that use only in case out water system collapes" - it would have sounded better. The Judge would have looked at our annual operating budget, which is real close to the bone. Unfortunately, at that time, everything was in "one pot."

We now state right in our bylaws that we have a Reserve Fund.

Making and passing motions to establish funds that are going to build up over time is just smart, IMHO.

GerryH (DE)
Posts: 43

Posted:

MaryA1 and Susanw, thank you both for all your information.

MaryA1, let me provide some info regarding some of your points. In regards to the reserve fund, I understand the need to allocate xx $dollar per month/year to a reserve fund to address the long term replacement costs of an existing item or major maintenance repair. For example, replacing the roof of an existing club house. But that's not what I'm really referring to here. This is over and above the typical reserve account determined by the reserver study, but other money to be used for some future acquisition of something that does not exist today. For example, purchase of a fountain or installing fencing around the community in 3 to 10 years when no fence exists today and not voted on. That's the real concern. Also, keep in mind that we don't have a clubhouse, nor tennis courts, pool, or even responsible for street repair (state is responsible). All we have today is the common area with a small playset, the development sign by the front and a pond (for storm water management). That's it.

In your list of points here's some more info:

# 7 the wording you used exists in our docs as you worded, but when asked to see the minutes the request was ignored.

# 9 at this past annual meeting, only the income statement was reviewed and only for the 10 months ending Oct not the full year ending 12/31. And that only occurred because I had asked numerous times for the financials and raising the issue during the election. Last year, none of the financiels were ever reviewed only statements like "the numbers look good" or "we are in good shape".

# 3 late fees: our docs specifically state "Any assessment which are not paid when due shall be deliquent. If the assessment is not paid within 30 days after the due date, the assessment shall bear interest from the deliquency at the legal rate per annum." There is no mentioned about late fees in addition to the interest after 30 days, or late fees at all. The only other specific rights mentioned is that the board has the right to change the assessment to be paid monthly versus annually.

# 4 Yes, there is the clause for the board to adopt "rules and regulations". Specifically, it is defined in the powers section which states "adopt and publish rules and regulations governing the use of the common area properties, and facilities, and the personal conduct of the members and their guests, and to establish penalties for infractions". They, and the outside management company, argue that this give them the right to make new rules regarding anything in the community including the "architectural guidelines" restrictions mentioned above. My argument is that it does not provide that capability and only allows the board to establish rules and behavior for the common area and some other limited things, like cutting the grass, keeping the property neat, no loud noise after certain time, etc.

I do believe your one comment is correct that they are confusing rules/regulations with restrictions. For my sake, can you provide, in your opinion what is an example of a rule/regulation, versus where is crosses the line and becomes a restriction which is a modification that requires the vote/approval of the community?

Thanks
Gerry

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