Breach of Fiduciary Duties

What recourse does a homeowner have if one's HOA/large property management outfit appears to neglect the enforcement of a community's CC&Rs?
Case in point, one home in a group of cluster homes was painted lime green sometime ago going against the HOAs approved color schemes.It sticks out like a sore thumb. It and other homes in dire need of painting period really have brought down the community's overall physical appearance.
Also we have a common area "park" complete with slides,monkey bars etc that smells like an outhouse because inconsiderate people don't pick up after their pets. Is the HOA liable here for what might be unsafe conditions within the community?
We bought into this community four years ago and have seen a rampant increase in so called CC&R violations that just go unresolved while HOA fees have only gone up.
Any advice or info would be appreciated!

Ron,

There is a well known case here in AZ (Gfeller v. The Scottsdale Vista North Townhouses Assn) that was lost by the HOA because they did not enforce the CCRs. That assn's CCRs stated the assn or its BOD "shall have the right and duty" to enforce. The court ruled that the assn could choose from one of many enforcement processes as specified in the CCRs, but could not "forsake its express duty to enforce the CC&R's". Some declarations do not contain "duty" language and only provide the assn with the right to enforce. It's unknown if a court would find that the assn has a duty to enforce the declaration if the documents do not contain "duty" language. Bottom line is that if the BOD does not want to enforce a particular provision of the CCRs they should take the necessary steps to amend or repeal that provision. Otherwise they may be faced with a lawsuit for their failure to enforce the documents. I would suggest you thoroughly review your CCRs to see if they contain the "duty" language.

I appreciate your advice. I actually have taken photos....unfortunately desperate times call for desperate measures. Thanks again!

Just so you do fully understand; your management company takes it's orders from the board of directors. If the board isn't having the manager address the violations then it's their fault. If they want the manager to do it but the manager isn't sending out the letters then it's the manager's fault.

Mary brings up a great point; I personally learned it from an attorney at a seminar. A sitting board does not have to enforce the rules. It wreaks havoc down the road but they don't have to do it.

Best of luck to you Ron.

Hi Robert,

You are correct that if the manager is not following up then it still falls back on the board. My point being, and I guess I didn't express it very well, is that the owner would then know whether they should fire the manager for being sloppy at the same time they remove for the board for not having a good manager. Are they both bad or only one? LOL

Sometimes owners blame managers when in fact the manager knows right from wrong but they have to take direction from the board.

"sitting board not having to follow rules"........so that I don't misinterpret let me get back to you on this one. ;-)

Ron:
Explanation below was posted on this forum some time ago:

The board members have a fiduciary resp. to the assn, not the membership. Fiduciary means involving trust. The members of the assn have placed their trust in the elected board members, who, in turn, have a duty to act in good faith and with care and loyalty in fulfilling their obligations. Mismanagement or non-management are grounds for a breach of fiduciary duty. Most courts will not interfere with the decisions of the board as long as the decisions were reasonably made. Board members may be subjected to personal liability if found to have failed their fiduciary duty. A board member who knowingly fails to take steps to avoid illegal actions taken by the assn's BOD is subject to a breach of fiduciary resp. and subject to personal liability. Courts use the "business judgment rule" as a basis in rendering their decision. Simply stated, the business judgment rule means, the BOD will act in good faith in what they consider to be the best interests of the assn and with the care that an ordinary person in the same position would exercise in a similar situation.

Jim

Thanks again for the comments.
I met another disgruntled homeowner just today.
We pay a monthly and a quarterly fee to a property management group that must generate vast amounts of "revenue".
I understand landscaping,water,electricity and general maintainance are costly but sometimes question as to where most of the assessment money really ends up? We as a community (hundreds of homes) in Arizona only recently have started to pay our assements not to a "local branch" but now to a relocated address in Los Angeles?
Does this strike anyone as being odd?
Thanks

Ron

Ron,

The same is true for my assn. Our property mgmt co is located in Peoria, AZ but our assessments are mailed to a lock box in LA. All checks are made payable to our HOA and mailed to an address with the HOAs name. Nothing fishy going on I'm certain! Why not just ask the board why this is being done instead of speculating that something must be amiss?

I'm wondering why you pay a monthly and a quarterly assessment. Shouldn't it be just one or the other?

Where does all the money go? This seems to be a complaint that many HOA members have. Most HOA members don't understand exactly what it takes to run an HOA -- especially a large one. Even if there are no amenities (club house, swimming pool, etc) there are still expenses associated with maintaining the common areas plus utilities, insurance and various other expenses. For instance, are you aware that the HOA must have all the vacumn breakers inspected once a year? Our assn has about 40! Postage and other administrative costs can add up, as well. Then, of course, there should be a monthly funding of the reserve account. A look at your monthly financial statements should tell you where the money is going. If you have any questions, just ask them at a board meeting.

Kay,

ARS 33-1217 sets the standards on how the allocations are to be set. Your CCRs will state what the allocations are and they cannot change unless the CCRs have been amended. If the board is setting the allocation differently than what is specified in the CCRs, then they are in violation of the CCRs.

First of all, there are no state or federal requirements for reserve funds. The preferred method is to only use the funds for their designated purpose; however, if there is an emergency and the funds are used for something that is not designated a reserve item they should be replaced as soon as possible. The reserve fund may state $50,000 is required to replace roofs but that doesn't mean that $50,000 of the reserve funds on hand is for roofs, unless your reserves are fully funded (100%). I don't understand how your CPA can say the paving fund is in arrears. It's not a normal procedure to keep separate accounting records for each item in the reserve fund. Frankly, IMO, it would be an almost impossible task! The CPA may not be able to discuss the reserve fund with you, but you should be able to obtain any info you desire from the BOD. As you know, ARS 33-1258 gives you that right. The CPA, or whoever prepares monthly financial statements, should also be preparing a balance sheet and profit & loss statement for the reserve fund (at least our mgmt co does). The balance sheet would show how much money is held in reserve and the P&L statement would show the budgeted amount for each reserve account and how much was spent and how much was transferred in from the operating account.

You should make a request, in writing, for the specific records you wish to see. From what you have written, I would think that would be a copy of the most recent financial statements. My assn's mgmt co prepares 3 sets of financial statements (balance sheet and P&L Statement)each month: consolidated (includes operating and reserve statements), operating and reserve statements. If reserve funds were used for some landscaping expenses that would show up on the reserve account inc and exp statement and the total expenditure would be included in the consolidated P&L statement. I don't know what your CPA prepares but, for safety's sake, I would suggest asking for a copy of all financial statements prepared for the month.