Ask the Expert

Marjorie Jean Meyer, CMCA®, PCAM®
Vice President and National Director of Education and Certification
ASSOCIA

Obviously, the election of HOA board members takes place at an association's annual meeting. This is the forum in which members can elect "representatives" to act in their best interests and to help protect their investment.

Board of director elections can frequently become "political" because certain individuals jockey to get persons of "like mind" on the board with them.

While there is nothing wrong with the "democratic" system of election, is there some sort of "checklist" that association members can use to evaluate the effectiveness of their board in the past to give potential newcomers a platform upon which to campaign and show how their election might be beneficial to effecting positive changes?

- Stan

Other than crafting your own checklist to track the specific obligations of your community association's board, you might check out Board Café for a wealth of information regarding nonprofit boards of directors.

Sincerely,

Margey

I manage an association that has a newly elected board. The previous boards were appointed because of a lack of quorum. The current board president wants to ratify past decisions made by the previous boards.To save them time and money can they adopt a resolution that ratifies past decisions based on the previous boards acting in good faith for the association, instead of going through minutes and going over every decision that was made?

- A.

Many parliamentarians agree that board members may ratify actions taken without a quorum or between meetings, or by a previous board that was not elected according to the entity's bylaws. However, since you may need to justify the ratification to your members, I recommend that you obtain a written opinion from your association's legal counsel that you can incorporate into the minutes of the meeting at which the board approves the ratification.

Sincerely,

Margey

I've read over your forum and didn't find anything resembling my question.

Our neighborhood recently decided to make improvements to the entrance. Several homeowners volunteered to talk with architectural landscapers to design the plans and they spent a lot of time and effort on the project. When it was finished, we held a special meeting and the plans were submitted. A preliminary vote was taken and everyone at the meeting voted for the new improvement plans, which was almost the 60 percent we needed. When letters were sent out for each homeowner to vote, only one-third of the homeowners voted for the improvement. We later learned that a homeowner that voted for the improvements at the special meeting threatened to sue the HOA if the improvement plans passed. The homeowner didn't want to pay their share of the improvement cost. Some homeowners were told about this threat before the voting took place and some were not. Those who knew about the threat of being sued voted against the improvement plans.

When something like this occurs in a neighborhood, shouldn't the board inform all homeowners and call a special meeting for the homeowners to discuss it with the opposing homeowner/homeowners?

If a questionable issue occurs like this one, shouldn't the board seek legal advice, instead of letting a homeowner intimidate the entire neighborhood and the improvements that would have greatly enhanced our neighborhood?

We are currently working on other improvement plans. Most of the money will be taken from the HOA reserve fund, so that it will be easier on the homeowners who can't afford their share of the improvement cost. If we get the 60 percent vote that our Bylaws in SC require and continue with the improvements, will the opposing homeowner/homeowners have grounds to sue the HOA? Or sue the homeowners that vote for the improvements?

- Chris

How unfortunate that a single individual was able to intimidate his or her neighbors into rejecting an improvement that could have been beneficial to all residents. Yes, indeed, the board should have called a special meeting at which an attorney well versed in both your association's governing documents and state statutes could have addressed the voting process and any questions that may have arisen regarding individual exposure to litigation. In most homeowner associations, so long as the board complied explicitly with the voting process detailed in the association's Bylaws, and the special assessment was passed by the requisite number of members, all members are legally obligated to pay the fee. I recommend that the board hold such a meeting as quickly as possible to counteract the psychological damage that one individual has inflicted.

With regard to payment of the improvements, I urge the board to seek legal and financial counsel regarding using reserve funds for a capital improvement. Typically, reserve funds are limited only to replacing existing common area components such as street lights, sidewalks and recreational facilities that were constructed during the original development of the community. State laws and IRS code may prohibit using those funds on new facilities or services, authorizing only the imposition of a special assessment to pay such expenditures.

Sincerely,

Margey

I am a member of a 600+ home HOA in the State of Washington. Our membership recently voted to revamp our system for both the election of Directors and adoption of annual resolutions, and I am on the committee to recommend a revised system to the Board and the community at large. We have been using a proxy system, along with direct voting, which has become confusing and unwieldy and is at the root of the current unhappiness with our system. Can you direct me to other associations' procedures, with or without proxies, which are being successfully used? With your experience with large HOAs including a percentage of part-time and out-of-state owners, can you advise us whether or not a proxy system should be used? If you recommend a proxy system, do you have a procedure that logistically works successfully?

Thank you very much. We are at sixes and sevens here and would appreciate your help and any direction you can give us.

- Sue

The Community Associations Institute offers several publications that address the appropriate methods to conduct annual meetings and utilize proxies. You can access the list of resources at the CAI Bookstore.

Sincerely,

Margey

I live in *****, CA in a condo community. I am running for the Board of Directors in the uncoming annual meeting. I have gone door to door collecting ballot/proxies from homeowners that will not be attending the annual meeting. I will hand carry the proxies to the annual meeting to be counted. A homeowner stated to me that proxies must be delivered in the sealed envelope envelope provided by the property management company. I do not agree with the homeowner. Neither the CC&R s nor the By Laws mention sealed envelopes. I am unaware of anything in the California Civil Code requiring sealed envelopes. I plan to deliver the proxies with no envelopes. Who is correct?

- John

According to Ms. Cherie McColley, CCAM, Vice President Management Services, N. N. Jaeschke, Inc., an Associa member company based in San Diego,

"The instructions for proxy format and processing should have been in the cover letter mailed with the proxies. If this association had experienced past problems with board member elections, the board may have decided to conduct the sealed envelope procedure, which would be within their authority to do so. There is no current California law that addresses the use of proxies in community associations, nor is it usually detailed in the CC&Rs or Bylaws. However, this will change as of January 1, 2006 when state statute will require all community associations to utilize the secret ballot/proxy envelope method."

Sincerely,

Margey

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My question is, if we are classified as an 1120-H Homeowners Association why are we prohibited from having interest bearing accounts and not able to earn any substantial interest for special projects due to our filing? I work for a bank and I see HOA's all the time opening CD's and Money Market accounts and they don't seem to have any troubles with IRS penalties or anything like that? I'm just curious why our situation seems to be so unique. We are an HOA in Washington State in King County if you need that information. Thank you.

- James

I share your confusion! Filing the 1120-H tax form should have no relationship to your association's eligibility to qualify for interest-bearing accounts. Homeowner associations may elect to file the 1120-H (for Homeowners Associations) or 1120 (for standard corporations) every year, basing their decision on which form provides the least tax obligation.

I suggest you talk with another bank officer or another bank until you find one eager to service your association's account and provide competitive interest on your funds.

Sincerely,

Margey

In California, can condo owners start a petition to veto an assessment fee for repair work when the association has plenty of reserves in the bank to cover the expenses?

CC&R's Read: Regular and special assessments must be approved by the owners. A little vague isn't it??

- Heidi

According to Ms. Kathy Stobaugh of N. N. Jaeschke, an Associa member company based in San Diego, California homeowners certainly may challenge the decisions of the board by following the procedures detailed in the association's bylaws and state statutes. However, before mounting such an effort, I urge you to talk with your board to determine why the directors determined that the special assessment was necessary instead of using reserve funds. It's possible that the work for which the special assessment is intended was not included in the reserve budget. Consequently, no funds were being collected for that work and the money currently in the reserve account is already allocated to other pending and necessary work.

Since your association's CC&Rs require homeowner approval for any special assessment, it may not even be necessary to petition the board. If the requisite number or percentage of homeowners does not approve the assessment, the board cannot impose it. However, please listen to your board's explanation of the need for the assessment; there may be reasonable and compelling reasons for asking the membership to provide additional funds with which to operate the community.

Sincerely,

Margey

I am a unit owner of a townhouse in MA. Pursuant to a Special Assessment Notice sent to unit owners regarding the budget overrun for snow removal, the decision to levy this assessment has been calculated to be discriminatory and unfair. As a unit owner, my monthly condominium fee rate is considerably higher than those of the two other units in my building, which I understand is based on the square footage of the units. However, this special assessment has been calculated in the same manner (based on the square footage) resulting in my rate to be $80.00 more a month than my next door neighbors. Am I correct in the facts that the amount of snow fall has no forbearance on the square footage of the size of the inside of my unit"

In all fairness, the increase in the snow removal assessment should be divided equally among all the 127 units. Please advise.

- Chris

While it seems reasonable to think that the additional snow removal expense should be shared equally among all townhome owners, your association's Declaration may mandate that all regular and special assessments be calculated based on percentage ownership. Check the assessment provisions of your Declaration, as well as Massachusetts statutes regarding community associations for specific verbiage regarding this issue.

Sincerely,

Margey

Our homeowners association is in a bit of disarray at the present moment, as you will see. Besides the question at hand, you may see some other areas that you would like to comment on; so please do. I'm sure many of the readers will benefit from it.

The Secretary/Treasurer for the HOA performed their duties off-site at their residence for over 10 years. About 3 or 4 years ago, this person experienced a situation that resulted in damage to many of the paper files for the association, some going back to the early 1970s. As a result due to the damage to the documents, they were discarded by the Secretary/Treasurer. A review of the Annual Meeting, and Board Meeting Minutes has never made mention of this event. We do have Annual & Board Meeting minutes, Property Title Certificates, Legal Agreements, and such.

Financially, the association has come into some hard times with regards to expenditures, and a committee has been formed to oversee expenditures and ensure that the budget is adhered to. One problem is that the budget has never had an allocation for Capital or Operating Reserves, and I feel that is one of many problems.

The above Committee started reviewing past expenditures in order to get a somewhat accurate financial picture of the association, to create the next fiscal years budget. During this review, the committee members were "reminded" of the event that destroyed.

This past year, the Secretary/Treasurer resigned for personal reasons. Upon obtaining the "Association Records" from the departed individual, it was noticed that there was a lot of records missing. The new Secretary/Treasurer has been having a difficult time with the books, and it is clear that the accounting software was not used to it's fullest potential.

One thing that we recently realized that was not available was copies of IRS tax forms of any kind. I have found that HOA can be considered a Exempt Organization under 501c(4). Our Association does have some income that may not be considered Exempt Income from usage fees for Clubhouse Rental, Golf or Campground, etc. All of these fees have been used to offset operating expenses greater than annual assessments. Which form would be required for this association to file with the IRS? Form-990, Form-1120H, something else?

I know I put a lot in here, and many comments can be made. I tried to make it as generic as possible so others can benefit. Feel free to edit as you see fit. Thank you.

- Ron

Although most community associations are not-for-profit organizations, they are not tax exempt. Only a very few associations -- usually those with no facilities, amenities or public areas -- qualify for tax exempt status. I urge you to consult with a CPA knowledgeable in homeowner association tax code to ensure that your community does not run afoul of the IRS.

If you are missing key financial information, your board may find it necessary to reconstruct financial records through copies of bank statements and supporting documentation.

Sincerely,

Margey

Can you please clarify why condo owners do not have to pay property tax on their patios? Is this decided by the county or the bylaws? I understand that one does not own the property per se, but the patios are for their exclusive use. Thank you!

- Jennifer

The tax responsibility for the patio area in a condominium is determined by the initial plat and reaffirmed in the deed to each unit. If the patio is declared to be a limited common element, then all unit owners own that property in common although its use is restricted to the residents of the unit to which the patio is attached. If the patio is declared to be a part of the unit and included in the parcel of land deeded to the owner, then it is the tax responsibility of the owner of that unit.

Sincerely,

Margey

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(1) What is required of me to subscribe to the Association times' Newsletter - - regarding money charges or subscription fee(s).

Also If I or other neighbors subscribe -

(2) Will copies of our correspondence be (a) AVAILABLE or (b) sent to Board of Directors, Management or Staff, or lawyer of our Condo community which - is member of CAI or others living in our community.

Your service to the Condo community including owners, residents, Board is helpful. Thank you.

- Anonymous

Subscription to our newsletter is free; just click on "Subscribe". If you do not want your Ask the Expert queries published, please mention that when you submit your question.

Sincerely,

Margey

We live in Texas. The CC&Rs of our HOA are written so that the developer maintains a majority vote until the last lot (100 lots) are sold. The developer achieved this structure by creating two separate classes of members: Class A (the homeowners, having 1 vote each) and Class B (the sole Declarant/Developer, having 100 votes for each lot he owns). Hence, if he is unable or unwilling to sell one lot, the developer continues to maintain the majority vote indefinitely. Is this allowed by Federal and/or Texas State Law? Thanks in advance for your comments.

- A.

There are no federal laws or state statutes that limit the length of time a developer may retain control of a Texas homeowners association. You might consider discussing the issue with your neighbors to see if there is consensus regarding wrestling control of the association away from the developer. If there is, talk with a competent attorney knowledgeable in Texas community association law to determine the appropriate course of action.

Sincerely,

Margey

We residents at our community have a snake problem around our buildings and now inside. Some residents are finding snakes in their units. None of us are familiar with the various kinds of snakes. We have reported this to our onsite manager and Board members, but are told there is nothing they can do. They like having the snakes around the buiding because they eat the rodents. We have small children living on the premises, elderly and handicapped, but having found a snake in my own unit, I don't like it. What can we do through our Fairfax County or Commonwealth of VA to take some kind of action for this board and management to do something for us 525 residents???

- Marge

According to Mr. Jim Nitschke, PCAM, Division Director, Condominium Division, Community Management Corporation, an Associa member company based in Fairfax, Virginia, "if the board is not responsive and the resident wants to find out if the snakes are considered a hazard, she should contact the Fairfax County Police Department/Animal Control Violations at 703-691-2131, or the State Game Warden at (540) 899-4169. One or both of these two agencies should put her on the right path. If the snakes are deemed a health issue, she can contact the Fairfax County Health Department at 703-246-2411."

Sincerely,

Margey

Questionnaire

I was told that I could get a homeowners association questionnaire filled out on line, and a copy of the master insurance policy. I do not know how to find on this website. Can you help?

- Mary

I believe you've confused the Association Times' website with your own community's or management company's site. Please call a board member or your manager in order to locate the material you're looking for.

Sincerely,

Margey

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I've emailed you once before - I've only been on this nightmare board a few months and I'm not sure what to think about this situation - when I heard it, a red flag went up.

Near the end of our board meeting last week, the property manager told us that the management company had negotiated with our insurance company and got a "special deal" because they have all of their communities covered with this one agency. Our premium would only go up $1000 this year, but to get this "special deal", we would have to pay the entire yearly premium (which is about $90,000) up front on November 1st. Since the management company knew we wouldn't be able to do that, they have offered to finance this at approximately 8% interest. The proposal was on the management company's letterhead; we received nothing from the insurance carrier. My immediate reaction is that this is a huge conflict of interest and unethical, if not illegal. I didn't feel that the management company should be negotiating with the insurance agency and come up with a proposal that they knew we couldn't afford and would have to finance. I also feel that the management company should not be making money off of the communities they manage nor negotiating deals to make sure that happens. When I raised my objections, the rest of the board looked at me like I had two heads. Maybe I'm just a more suspicious person, but I can't find anything good in this "special deal". Who's crazy? If I'm not crazy, what should be my next step? Thanks.

- Judy

Typically, the ability to combine resources results in favorable bulk purchasing opportunities. With particular reference to a community association management company's master insurance program, the economies of scale could result in a10% to more than 50% reduction in premium with similar or improved coverage.

That said, it's still prudent to ensure that coverages and prices are competitive. If there is any doubt regarding the benefits of the master insurance program, the board should fulfill its fiduciary obligation by obtaining other insurance proposals. That may not be necessary after the first year, after due diligence has been implemented, but it is advisable for the board to ensure that it is acting in the best interests of the association and feels comfortable with the proposed insurance program. Perhaps hiring an insurance consultant would be the most appropriate means of evaluating the bids.

With regard to paying the premium, it is not unusual for insurance companies to require payment in full at the beginning of the policy period in order to benefit from the reduced premium. Management companies may have the ability to offer financing to their associations, or the associations may prefer to obtain a bank loan. However, make sure that the finance charges do not exceed the premium savings.

It sounds like the management company is simply offering your community an option. Your Board should now decide if it is the best option available.

Sincerely,

Margey

I am a condo owner in New York State. I recently heard of a Supreme Court decision that prohibits condominium boards to levy fines of any kind and to make covenants about maintenance and color codes invalid. Is there any truth in this?

- D.

You can find the answer to your questions regarding recent New York Supreme Court rulings by clicking on the New York CAI Chapters link on our State Resources page, then contacting one of the chapter's Executive Directors for more information. Or, try entering "New York Supreme Court homeowners association" in the keyword field of any search engine - my search on Google resulted in 1,934 links.

Sincerely,

Margey

We live in a single family residence HOA community, with homes valued at 3/4 million $ plus. We are now facing a new home owner opening a Board and Care facility. They have all ready converted a 4 bedroom home to an 8 bedroom without any permits from the city (which is a whole different issue). We have an investigation going on, but have been told that some CA law will supersede our CCR's. Can this be true? Why even have CCR's? Have you heard of any other HOA going through this and what was the outcome? If you have some HOA we could speak with it would be appreciated.

- Bette

According to Ms. Eleanor Hugus, President and CEO of N. N. Jaeschke, Inc., an Associa member community association management company based in San Diego, several legislatures, including California's, have passed statutes regarding the existence of "group homes" which I believe is what you described in your question. However, a quick glance at SB 933, chaptered 8/19/98, reveals that group homes must obtain all necessary state and local permits and approvals in order to operate. If the group home does not comply with the state's stringent requirements, it may not be created.

To read California's laws regarding group homes and whether your state's legislators have superseded community associations' governing documents, go to our state resources page, then click on "California Statutes" and enter "group homes" in the keyword search field. If the home you describe does not qualify as a group home, then it's quite possible that it is indeed in violation of your association's governing documents. Ms. Hugus urges you to contact a competent attorney knowledgeable in California statutes to help your board understand and possibly challenge the home you described.

Sincerely,

Margey

Can the board pass a rule/by-law stating that no weapons are allowed at board meetings? We live in Arizona which state law allows checked people to carry openly. The meetings are on the American Legions private property and they have no problem with it, but some of the homeowners are upset that several individuals carry. Again, it is legal in this state and the meetings are not in a government/public building. Are we at legal risk if this rule prevents several homeowners from attending the meetings? Are we violating their civil rights? We are consulting our attorney, but had to still ask as you are impartial. Thanks.

- Eric

Your attorney should be absolutely impartial in rendering an opinion regarding the right to ban weapons at board meetings. His or her expert opinion should reflect local, state and federal laws regarding this issue.

On a personal, nonlegal note, it is not unreasonable to try to do whatever possible to ensure the safety of board members and homeowners who attend community association-related events. There have been several unfortunate occurrences in Arizona and other states in which a disgruntled homeowner attacked a board member, sometimes with fatal results.

Sincerely,

Margey

We have a very small, 18 yr old association (12 units). Because we are small, we have not afforded legal assistance. We are having to do a special assessment to fund an unplanned replacement of all the siding on our buildings. Our By-laws state that when an assessment has been voted upon and agreed, that it is to be understood that it is a legal binding and could result in lien and/or foreclosure upon their unit IF they do not pay the assessment. Is the adequate to assure the association is protected? Or, is there a blanket type of promissory note or legal document that we should have each unit owner sign acknowledging the commitment to pay said assessment?

- DK

Typically, the lien established by a community association's governing documents is legally enforceable, although some states require that the actual lien paperwork be filed of record in order to validate the debt obligation. In many states, only an attorney or other legal entity may record documents that impact property title.

Collecting a debt invokes both federal and state laws. I urge you to consult with an attorney to ensure that you are pursuing the appropriate methods to collect delinquent amounts from your association's members. Although the attorney may charge a consultation fee for your initial visit, it may be well worth the money in order to avoid future potential costly litigation.

Sincerely,

Margey

A couple of years ago, my homeowners association corporation was dissolved by the state for failure to file an annual report. My question is: can a handful of owners recreate the "association" by refiling the articles of incorporation without a vote of the homeowners and if not, does that make the CCRs unenforceable? Thank you for your time.

- JW

Depending on the circumstances surrounding the dissolution of your homeowners association, it may be possible to reinstate its corporate status simply by filing all past due annual reports. I urge you to consult with a Certified Public Accountant or tax attorney knowledgeable in your state's corporate tax law and statutes regarding community associations to ensure compliance with all re-incorporation requirements.

Sincerely,

Margey

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I live in a condominum community of 170 units. After Hurricane Katrina the management says the homeowner is responsible for replacement of the fences which surround the units on limited common property. My fence went down and a tree that was just outside the fence(on common property) fell on the fence. This fence divides two buildings, so the fence is shared by my neighbor. Shouldn't the homeowners association be responsible for repair and replacement of the fences? In most instances these window box style fences are intact except for the large posts that broke and split, many were rotten at the ground level anyway, which is another reason why I believe the condo association should replace them. Thank you.

- L.

My heart goes out to you and all the other survivors of Hurricane Katrina. Unfortunately, I'm unable to provide you with an absolute response to your question regarding fence maintenance responsibility because the answer lies in your association's governing documents. There should be provisions that detail the obligations of both the association and the owners with regard to the fences that separate each building. If the documents are silent, your state statutes may contain verbiage addressing this component. Still no help? Your association's Bylaws or Declaration may authorize the board to pass a policy resolution clarifying the ambiguity by declaring that either the association or the homeowners are responsible for maintaining and replacing the fence.

Sincerely,

Margey

Can you give some general guidelines for use of common areas. A unit owner has been setting up a volleyball net in the common area for games on the weekends. Other unit owners have expressed concerns about the grass being trampled. In addition, a unit owner has set up items for sale in the common area on two different occasions. Comments please!

- Jennifer

Typically, condominium Declarations very specifically prohibit individuals from usurping common elements for their own use. Common elements are jointly owned by all the owners; only the owners voting in compliance with the governing documents can modify the use of those areas. In fact, some Declarations require all mortgage lenders to participate in any vote that impacts use of the common elements.

If there appears to be widespread homeowner interest in establishing recreational areas within your community, perhaps your board could consider crafting a plan to designate certain common areas for everyone's use and enjoyment, then submitting the plan to the owners and lenders, if required, for approval.

Sincerely,

Margey

I own a home in a very small 50 home community. Our rules & restrictions say that we can only have wood split-rail fences with wire attached to them (even with a pool). We had one pool with this type of fence for the first year I was in the community. Last month a couple put in a pool but they wanted a black iron fence. The couple's next door neighbor who is the president of our HOA contacted our lawyer who said due to liability/security issues, the community should allow a safer fence. This couple went and put up the black fence without the community voting on what should BE the fence style. Another couple put in a pool last week and they were also granted the approval for a similar black fence. I am putting in a pool next week and I want a WHITE solid vinyl fence. Since our rules do not say anything about privacy or non-private fences & the board allowed a different fence then the approved, can they tell me I can't have a white solid? They are saying to "Steer away from white solid" but the community NEVER said what fences we could have. Please Help.

- Drew

Your board is acting responsibility by heeding legal counsel's advice to permit more secure fences around swimming pools. Your association's governing documents, in particular the Declaration/CC&Rs/Covenants/Restrictions (the name varies in different regions of the country), probably contain a provision that authorizes the board of directors to establish rules and to revise them from time to time as conditions change. Consequently, your board probably does have the authority to establish new architectural guidelines for pool fences, such as requiring that the fences be constructed of wrought iron and painted black.

Sincerely,

Margey

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