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Subject: Why change CC&R's when the Bylaws are easier?

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BillM6
(South Carolina)

Posts:10

07/21/2008 7:42 PM
I hope this is not common, but common enough that you all might share some ideas with me. Our HOA board from 5 years ago, decided to pass a change via the Bylaws, rather than ammending the CC&Rs becasue the Bylaws are easier to change. To change our Bylaws, we need a majority of the quorum present at an annual meeting, which could be as few as 15 Owners. To change our CC&Rs, we need a 2/3 vote of all members, or 185 Owners. Obviously the Bylaws are easier to change, so this is what they did. This former Board allowed a change to add a section to the Bylaws that says that the Board can only levy a fine of $25/month, and no more. The CC&Rs also address fines, but only say that the Board can assess fines for violations; the CC&Rs do not specify any amounts. Before the change to the Bylaws, the Bylaws made no mention of assessing fines for violations. This all happened after a Board recall, and most members at the meeting just wanted to keep the board's power to a minimum from that point forward. My question is: how do we best go about fixing this? Our Board wants the flexability to fix higher fines for the 2nd, and 3rd violations, but we have this Bylaw statement to consider that limits our power, or so it appears. We could ask the Owners to change the Bylaws, but that is not a popular topic and we have not had enough buy-in to get that done. Our HOA is in terrible shape; we have Owners who actually prepay their $25 fine each month just so they can do what they want. I wanted to ask this forum if since our Bylaws say that when there is a discrepency between the CC&Rs and the Bylaws, that the CC&Rs survive, can the Board resolve to remove the reference to levying fines in the Bylaws, since that item belongs in the CC&Rs and was added to the Bylaws improperly? Or, perhaps you have some other ideas. Thanks, Bill

SusanW1
(Michigan)

Posts:2183

07/22/2008 6:02 AM
Your CCRs gave the Board the power to assess fines - so why was it put into the Bylaws? The Board just gave its power away!! A Rules and Regulations, or Delinquent Payment Policy could have been written and passed by the BOARD. This is an internal document and the Board should have power over it. Work to recind (delete) any mention of a particular fee stated in the Bylaws. Keep this a Board document.

BradP
(Kansas)

Posts:1742

07/22/2008 6:28 AM
Bill: If I am reading this right (if I am wrong I am sure someone will correct me), your CC&R's give you the ability to fine but don't specify amounts, etc...Basically what you have done with the bylaws is identify an amount or make a fine schedule for lack of better terminology. I don't see that a conflict exists between your bylaws and CC&R's... My opinion is that you need to go back and amend your bylaws and change your fine schedule, I would argue that $25/month is not sufficient to deter bad behavior. Perhaps with that argument and documentation of bad things going on the owners might see the point and agree to raise the max fine. I can understand putting a limit on the boards power to fine, but you can not limit them too much. It would be like having a $1 fine for speeding with unlimited violations, it would be mass chaos on the roads, you just need to find the happy medium.

BillM6
(South Carolina)

Posts:10

07/22/2008 6:28 AM
Yes, that is exactly what they did, and I believe it was intentional. After a recall, some smart people ammended the Bylaws becasue it was easier. We had a FUNCTIONING Board, but those who think HOA's have too much power and are unhappy with the process, organized and forced them out. They were far more organized than those on the Board and those who supported the Board. Loud and angry people are difficult to deal with and they prevailed in this case. As a result, and after years of mismanagement since, things have finally caught-up with the Board. We have a bunch of new officers trying to bring the order back, and it is difficult with such a limitation. Do you think the only way to rescind the statement in the Bylaws is by a vote of the membership to amend the Bylaws back? or can we use the statement that allows the CC&R's to supersede the Bylaws to either: ignore the statement in the Bylaws, or allow the Board to pass a resolution or some other action to nullify the change to the Bylaws. Is there any standard as to what kind of power belongs in which document?

BillM6
(South Carolina)

Posts:10

07/22/2008 6:37 AM
Brad, you are correct in your summary. They do not directly conflict. One gives the Board the power to fine and the other sets the limit. Boy, these documents are tricky to manage. It seems unfortunate that one is easier to change than the other, and it lets you can put whatever you want, wherever, just to accomplish something. The neighborhood may eventually get tired of the messy yards and organize to ammend the bylaws, but we have such a difficult time getting those people involved. We were looking for an alternative to deal with the situation, but perhaps there is none.

BradP
(Kansas)

Posts:1742

07/22/2008 6:49 AM
Bill: IMO it is your boards job to try to organize and change. They can document the condition of yards and call a meeting to try to raise the minimun fine and present a solid case based on evidence. That is their job to do. An alternative is to look to your local municipality for help, some have stricter laws on yard appearance and upkeep and could help you. The documents are tricky, good luck!

BillM6
(South Carolina)

Posts:10

07/22/2008 6:57 AM
Your point is well taken Brad, thank you for shifting my focus back to the Board.

MaryA1
(Arizona)

Posts:2259

07/22/2008 12:18 PM
Bill, The bylaws generally only address how directors are elected; meetings of the members and the directors; what officers are required, how they're elected and their duties. The topic of fines belongs in the CCRs where the restrictions are outlined. You stated your CCRs give the board the power to assess fines, so all they had to do was adopt a fine policy and set the rate of fines. They did not need to amend any gov. docs. to do this. I would suggest they resind the bylaws provision regarding fines. No provision of the bylaws can conflict with the articles of inc. or the CCRs. In fact, that should be stated in your bylaws. Your board members should be made to understand that easier is not always better.

SusanW1
(Michigan)

Posts:2183

07/22/2008 2:24 PM
Again, the amount of the fine should NOT be in the bylaws. The CCRs give the Board the power to assess, and they should set the amount. It may change in the coming years, or not. But the general membership does not determine or set fines. Now you ARE stuck with it and must abide by whatever it says. At the first chance, recind thar particular bylaw. But expect a fight from the members. They won't like the idea that the Board will not set the amount.

DonN
(Michigan)

Posts:240

07/22/2008 7:12 PM
This is another example of poorly drafted governing documents. The CC&Rs grant the association the authority to fine but don't state any amounts. Courts often require a standard for a provision to the enforceable. On the other hand, owners are certainly notified that the amount of fines is not defined by the recorded CC&Rs. In searching for a standard, a court might search for what is reasonable. There must be some proportionality to the violation. Consequently, the board can only be certain of prevailing in litigation if the amount of the fine is on the low side of what is reasonable and proportional to the violation. If your association implements fines, I strongly recommend first establishing a fine schedule as related to violations and failure to correct same that would meet the test of reasonable and proportionality. Check the case law in your state for guidance. In my view, the definition cannot be fixed in the bylaws because the bylaws should deal with governance and are likely authorized by your state's nonprofit corporation act or POA act or equivalent — not part of property law. Further, the CC&Rs run with the land, and are part of property law. The bylaws usually don't run with the land, though there seems to be some variation from state to state. The protections provided for the owners in the CC&Rs run with the land and can only be amended as specified in the CC&Rs. There may also be a common law requirement in your state of amendment only by a majority or higher percentage of all owners, as there is in Michigan. The protections for owners cannot be eroded by amending a document that doesn't run with the land. Your best bet for the long term is to do it right. Amend the CC&Rs to include a schedule of fines. A lot of care is needed in crafting the amendment. Fines are often part of abuse by run-away boards. Getting the approval of 2/3 of the members may be difficult, but is clearly part of checks and balances which help to prevent abuses.

Don Nordeen Governance of Property Owners Associations

GlenL
(Ohio)

Posts:1377

07/22/2008 8:44 PM
Bill, one thing might help make a change of this issue more palatable to the membership is along with the fine schedule put in place a way for the H/O's to appeal the fine. This is required in Ohio, California and many other states. Also since the idea is to get compliance not make money; the fines for a first offence should start low and rise for multiple violations within a year. This will require meticulous recordkeeping on the HOA's part with as much documentation as possible to prove the HOA's position. Instead of waiting for the members to get tired of the mess get proactive make your case to the H/O's and get the BOD to go door to door if necessary to get the required signatures.

KirkW1
(Texas)

Posts:1145

07/23/2008 5:02 AM
First, I totally disagree with putting a fine schedule in the CC&Rs. That schedule is too likely to need adjusted from time to time. Now obviously you have a problem with the current schedule of fines. I would start by talking with as many people as possible about the issue. Openly discuss the fact that some people prepay their fines. I would assume the majority of people keep their property looking good and would like to see the problem properties reigned in. If this is not the case, then realize that the only reason to keep the HOA is as a common fund to mount a legal battle should something too obnoxious happen. (Remember that fines are not the only means of enforcement. You can file a suit, though that gets ugly and expensive fast.) As you drum up support, then put the issue on the table next meeting. And the BOD should have gone out getting votes on the issue. I would go so far as to have a proxy statement that allows for direction on the issue. Corporate proxies regularly have a few items that allow for a directed proxy and leave the rest up to the holder. Basically all it takes is a statement at the bottom: In the matter of BOD proposition 1 amending the bylaws... ...I direct my vote to be cast as: Then have checks for yes, no, abstain. And be sure to understand the effect of abstaining. If the wording is "a majority of the votes cast" then abstain has no effect. If the wording "a majority of votes present" then the abstention has the effect of a no. (It is not a no, but doesn't reduce the number of yes votes needed.)

SusanW1
(Michigan)

Posts:2183

07/23/2008 5:18 AM
IMHO - I don't think fines should be in the CCRs OR the Bylaws. The Board has been given the power to set these fines, and they should do it with a policy and procedure statement. It's a financial/bookkeeping issue connected with an invoice. It's not governance. It's a challenging balancing act to come up with a fee schedule that makes it more advantageous to pay your dues when they are due. We get 15% off if paid on or before the due date; two payment options with a small service charge. These are nice incentives. After going around and around with the IRS this year, I can say that interest or fine charges can spiral into an unmanageable amount and sometimes is more than the original bill. P.S. Welcome back, Don - haven't seen you post in a while.

DonnaS
(Tennessee)

Posts:2852

07/23/2008 6:33 AM
Our ability to fine is in the CC&Rs. The statement on procedure is in the ByLaws with the reference to Florida Statutes which grants us those rightsand sets the limits. The fining committee and exact procedure is in the Rules and Regs as per our attorney stateing that all members MUST have knowledge of how it works, fine schedules and concequences. Rules and Regs can be changed without any ado from the membership so when things need altering, the Board has the ability to just enact those changes.

RogerB
(Colorado)

Posts:3704

07/23/2008 7:30 AM
Usually there is no need to amend the Declaration. We use the following procedures: 1) the ability to fine must be in the Declaration of CC&Rs and not be denighed by state statute; 2) in the Bylaws under Powers and Duties of the Board the ability to fine is listed and under Notice and Hearing Procedures the process for a Hearing prior to issuing a fine is detailed; 3) in Rules and Regulations the fine schedule and entire fining process is detailed; 4) all owners are provided copies of all controlling document prior to instigating the process.

Roger Borcherding Official HOATalk.com Sponsor DARCO Property Management (Colorado) (303) 925-0150 *See legal notice below (end of page) or go to www.hoatalk.com/legal

BillM6
(South Carolina)

Posts:10

07/23/2008 7:33 AM
I appreciate all your added comments. This is turning into an interesting subject for our Board, and it looks like it will take us some time to incorporate all your suggestions and come up with a good working plan to get back on track. Don, your explaination of the CC&R's vs. the Bylaws, and how they are bound was very insightful Thank you for the explaination.

MaryA1
(Arizona)

Posts:2259

07/23/2008 7:35 AM
Roger, Exactly! WHich is why I and someone else (Susan, I believe) suggested rescinding the bylaws amendment outlining the amount of a fine and adopting a fine policy under the authority the board has to adopt other rules.

BillM6
(South Carolina)

Posts:10

07/23/2008 7:38 AM
This is a great outline; it looks like a good standard for us to work towards. Thanks for the response.

KirkW1
(Texas)

Posts:1145

07/24/2008 1:30 PM
One thing we should all keep in mind is this poor guy has an HOA which is stuck with a fine cap in its bylaws. And the board is bound by said bylaws regardless of our opinions on the appropriateness of said caps in the bylaws. The measure was a (poor) response to a board gone wild. Now the pendulum needs to be swung back to where the board can effectively deal with problems in the neighborhood. The alternative is to get the lawyers involved over minor issues which is not in the best interest of the neighborhood. The way out would appear to me to appeal to the people in the neighborhood and have a proxy drive to change the bylaws. Explain to people why $25 cap per month just doesn't work. I suspect that most people want the neighborhood to look nice. Get enough and you win the day. Probably the best thing is to first shoot for a middle ground that protects the people from the board, and yet gives the board the power to get problems taken care of.

TonyM3
(Arizona)

Posts:131

07/24/2008 1:47 PM
Posted By BillM6 on 07/21/2008 7:42 PM Our HOA is in terrible shape; we have Owners who actually prepay their $25 fine each month just so they can do what they want. Three hundred dollars a year is nothing to sneeze at. What kind of violations are we talking about? If it's parking maybe you can tow. If it's landscaping maybe you can have it done and charge 'em...etc, etc. There must be a creative work around.

MaryA1
(Arizona)

Posts:2259

07/24/2008 3:11 PM
Bill, Tony says $300 a year is nothing to sneeze at; however it appears some of your members think it's peanuts! If they're willing to pay this fine each month just be continue to violate the rule, I'm thinking the $25/mo fine is way too low. Another reason not to put the amount of a fine in your gov. docs! BTW, what exactly is this fine for? What restriction are these people violating that they are willing to pay a $25/mo fine for? If it's for something like parking a boat on the driveway, well it IS alot cheaper than paying to store that boat offsite.

MicheleD
(Kentucky)

Posts:1722

07/24/2008 4:06 PM
Mary, To bring this discussion back full circle, your observation (that the $25/mo fine is way to low) is exactly what Bill is frustrated about. The previous board changed the by-laws to set the fine at $25 "and no more" -- implying, I think, that they knew this would hamstring the incoming board and frustrate their enforcement and compliance. In fact, this is his exact issue: "My question is: how do we best go about fixing this? Our Board wants the flexability to fix higher fines for the 2nd, and 3rd violations, but we have this Bylaw statement to consider that limits our power, or so it appears. We could ask the Owners to change the Bylaws, but that is not a popular topic and we have not had enough buy-in to get that done. Our HOA is in terrible shape; we have Owners who actually prepay their $25 fine each month just so they can do what they want." Everybody is telling him what he already knows, that the $25 flat amount is too low, that the by-laws need to be changed, that the amount should never have been set in the bylaws, etc etc. His issues are that the residents may not have the stomach for such a change (basically, he feels, I THINK, that the board would be asking them something akin to "taxing themselves") and possibly that the board may not have the stomach for working up a reasonable fine schedule to deal with it. I do think Kirk is giving him some wonderful advice and I'd be very interested to see how his board responds to the recommendations.

TonyM3
(Arizona)

Posts:131

07/24/2008 6:14 PM
Here's a new sample violation policy: 1) Violation letter with 15 days to comply or request a hearing. 2) After 15 days expire from date of violation a $10 fine will be assessed if still not in compliance. 3) After 30 days expire from date of violation a $15 fine will be assessed if still not in compliance. Add a late fee of $50 for non-payment plus interest. 4) After 45 days expire from date of violation a $15 fine will be assessed if still not in compliance. Add a late fee of $100 for non-payment plus interest. 5) After 60 days expire from date of violation a $10 fine will be assessed if still not in compliance. Add a late fee of $150 for non-payment plus interest. 6) After 75 days expire from date of violation a $15 fine will be assessed if still not in compliance. Add a late fee of $200 for non-payment plus interest. 7) After 90 days expire from date of violation a $10 fine will be assessed if still not in compliance. Add a late fee of $300 for non-payment plus interest. After 90 days, fines, fees and interest have been compiled in excess of $875. That's about $10 per day and escalating. Of course all fines, fees and penalties are waived if a hearing shows that no violation has occurred. That's probably enough to get the guy to move his boat. Of course any subsequent infraction of the same violation will pick the time line up where the previous one left off.

BillM6
(South Carolina)

Posts:10

07/25/2008 6:30 AM
The "prepayers" are a few people; really a minority overall, but they are there and a problem. One, for example is for parking; they have a large family and 3 more cars than can fit in the driveway; they will park in the grass and on the street. Another is also for parking, but he has an RV; he can either pay a storage place or he can pay us...we must be cheaper. A few others are for above-ground pools during the summer months; our CC&Rs do not allow for them, but they put them up anyway and pay the fines for a couple months. It must be cheaper than joining a community center for a pool membership, and we have seen the number of these cases increasing a little each year. I think we have 6 or 7 pools that we can see from the street; our Architectural Review guys don't peek over fences...so there are more I'm sure that we aren't addressing even. For the pools, as an example; the Board and Architectural review board are not opposed to changing the CC&Rs, I think we can do pretty easily with some guidelines. Our other issues, that put us in the 'terrible shape' that I mentioned, are people who have more dirt and weeds than they do lawn. Or those who have poorly constructed fences, or chain link that are also against our CC&Rs. In some many cases, the Board and Architecture Review Board, from years ago (and in one case the Developer), gave some homes exceptions to put up chain link fences, despite the phrase "No chain link fences" in the CC&Rs. It is tough to enforce a rule when the previous board(s) granted exceptions... Overall, I think we can deal with the landscaping, and we just may have to put up with the 'approved' chain link fences that are installed I suppose. The Board does not want to seed someone's yard, or lay sod... The Owner probably won't take care of that either; it could financially ruin them if we charged them for that, and legal fees to collect. But at the same time it is hard to explain to a guy trying to sell his house, which his neighbors just don't care and all we can do is fine them $25. Previous Board members have been afraid to address the fine issues, and also to enter a property to remove a violation; like an aboveground pool, or to replace a lawn. We probably have 8 or so homes that need a new front lawn; they are beyond simple watering and fertilizing. To complicate things a little further, our community is not a fancy place. We have modestly priced homes; we are almost a starter home community, so we attract the types of people who are not financially capable of putting in an inground pool with an expensive privacy fence. Have you all had to enter a property to remove something...like a fence or a pool? Can you really file a lawsuit for a violation of the CC&R's, even if there is no financial balance because the Owner pays his fines promptly? Our thoughts were that there had to be money owed before we could file a lien and start the process to foreclose? But if we can file a lien for a violation, or start some legal process for a violation, that could help produce some results and we could work with the cap on our current fines until it is changed.

MicheleD
(Kentucky)

Posts:1722

07/25/2008 6:50 AM
Yes, if your governing documents allow it, you REALLY can file a lawsuit to enforce the CC&Rs. What you are filing for is to get an injunction against the person violating his "agreement" with the deed restrictions, or a restraining order that restrains the activity. In which case if they violate again, after the injunction or restraining order, then they are violating not only the CC&Rs but a COURT ORDER. At which time you can move to have them found in contempt of court, for which they will pay COURT FINES and, if extreme, a few days in lock up. In terms of restraining order, if you get a restraining order against them for the parking, for example, then you can take that restraining order and, with the full support of the court, have them towed. At which time they will have to pay the city/county, towing company for the fees. Look at your documents and determine if you have something with this sort of language: "Section 1. Enforcement. Enforcement of these restrictions shall be proceeding of law or in equity, brought by an owner or by Developer against any party violating or attempting to violate any covenant or restriction, either to restrain violation, to direct restoration and/or to recover damages, failure of any owner or Developer to demand or insist upon observance of any of these restrictions, or to proceed for restraint of violations, shall not be deemed a waiver of the violation, or the right to seek enforcement of these restrictions." You do not have to stick to an either/or scenario -- either fine OR proceed with a lawsuit. You can do BOTH if the violator is persistent. Keep in mind, you won't be needing to go after every single violator. Pick the most long-standing violator, document the letters to compel compliance and the instances of violation, then contact your attorney. In our case, very often, simply getting a letter from an attorney that we will be proceeding with a lawsuit to compel compliance to protect the integrity of our documents is all that's needed. In over 12 years, we've had 4 hard-core cases that have actually resulted in filing a lawsuit. Only ONE actually "went to trial," and that person lost (dog noise and illegal fence). AND in each case, the violators we required to pay the attorney's fees. Now the community knows that the board WILL move as necessary to enforce the documents. So, for the most part, lack of compliance is not as widespread. Good luck to you! (PS: Oh, yes, if everyone is violating the above-ground pool issue, then maybe it is time to see if the residents prefer to actually change that restriction or not.)

DwightT
(Idaho)

Posts:460

07/25/2008 6:55 AM
Bill - is fining your only option? In our HOA, we don't have the ability to fine at all, so our procedure for violations is: * when the violation is first noticed, a "Courtesy" letter is sent to the homeowner requesting that they correct the problem. * after 15 days if the problem still exists, a certified "Demand" letter is sent requiring that the problem be corrected. The management company charges us $20 for this letter and this fee is passed on to the homeowner. * if another 15 days pass and the problem still exists, the issue is turned over to the attorney who will send his own Demand letter. This one has a $200 attorney fee. * if the problem still does not get corrected, the attorney will file suit to get a judgment requiring compliance. This can really gets expensive. Note that while there are costs associated with this, none of them are "fines". They are just "Limited Assessments" against a particular homeowner and his property equal to the cost incurred by the Association for corrective action. The HOA initially pays the costs for the letters and the attorney, and we are just recovering our expenses.

BillM6
(South Carolina)

Posts:10

07/25/2008 9:03 AM
MichelleD, thank you for the education! That helps me understand our options. We do have a clause similar in our CCRs, so I think we would be good with that approach. Dwight, that is interresting that you ahve no fines... Our HOA is not so much interested in fines as income, more than a means of forcing compliance. It is a different approach that you have and it sounds just as efficient, if not more so. Do you budget money for filing fees, since they are eventually collected from the Owner? I'm wondering how you account for that expense, if you do in your annual budget and dues.

KirkW1
(Texas)

Posts:1145

07/25/2008 12:11 PM
In my area $25 dollars a month might be enough to store a popup type trailer. But certainly not something much bigger. And once you factor in convenience it becomes a heck of a deal. As for a pool, I would certainly pay $25 a month to put one up for the summer. I would rather not have to pay, but certainly would. You indicated that the vast majority of people are not the problem. And you should appeal to that very fact. You can bet that some don't appreciate the people who flaunt the rules. But you really should look further in your rules. Ours allow the association to enter property and "cure" the violation at owner expense if they fail to. I doubt the rules about the fines stop the ability to other cures. Perhaps the real solution is to look there. And from what you describe getting a lawyer to ensure that you can is a good deal. If you were to have one offending car towed off at owner expense it would be a wake up call. After you do that inform all others that they are next. Tell the RV owner that you will effect a cure should he not move his RV. And then do so. As for the pool owners, darin the pools and remove them.

BillM6
(South Carolina)

Posts:10

07/25/2008 12:24 PM
I mentioned that this limit on ifnes came years ago after a Board recall. The Board was recalled because they were cracking down on violations. We expect a similar response could be likely once the new Board begins to do the same. The former Board did threaten to enter property and they were fining when necessary. The problem comes full circle to the fact that most people don't want to participate in an HOA's daily operation. They don't come to the annual meetings, they won't volunteer for committees, and they absolutly hate being told that they can't do something. Even a lot of the people who take pride in their property and want their home values to stay high, are not always willing to go toe-to-toe with the people who are yelling and screaming. It is amazing how loud and effective a few people can be, and how nasty the conversation becomes. I think the Board's problem years ago was they they moved too aggressivly on every violation, all at once. I like the idea of starting with the worst offenders, to wake everyone up. Not to say that we will selectivly enforce the rules, but our resources are limited and we just need to pick a place to start. Thanks to all of you who commented.

MicheleD
(Kentucky)

Posts:1722

07/25/2008 12:37 PM
Yes, you certainly can send compliance letters to all the offenders (which you have probably already done). This would more or less "cover" you that you are not selectively enforcing, as you will have begun a compliance process with all of the violators. It goes without saying that there is some sort of continuum, and that the worst offender gets the short straw, so to speak, and therefore becomes the first to receive the escalation of enforcement. If you KNOW that some members get all activist and try to remove legitimate boards when enforcement gets going, then beat them to the punch. DO your own "activism" and get more proxies to prevent them from dislodging you. And continue with the process to bring your community back into shape.

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Forums > Homeowner Association > HOA Discussions > Why change CC&R's when the Bylaws are easier?