Declarant put control restriction in ByLaws

GregL1 (Virginia)
Posts: 11

Posted:

I searched the site, but was unable to locate an answer. If anyone has any input, I would be grateful. I am on a BOD for our condominium complex, located in VA. Most of the buildings here were former apartments that have been converted to condominiums, except one building that is brand new. The problem is that the Declarant has turned over control to the HOA as required once the 75% sold had been reached. Now, we have become aware that the Declarant had placed into the ByLaws a stipulation that says none of the ByLaws may be altered by the BOD without his approval, even after the period of Declarant Control ends. It was my understanding that this type of a restriction would not be legal. Can anyone provide, or direct me to where I might locate, information on whether this is legal? Thank you.

MicheleD (Kentucky)
Posts: 4,491

Posted:

Could you provide the wording exactly, please?

Also, look for a section that might say something like this, JUST in case:

Section 5. Amendments to Articles and Bylaws. Nothing in this Declaration shall limit the right of the Residents Association to amend, from time to time, its Articles of Incorporation and Bylaws.

and this one:

(c) References to "Developer" or "Declarant" shall include any entity, person or association to whom Developer may assign the foregoing right of approval. References to structure in this paragraph shall include any building (including a garage), fence, wall antennae (except for standard small television antennae) and microwave and other receivers and transmitters (including those currently called satellite dishes).

GregL1 (Virginia)
Posts: 11

Posted:

The wording is as follows for each section of the different regulations. You will notice how it seems to contradict each other.

"ARTICLE FOUR BOARD OF DIRECTORS

4.6 Powers. (I will only enter the pertinent information) Notwithstanding anything herein to the contrary, the directors shall not have the right or authority to do any act or take any action wherein the same would limit, modify or abridge the rights, privileges and immunities of the Declarant as set forth in the Declaration and these ByLaws."

Yet under ARTICLE EIGHT AMENDMENTS, the Declarant has only placed that restriction under amendments by Members.

"ARTICLE EIGHT AMENDMENTS

8.1 By Directors. Except as limited by law, the Articles (if any), the Declaration or these ByLaws, the Board of Directors shall have power to make, amend, repeal the ByLaws of the Association at any regular meeting ofthe Board of Directors or at any special meeting called for that purpose at which a quorum is represented. If, however, the Members shall make, amend or repeal any ByLaw, the Board of Directors shall not thereafter amend the same in such manner as to defeat or impair the object of the Members in taking such action.

8.2 By Members. The Members may make, alter, amend or repeal the ByLaws of the Association at any annual meeting or at any special meeting called for that purpose at which a quorum shall be represented, by Members entitled to cast at least 67% of the votes of the Association, unless a greater percentage is expressly required by law, te Articles (if any, theDeclaration or these ByLaws. FOR SO LONG AS DECLARANT IS A MEMBER OF THE ASSOCIATION, NO AMENDMENT TO THESE BYLAWS SHALL BE MADE WITHOUT THE APPROVAL OF DECLARANT."

The main purpose of my question is because we have several home owners that are under FHA financing. FHA requires that there be a "cap" on the number of units for "rentals" otherwise they will pull their funding of these homeowners. A notice was sent to the Declarant that the cap has been reached, and therefore his remaining units can only be sold, not rented. Declarant states that because of one of the provisions in the Declaration, that he is imune to this regulation and he plans on renting the unit(s). The ARTICLE he is references states:

"ARTICLE EIGHT USE AND OCCUPANCY

8.3 LEASING AND INVESTMENT OWNERSHIP

Section C. None of the provisions of this Section shall apply to any Unit owned, initially or re-aquired, by the Declarant or any corporation or entity that is a parent, subsidiary, or affiliate of the Declarant, and said entities may lease any such units as they deem fit."

The Board is trying to find a means to remove this power before any of our home owners that are under FHA wind up having their mortgages pulled as a result of more rentals than their terms permit.

Sorry so long, but as you can see, there are several applicable regulations and contradictions. Since we are a newly formed BOD (not one year old yet), we are trying to ensure things are run properly and smoothly for the best interest of all our homeowners, and not just the developer that held onto property to maintain a controling ability.

KirkW1 (Texas)
Posts: 1,665

Posted:

What you are experiencing is pretty much the norm as far as developers writing the rules to favor themselves. They often allow themselves to not be held to the same rules, and stipulate that they have the ability to block changes to those rules as long as they own property. Good luck with bucking that.

As for the FHA financing, once you have it you have it. They don't come back and take it away based on future actions (short of failure to pay what you are required to). What can happen is that future buyers may not be able to get FHA financing.

The interesting thing is that in all the talk about needing rental caps nobody here has ever posted a link to a definitive answer to what the maximum number of rentals is for continued FHA financing.

GregL1 (Virginia)
Posts: 11

Posted:

Yeah, I shouldn't be too surprised by the "not me I'm exempt" attitude of the developer.

As for the FHA loan bit, this was brought to our attention(meaning the BOD) by one of newest homeowners and the Association did have to provide a verification letter that there were less than 12 rental units for this person's loan. Whether or not the claim by them that FHA stated they would pull the loan is correct or not, I don't know, but our BOD Treasurer confirmed this claim when we questioned as to whether FHA could really do that. Not being familiar with FHA lending practices, we just assumed they knew since it was their loan information.

As for an official link, I have no idea, but our property management company received the request to verify less than 12 rental units from the FHA doc people directly. Whether that number applies everywhere I don't know. Our association is only 120 units total.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Not being a condo owner, or knowing little, I am confused about the "turning over" process and how bylaws from a previous owner become mandatory for the new owner/board.

Sounds like he would ALWAYS have control over your complex, even if he did sell all of his units. Please explain.

MicheleD (Kentucky)
Posts: 4,491

Posted:

Are your Deed Conditions, Covenants, and Restrictions a separate document from the By-laws?

The reason I'm asking is that, according to my interpretation of what I'm reading, the By-Laws are not necessarily contradictory, but the restriction to any AMENDMENTS first receiving approval from the declarant is clear that it applies ONLY to any BY-LAW amendments, and NOT CC&R amendments or revisions.

The by-laws and CC&Rs of an HOA are generally two different documents covering two distinctly different things.

The by-laws generally apply only to the structure of the HOA, the board and the nuts and bolts regarding how meetings are scheduled, board directors and officers nominated and/or appointed and so forth.

The CC&Rs would cover the rules and regulations of homeowner activities on the lots/units and the Use Restrictions and so forth.

Even so, for this particular issue, restricting his plan or intent to lease units, it appears that it wouldn't matter if the section stated this or not:

"FOR SO LONG AS DECLARANT IS A MEMBER OF THE ASSOCIATION, NO AMENDMENT TO THESE BYLAWS SHALL BE MADE WITHOUT THE APPROVAL OF DECLARANT."

That's because it also says this, "4.6 Powers. (I will only enter the pertinent information) Notwithstanding anything herein to the contrary, the directors shall not have the right or authority to do any act or take any action wherein the same would limit, modify or abridge the rights, privileges and immunities of the Declarant as set forth in the Declaration and these ByLaws."

Again, those are really not contradictory, but rather complementary to each other. If the BOARD cannot make or amend BYLAWS that modify or abridge the Developer's privileges or immunities, then it would stand to reason that he wouldn't approve an amendment to the By-laws that does that!

Like Susan, I know zero about condo associations. So if your by-laws and CC&Rs are the same thing, then that might be problem if you ever want to amend them. But then, typically a BOARD is not invested with the power alone to amend CC&Rs. That would be most likely given to a certain percentage approval of the entire membership, at which time, at least according to the above, the Declarant only has as much power as any other owner/member.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Greg,

I hope I can shed some light on some of the "perceived" contradictions in your bylaws.

1) In "ARTICLE FOUR BOARD OF DIRECTORS 4.6 Powers. "Notwithstanding anything herein to the contrary" is the key phrase. Any reference to the declarant's rights is "to the contrary" and overrides what the board can alone do, but this only applies while the declarant is in control.

2) In "ARTICLE EIGHT AMENDMENTS 8.2 By Members. FOR SO LONG AS DECLARANT IS A MEMBER OF THE ASSOCIATION, NO AMENDMENT TO THESE BYLAWS SHALL BE MADE WITHOUT THE APPROVAL OF DECLARANT", is the key phrase. You said turnover has been accomplished, therefore the members and/or the board now have the authority to amend the bylaws w/o approval of the declarant. The declarant is now gone and has no authority to run the assn!

3) Because the declarant still retains ownership of a few units, "Article Eight Use & Occupancy 8.3 Leasing and Investment Ownership" still applies. Apparently he can rent his units so the FHA should not count those units in obtaining their quota for rentals. In reading over the FHA website they require 51% owner occupancy.

As you said, these sections "seem" to contradict each other; but, IMO, they do not. In reading your gov. docs., you must keep one thing in mind. The declarant generally builds things into the docs for his protection. Those portions of the docs that apply specifically to the declarant are only for the time he is in control, (which in fact is specifically stated in your docs)unless otherwise stated. Taking that into consideration removes any perception of contradiction.

I hope I've helped to make things a little clearer for you. These gov. docs can be a bit confusing. But when everything is put into perspective, it's becomes much clearer. :-)

Since you state your assn is a conversion complex, I would suggest thoroughly researching VA state statutes to see if there are any applicable laws. I know AZ has laws pertaining to conversions. Also, I understand VA does have some laws pertaining to HOAs, so I would also recommend familiarizing yourself with them. Sounds like your board is willing to learn all they can about HOAs, which I find commendable. It's amazing that so many boards do not have this desire! You may want to consider having a few workshop meetings for the specific purpose of discussing the gov. docs. and any applicable state laws so you all can orient yourselves to the laws, what they mean and what effect they will have on running the assn.

Good luck!

GeorgerwilliamsW (Indiana)
Posts: 975

Posted:

2) In "ARTICLE EIGHT AMENDMENTS 8.2 By Members. FOR SO LONG AS DECLARANT IS A MEMBER OF THE ASSOCIATION, NO AMENDMENT TO THESE BYLAWS SHALL BE MADE WITHOUT THE APPROVAL OF DECLARANT", is the key phrase. You said turnover has been accomplished, therefore the members and/or the board now have the authority to amend the bylaws w/o approval of the declarant. The declarant is now gone and has no authority to run the assn!

I think the statement above is a misinterpretation.

Regardless of "turnover" so long as the Declarant owns even one unit--and is therefore a member of the association--it has the right of approval. The Declarant is not gone. Just because the Declarant turns over management of the association to the homeowners, does not eliminate its right to cast votes on the remaining unsold units.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By KirkW1 on 08/26/2008 9:39 PM
The interesting thing is that in all the talk about needing rental caps nobody here has ever posted a link to a definitive answer to what the maximum number of rentals is for continued FHA financing.

Kirk,

In researching the web, here is an article I found which outlines the requirements to obtain condo FHA financing. Note FHA requires 51% owner occupancy. Here is the website: www.easyfha.com/fhacondoproject.htm

FHA Condo Requirements
HUD Section 234(c) of the National Housing Act provides authority to insure any mortgage covering a one-family unit in a project coupled with an undivided interest in the common areas and facilities which serve the project. The project may include dwelling units in detached, semidetached, row, garden-type, low- or high-rise structures. Generally these types of properties are referred to as Condominiums.

HUD will insure mortgagees against losses on mortgage loans used for buying a condo or to refinance individual units in eligible condominium projects provided that they meet certain guidelines.

A. Project Eligibility. The condominium project must be on HUD's approved condominium list.

B. Applicant Eligibility. Eighty percent of the HUD-insured mortgages in a condominium project must be the principal residence of the owners (owner-occupants).

C. Maximum Insurable Mortgage: Same as Section 203(b) (except that the mortgage amount must be in multiples of $50).

D. Minimum Investment: Same as Section 203(b).

E. Mortgage Term: Same as Section 203(b).

F. Mortgage Insurance Premium: Monthly -- No Upfront MI

G. Refinancing: Same as Section 203(b).

If the Condominium is not approved then the Lender may go through the "Spot Approval" process.

The following requirements must be satisfied before a spot loan is endorsed:

• The condominium project must be complete. There should be no ongoing or anticipated addition of any units, common elements, and/or facilities.

• Control of the common areas of the project must have been turned over to the unit owners association for at least one year.

• The owners association must provide evidence that the project has the appropriate hazard, liability and flood insurance.

• Individual units in the project must be owned in fee simple or be an eligible leasehold interest. The project's legal documents must provide for undivided ownership of common areas by unit owners. By virtue of this ownership, unit owners must have the right to use all facilities and unrestricted common elements.

• The project's documents should not place any legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is generally unacceptable. Such restrictions include rights of first refusal and restrictive covenants. Certain governmental or nonprofit programs designed to assist in the purchase or rental of low- or moderate-income housing are exempted from the restrictions on conveyance provisions.

• At least 90% of the units in the project must have been sold.

• At least 51% of the units in the project must be owner-occupied.

• No single entity may own more than 10% of the units in a project. "Entity" includes an individual partnership, corporation, limited liability company, limited liability partnership, joint venture, investor group or other natural or legal person qualified to hold an interest in real property. The 10% restriction does not apply when the ownership of less than three units would disqualify an otherwise eligible project.

• HUD recognized that the 10% cap on the number of units that may secure FHA insured mortgages in a given project can place a small regime at a disadvantage, since only a few units will invoke the limit. Accordingly, a two-tiered system was established. For condominium projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given time. Condominium projects consisting of 30 units or less, can have up to 20% of the units encumbered by FHA insured mortgages under the spot loan rule

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By GeorgerwilliamsW on 08/27/2008 6:53 AM

2) In "ARTICLE EIGHT AMENDMENTS 8.2 By Members. FOR SO LONG AS DECLARANT IS A MEMBER OF THE ASSOCIATION, NO AMENDMENT TO THESE BYLAWS SHALL BE MADE WITHOUT THE APPROVAL OF DECLARANT", is the key phrase. You said turnover has been accomplished, therefore the members and/or the board now have the authority to amend the bylaws w/o approval of the declarant. The declarant is now gone and has no authority to run the assn!

I think the statement above is a misinterpretation.

Regardless of "turnover" so long as the Declarant owns even one unit--and is therefore a member of the association--it has the right of approval. The Declarant is not gone. Just because the Declarant turns over management of the association to the homeowners, does not eliminate its right to cast votes on the remaining unsold units.

Thx for the correction, George. I definitely did misread the quote from the bylaws! You are correct, as long as the declarant owns one property he is a member of the assn. It's not unusual for the declarant to write in these "protections", as we all know.

Guess I shouldn't have gotten up so early. LOL

GregL1 (Virginia)
Posts: 11

Posted:

It has been my understanding that once the developer sells 75% of the condo complex, they turned control over to the HOA and we had our first meeting to elect the BOD, etc. However, we have since found out that there are certain statements (as I posted earlier) in the Declaration, the ByLaws, etc. that basically state the documents can only be altered with his approval, even after his "period of declarant control" is ended. In addition, he also has a restriction that as long as he maintains ownership in any unit, he is basically exempt from the regulations. We currently have a lawyer that is trying to locate a "loophole", but right now the lawyer is claiming we are "stuck" with the Declarants authority to hold himself above any HOA BOD authority.

Hope that made sense.

GeraldT4
Posts: 1,022

Posted:

GregL1 - Bull on the Declarant not being subject to the rules. That is literally the most ridiculous thing I've heard. The Declarant and it's attorney created the rules, and now wants to not be subject to them? Absurd. You don't need a "loophole", the Declarant is, as are all owners, subject to BOD authority and the rules, no exceptions. I would provide the Declarant a written letter from the Association's attorney to that effect and that failure of any owner to abide by the rules and regulations will result in fines, potential loss of member privilege, and potential liens. End of story.

GregL1 (Virginia)
Posts: 11

Posted:

For MaryA1, to answer your question, all the ByLaws, Declaration, Rules & Regs., etc. are "separate", but all located in the condo doc's.

Hope that clarified it. I sometimes cannot put my explinations into clear wordings. What I am trying to relate doesn't always seem to be as clear as I write it. Bad habit of mine.

Our biggest issue is the notion that some of our owners could lose their FHA mortgage as a result of the "exclusion" of the Declarant should he decide to rent the remaining unsold units which would push the percentage allowed beyond the limit for FHA. If I understand the FHA requirements correctly. We just don't want to see anyone to lose their FHA mortgage because of the stipulations protecting him.

Not only that, but it feels like these "controls" are basically telling us that we can run our HOA so long as he agrees with what we are trying to do. If he doesn't then he rules. In my opinion, this is the same as tying hands behind the back and saying "okay, now try to run a proper HOA".

GregL1 (Virginia)
Posts: 11

Posted:

GeraldT4

Perhaps, I was not clear in my earlier posting. I am not meaning to say that he is above enforcement of the rules. What I am saying is that our BOD sent a notice to him that the cap for rental units has been reached and that the remaining units he has cannot be rented. His reply was that because of the wordings in the documents (as I posted prior), that he is imune from the rental regulations because of the section that I quoted where it specifically removes our ability to restrict him on handling his units as he sees fit. Be that renting them or selling them. We looked into trying to alter the ByLaws to remove that condition granting him that freedom, but then learned that the ARTICLES do not allow us to alter the ByLaws without his approval. Of course, he is not going to give that approval since we are trying to limit his use.

According to the HOA attorney, we need to locate a loophole in order to alter the ByLaws because of how he has it worded, wich we are attempting to do.

Hope that explained it better.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By GregL1 on 08/27/2008 7:32 AM
It has been my understanding that once the developer sells 75% of the condo complex, they turned control over to the HOA and we had our first meeting to elect the BOD, etc. However, we have since found out that there are certain statements (as I posted earlier) in the Declaration, the ByLaws, etc. that basically state the documents can only be altered with his approval, even after his "period of declarant control" is ended. In addition, he also has a restriction that as long as he maintains ownership in any unit, he is basically exempt from the regulations. We currently have a lawyer that is trying to locate a "loophole", but right now the lawyer is claiming we are "stuck" with the Declarants authority to hold himself above any HOA BOD authority.

Hope that made sense.

Greg,

Not ANY board authority ONLY the authority to amend the bylaws and perhaps the CCRs if that clause is also in there. And, yes, he can rent his units and not be bothered whether or not the FHA limit has been exceeded. Remember this only applies to FHA loans. Unless there is something else in the docs that I'm not aware of, the board is free to run the assn and make all the necessary business decisions w/o his input, etc. Frankly, I don't see any problems unless there is some critical issue that the board feels should be amended in the bylaws.

KirkW1 (Texas)
Posts: 1,665

Posted:

Greg,

I feel your pain. In my HOA's case, the declarant retains the right to veto any action of the BOD as long as they own a single unit within the association. At this time the company owns three lots. I personally think it might be a good idea to look at purchase of said lots to be completely free. (We received turnover with he funds in place that this could be done without affecting dues.)

At this point I am the BOD member who thinks it worthy of investigation. I suspect that if the price were right there could be a standing ovation from owners (even those supporting the developer) for the idea of being shed of their influence.

The good part is that we do have a good relationship with the developer so far. But the need to forward meeting minutes for review kind of irks me. And it could come to a head as we start revision of the design guidelines.

MicheleD (Kentucky)
Posts: 4,491

Posted:

I would still like to see any language in the Deed Conditions, Covenants, and Restrictions that say the same or something similar.

I am of the feeling that, as I read it now, the Developer ONLY has "approval/veto" power over any amendments and changes to the By-laws, and NOT any OTHER governing docs.

But if it's in the CC&Rs, too, then they (the entire set) might possible be a candidate for a judge voided them somehow due to their not being written in an equitable manner.

Sometimes contracts have been overturned because, even when people sign them, there is no balance in the contract that allows for both parties to have a reasonable expectation of fairness.

I hope that made sense. I'm sorta pulling out my sad memory banks for that one.

GregL1 (Virginia)
Posts: 11

Posted:

KirkW1

I would love the idea of purchasing all the units from the Declarant just to be able to avoid any possible issues later, but unfortunately our HOA doesn't have that kind of funds. I wish we did because I think a pool for our owners would be a great idea!

We (meaning the BOD) just feel that, eventhough we are not responsible for the people that do have the FHA's, the notion that the Declarant has this type of control over the modification of ByLaws, doesn't seem fair.

Then again, I guess if I were in the Declarant's position, I would want the "protection" as well. Kind of like being stuck between a rock and a hard place.

My sympathies to your BOD if the Declarant can "veto" any action. At least ours is not that bad.

MaryA1

I can understand you're not seeing what the problem is, since technically the BOD has control over the HOA, just not the ability to change ByLaws without the Declarant approval. Compared to most others that I have seen in here about problems, I must say, our BOD is fairly lucky so far.

However, our "critical issues" we (BOD) feel pertains to the idea that the HOA should be looking out for the best interest of all the unit owners. This would also include (in my opinion) the ones that have FHA restrictions. The reason behind the thinking is because if the Declarant does exercise the rental and puts our complex above the "cap", wouldn't that jeopardize the homeowners that do have the FHA loans? I don't know how FHA handles it, but the thought that someone might lose their home because of that one clause is upsetting.

I know that we are not responsible for the people that went through FHA and had that restriction, but it is still not a pleasant thought as to the possible outcome.

Thank you both for your inputs. Sometimes, these documents are so confusing that another pair of "eyes" is a great help.

Greg

SusanW1 (Michigan)
Posts: 5,202

Posted:

Greg - I hope you can find a good contract lawyer.

This developer has, in fact, land-locked your entire HOA's ability to amend or even enforce its own governing documents.

There must be something in the law that prevents an individual from interfering with a corporation's own governance.

GregL1 (Virginia)
Posts: 11

Posted:

MicheleD

I have checked the Rules and Regs Docs (all 13 pages of them). It is not stated in these, but simply referes to the ByLaws and Declarations for furter details. The Rules and Regs are only six pages out of the 13. The remaining seven pages are the Engineering certification pages.

You are correct that it applies (at least from what I am understanding what I have also read) only to changing of the ByLaws, which is what we are intially looking for a way to fight. Should the need arise to alter the ByLaws (such as restricting the declarant to the rental cap), he will not agree to change them where it would not favor him, eventhough it may prove beneficial to the remaining owners.

I can understand where he would also want his properties protected, but it just doesn't seem right that he is permitted "exemption" on this issue, while every other homeowner is required to follow the regulation.

Yes, the BOD agrees that he should be able to rent units just as the other owners can, but when the complex has reached the "cap", we also believe he should be subject to the "cap" also being an owner, just as the rest of us are.

Thank you for your insite. Every bit of clarification and prior experience helps.

I hope that made sense.

GregL1 (Virginia)
Posts: 11

Posted:

SusanW1

Thanks for your response. We also feel that we are restricted on changes, but I am not certain how much restriction.

As several very insightful people have explained, our docs require his approval to alter the ByLaws, but not the other governing regulations.

However, without the BOD and HOA members having the final say on changing the ByLaws (rather than the declarant), how can the HOA members (which includes the declarant) feel that they have any "real say" in the matter? To me, it seems that no matter how the rest of the HOA members want to vote a ByLaw change, if the declarant doesn't like it, the other votes don't matter.

Can someone tell me if I am understanding that correctly?

Thanks again for everyones input. It's great hearing so many different views and interpretations.

GlenL (Ohio)
Posts: 5,491

Posted:

Greg if you can get enough H/O to vote for it, you could put the rental cap into the Declarations instead of the By-Laws which is where it should be anyway. While it would seem to me that it would be the attorney's job to find the loophole, I'll take a stab at it. In Ohio a condominium property may amend its documents without a vote of the owners to be in compliance with certain mortgage requirements even though it can be fought by a homeowner in court. Given the hierarchy of laws with Federal on top above State, Local, Covenants and By-laws; if there is truly a Federal requirement that limits the amount of rentals in a community to be in compliance with its guidelines, then that may be the loophole you're looking for. I've included a copy of the applicable Ohio law, I would search VA law and your CC&R's for similar wording.

5311.05 (E)(1) Without a vote of the unit owners, the board of directors may amend the declaration in any manner necessary for any of the following purposes:

(a) To meet the requirements of institutional mortgagees, guarantors and insurers of first mortgage loans, the federal national mortgage association, the federal home loan mortgage corporation, the federal housing administration, the veterans administration, and similar institutions;

(b) To meet the requirements of insurance underwriters;

(c) To bring the declaration into compliance with this chapter;

(d) To correct clerical or typographical errors or obvious factual errors in the declaration or an exhibit to the declaration;

(e) To designate a successor to the person named to receive service of process for the unit owners association. If the association is incorporated in this state, this may be accomplished by filing with the secretary of state an appropriate change of statutory agent designation.

(2) Division (E)(1) of this section applies to condominium properties submitted to this chapter prior to, on, or after the effective date of this amendment.

(3) Any unit owner who is aggrieved by an amendment to the declaration that the board of directors makes pursuant to division (E)(1) of this section may commence a declaratory judgment action to have the amendment declared invalid as violative of division (E)(1) of this section. Any action filed pursuant to division (E)(3) of this section shall be filed in the appropriate court of common pleas within one year from the date of the recordation of the amendment.
Effective Date: 07-20-2004

Studies show that 5 out of 4 people have problems with fractions

GregL1 (Virginia)
Posts: 11

Posted:

GlenL,

Thank you for your suggestion. That is an excellent idea. I had not even thought about the notion of going under the meeting of federal mortgage requirements. I will pass this on to the other BOD members as well as the PM and HOA attorney for further review.

We (BOD) were so concerned with altering the ByLaws to remove the Declarant restriction, that the thought of compliance at the Federal mortgage level never entered our little pea brain minds. (If there is a Federal regulation for it)

Our declarations do state:

"8.3 LEASING and INVESTMENT OWNERSHIP

(a)....The Association shall track the number of leases in effect for Condominium Units, and if the number of leased Units reaches the investor-owned threshold set from time to time by the secondary mortgage market, the Board may at its option elect to impose a temporary restriction on further leasing of Units to ensure that reasonable mortgage terms remain available."

However, it goes on to further state in section "c" of the same declaration:

"(c)None of the sections of the provisions of this Section shall apply to any Unit owned, initially or re-aquired, by the Declarant or any corporation or entity that is a parent, subsidiary, or affiliate of the Declarant, and said entities may lease any such Units as they deem fit."

To me that sounds like he is holding himself above the federal regulations as well. Or am I not understanding that correctly?

Thanks again!

SusanW1 (Michigan)
Posts: 5,202

Posted:

Bring the FHA officials into this frey.

Let the Declarant tell THEM he does not have to heed their guidelines!

MaryA1 (Arizona)
Posts: 7,043

Posted:

Greg,

Just as I thought, the declarant has covered himself in both docs, the bylaws and the CCRs. I would suggest contacting a mortgage co and asking if the declarant is exempt from the rental threshold imposed by the FHA. I don't know that members who have FHA loans should worry about the threshold being exceeded. Once they have obtained the mortgage I don't know that they have to worry. This would be another question for a lender.

KirkW1 (Texas)
Posts: 1,665

Posted:

The question of what the restrictions actually say got me to go and get them for all to see:

Quote:

The Class "B" Member shall have a right to disapprove any action of the Board and/or committees as provided in the Bylaws. Additional rights of the Class "B" Member are specified in the relevant sections of the Governing Documents.

Also the following appears in our By-laws:

Quote:

Section 3.3. Right to Disapprove Actions. So long as the Class "B" Member owns property for development and/or sale in the Properties, the Class "B" Member shall have a right to disapprove
any action. policy or program of the Association, the Board and any committee which, in the judgment of the Class "B" Member, would tend to impair rights of the Class "B" Member or Builders under the Declaration or these Bylaws, or interfere with development, construction of any portion of the
Properties, or diminish the level of services being provided by the Association.

No such action, policy or program described above shall become effective or be
implemented until and unless:

(a) Declarant shall have been given written notice of all meetings and proposed actions approved at meetings of the Association, the Board or any committee thereof by certified mail, return receipt requested, or by personal delivery at the address it has registered with the Secretary of the Association, as it may change from time to time, which notice complies as to the Board of Directors meetings with sections 3.8, 3.9 and 3.10 of these Bylaws and which notice shall, except in the case of the regular meetings held pursuant to the Bylaws, set forth in reasonable particularity the agenda to be followed at said meeting; and

(b) Declarant shall be given the opportunity at any such meeting to join in or to have its representatives or agents join in discussion from the floor of any prospective action, policy or program which would he subject to the right of disapproval set forth herein. Declarant, its representatives or agents, shall make its concerns, thoughts and suggestions known to the Board andlor the members of the subject committee; and

(c) Declarant does not disapprove of any such action, policy or program authorized by the Association, the Board of Directors or any committee thereof within the time period described below. This right to disapprove may be exercised by Declarant, its successors, assigns, representatives or agents at any time within ten (10) days following the meeting held pursuant to the meeting held pursuant to the terms and provisions hereof. This right to disapprove may be used to block proposed actions but shall not extend to the requiring of any action or counteraction on behalf of any committee, or the Board of the Association. Declarant shall not use its right to disapprove to reduce the level of services which the Association is obligated to provide or to prevent capital repairs or any expenditure required to comply with applicable laws and regulations.

Now a small item which I had missed previously is that in the covenants it states the following in the same paragraph as the first quote:

Quote:

The Class "B" membership shall terminate and become converted to Class "A" membership upon the earlier of:

(i) one (1) year after expiration of the Class "B" Control Period;

(ii) when, in its discretion, the Class "B" Member so determines and declares in a recorded instrument.

Upon termination of the Class "B" membership, Declarant shall be a Class "A" Member entitled to one Class "A" vote for each Lot, if any, which it owns.

So at this point I am thinking that at the end of one year of control, the Class B owner loses his right of veto. Since the covenants are superior to the By-laws it would seem (to me) that we no longer have to report all actions and live with the veto power. Since we will be having our lawyer at our next meeting anyway I will be asking him about this.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By KirkW1 on 08/29/2008 6:55 PM
The question of what the restrictions actually say got me to go and get them for all to see:

The Class "B" Member shall have a right to disapprove any action of the Board and/or committees as provided in the Bylaws. Additional rights of the Class "B" Member are specified in the relevant sections of the Governing Documents.

Also the following appears in our By-laws:

Quote:

Section 3.3. Right to Disapprove Actions. So long as the Class "B" Member owns property for development and/or sale in the Properties, the Class "B" Member shall have a right to disapprove
any action. policy or program of the Association, the Board and any committee which, in the judgment of the Class "B" Member, would tend to impair rights of the Class "B" Member or Builders under the Declaration or these Bylaws, or interfere with development, construction of any portion of the
Properties, or diminish the level of services being provided by the Association.

No such action, policy or program described above shall become effective or be
implemented until and unless:

(a) Declarant shall have been given written notice of all meetings and proposed actions approved at meetings of the Association, the Board or any committee thereof by certified mail, return receipt requested, or by personal delivery at the address it has registered with the Secretary of the Association, as it may change from time to time, which notice complies as to the Board of Directors meetings with sections 3.8, 3.9 and 3.10 of these Bylaws and which notice shall, except in the case of the regular meetings held pursuant to the Bylaws, set forth in reasonable particularity the agenda to be followed at said meeting; and

(b) Declarant shall be given the opportunity at any such meeting to join in or to have its representatives or agents join in discussion from the floor of any prospective action, policy or program which would he subject to the right of disapproval set forth herein. Declarant, its representatives or agents, shall make its concerns, thoughts and suggestions known to the Board andlor the members of the subject committee; and

(c) Declarant does not disapprove of any such action, policy or program authorized by the Association, the Board of Directors or any committee thereof within the time period described below. This right to disapprove may be exercised by Declarant, its successors, assigns, representatives or agents at any time within ten (10) days following the meeting held pursuant to the meeting held pursuant to the terms and provisions hereof. This right to disapprove may be used to block proposed actions but shall not extend to the requiring of any action or counteraction on behalf of any committee, or the Board of the Association. Declarant shall not use its right to disapprove to reduce the level of services which the Association is obligated to provide or to prevent capital repairs or any expenditure required to comply with applicable laws and regulations.

Now a small item which I had missed previously is that in the covenants it states the following in the same paragraph as the first quote:

Quote:

The Class "B" membership shall terminate and become converted to Class "A" membership upon the earlier of:

(i) one (1) year after expiration of the Class "B" Control Period;

(ii) when, in its discretion, the Class "B" Member so determines and declares in a recorded instrument.

Upon termination of the Class "B" membership, Declarant shall be a Class "A" Member entitled to one Class "A" vote for each Lot, if any, which it owns.

So at this point I am thinking that at the end of one year of control, the Class B owner loses his right of veto. Since the covenants are superior to the By-laws it would seem (to me) that we no longer have to report all actions and live with the veto power. Since we will be having our lawyer at our next meeting anyway I will be asking him about this.

Kirk,

Sorry, but I don't think so! The only thing that happens at transition is that the declarant no longer has more than one vote per lot owned; now he only has one vote -- the same as any other property owner. This has no impact on the powers given to him regarding disapproving board actions as stated in the bylaws and the CCRs. Bylaws "Section 3.3. Right to Disapprove Actions. So long as the Class "B" Member owns property for development. . . yada, yada, yada" The key phrase here is: so long as the class "B" member owns property. . ."

KirkW1 (Texas)
Posts: 1,665

Posted:

I know this is splitting words, but the right to disapprove actions is held by a "class B" member. And after the initial year, there is no "class B" member since his lots have been converted to "class A".

I know full well what the intent was, but the wording often trumps intent. Of course this could all cost a pretty sum in court cases as well.

SusanW1 (Michigan)
Posts: 5,202

Posted:

I don't understand why the HOA is even discussing this FEDERAL GUIDELINE with this developer. Apparently, you have NO enforcement power with this developer.

The bylaws say the HOA tracks the number of elegible units so that it is within FHA guidelines. Giving the information to the FHA is all you can do.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Kirk,

Gotcha. Yes, it would be interesting to see how a court would rule on this! I certainly would hope it wouldn't get that far; but one never knows. HOAs have gone to court for even lesser reasons. :-(

KirkW1 (Texas)
Posts: 1,665

Posted:

Well, I am thinking of running the theory by the attorney. But since we have had not problems, I am not in a hurry. So far our relations have been good with the developer and I don't care to do anything at this point to change that. But this could change with the desire to visit the design guidelines. I just don't know. At any rate, I believe this is best kept well under the radar for the moment.

Now the real interesting thing would be if we were to get into a pissing match because so far we are with the very same firm the developer uses. I would be inclined to file quickly so that the firm is committed to our side and the developer has to find a new attorney. Nothing personal, it is just business.