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Subject: Management Company Not Recognizing Board Members
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ChrisC17
(South Carolina)

Posts:6


09/22/2021 10:44 AM  
I have a situation that I'm trying to wrap my head around. I have served on 2 different HOA Boards over 5 years so like to think I have some understanding of basic processes. Yes, there's still a lot I don't know but believe I understand a lot as well.

To provide some context, we have a small neighborhood with 90 homes and $125 annual dues. I've attended 2 previous annual meeting where we usually had less than 10 people show up. Additionally, other than the covenants and restrictions, I'm unaware of any by-laws being available. I have asked the management company and prior board members and they have said only the covenants.

Fast forward to 2021. The 3 HOA board members have chosen to resign. When I discovered this, I reached out to one of them and volunteered to take on as board member with the primary goal of recruiting others to serve and to just make sure that the management company has someone to take direction from.

That board member emailed the management company, copied me, and explained that all board members were resigning and that they selected me to continue on until the next annual meeting and election can take place.

I set up a call with the management company. We spoke and I requested a bunch of documents that generally only board members have access to, like contracts, receivables, and insurance policies. We continued back and forth for 3 months where they kept providing additional info I requested.

I then discovered the management contract had an automatic 3 year renewal that would kick in on 1/1/2022 unless notified 90 days prior (10/1/2021). I sent them notice in July, 3 months after we started communicating, of intention to not renew and asked them to send a proposal if they wanted to be considered for 2022 but to not include the 3 year renewal. In my experience, an automatic 1 year renewal is pretty standard but a 3 year, not so much. Within a week, they sent me an email saying that I had no claim as a board member and that they would no longer communicate with me.

Having served on HOA boards, it has always been that if a board member resigns, the existing board members can select someone to take their place and serve out their term. This is generally spelled out in the by-laws, which seem to be non-existent for this neighborhood. Likewise, if during the annual meeting, there is no quorum, there's no election and board members are selected by existing board members.

In no situation, do I see that a management company can take over full decision making authority, especially in the event there are homeowners that are volunteering to serve. I might argue that you could hold an emergency election, but should do so as soon as it is known all board members resigned. Again, without quorum, this doesn't seems to hold any value either.

Management company says they will mail out information on voting for new board members. This company is horrible by the way (Prime Financial in Columbia, South Carolina). I fully believe they are purposely delaying this so a 3 year automatic renewal is in place and our hands are tied.

Am I way off base here?

I had a new management company lined up that I have experience with. They are better and cheaper than the current management company. Now it seems like we're going to be stuck with this company again.

I have all of this in writing/email. I have submitted a complaint with the SC Consumer Affairs division as well.

Suggestions? I'd engage an attorney but we have no access to funds and I'm not willing to put my neck on the line in the event my understanding is wrong.
MaxB4


Posts:1339


09/22/2021 11:05 AM  
Couple of things:

----It wasn't clearly stated, but in order for you to be properly on the board, the appointment must be before their resignations, not after.
----You would need minutes of the meeting in which you were appointed.
----The management contract most likely has an "evergreen" clause, legal, but IMO, not ethical. The evergreen clause is enforceable.
----Make sure the termination of the old MC is official and there are official minutes of the termination, BEFORE the 10/1/2021 deadline.
ChrisC17
(South Carolina)

Posts:6


09/22/2021 1:02 PM  
I understand what you're saying. On other boards, we had monthly meetings and quarterly formal meetings with minutes always kept and shared on our HOA website for members. This is not the case with this HOA.

Worth pointing out this HOA is a complete mess. There have never been minutes, meetings, etc. While I realize this is a complete disaster, the HOA has continued to function, assess dues, and pay invoices without.

The notice of resignation and selection of me was done in an email by the resigning board members sent to the management company.

There are no minutes and never have been.

I have found auto-renewals in contracts to be fine. I just have an issue with 3 year vs 1 year.

Notice of termination was sent to management company via certified mail in July and infomrally via email. Since their stance is I'm not a board member, I suspect we'll have some sort of attempt at an election, with no quorum, then they'll say "ok, you can be a board member since you are the only one that has expressed interest and oh, by the way, our contract renewed for 3 years."

KerryL1
(California)

Posts:8592


09/22/2021 1:27 PM  
Is this HOA a corporation, Chris? Check your CC&Rs and, if so, your Articles of Incorporation. Boards must vote at a meeting to close directors to fill vacancies. BUT maybe that doesn't apply if you're not a corporation?

Is you HOA detached homes or condos? JohnC knows why this matters in SC.
ChrisC17
(South Carolina)

Posts:6


09/22/2021 1:37 PM  
The HOA is an LLC according to the covenants document on file with the county.

These are all detached, single family homes.

In the event all board members resign without notice, a reasonable action would be to have an emergency election, yes? The management company can't just assume decision making authority?

Taking into account all the dysfunctional stuff going on and lack of any organization or processes, I can't see how the management company can do this. I'm trying to figure out what recourse I have, if any, to force them to do something. As long as someone is a board member, they can provide notice of not wanting to renew so we can actually get a competent management company in.
JohnC46
(South Carolina)

Posts:11507


09/22/2021 1:38 PM  
Chris

What the MC is saying is they have no proof your are on the BOD, never mind the only one on the BOD. My suggestion is have the 3 that resigned each send an Email to the MC verifying they appointed you to the BOD then they resigned leaving you the only one left on the BOD. This assume the MC recognized the older BOD Members.
MaxB4


Posts:1339


09/22/2021 1:44 PM  
This might sound hard-ass, but as a management company, I would not have accepted the chain of events as you describe. You have no minutes, and I would think of all people, you would know better.

I would be looking around and talking to other owners about the existence of Bylaws. It would state whether your association allows for three year contract. Mine didn't. If you find the Bylaws, and it states one year contract, then the one your MC put in place one that is not enforceable.

The MC is supposed to take direction from a Board. If all three resigned, who are they taking direction from. If they agree that the three are still board member, then call a meeting and do it the right way with minutes.

ChrisC17
(South Carolina)

Posts:6


09/22/2021 1:53 PM  
Oh, I get that it's messed up. I can't control what prior boar members did, or didn't do. Just because they've never had a meeting or minutes doesn't null any action they've taken for the last 3 years.

The previous board members emailed the management company and said "we are resigning and have selected chris".

My point is the management company had no problem recognizing me as a board member for 3 months, while they worked with me to provide documents that I requested.

When I gave them notice not to renew, it became "you aren't a board member".

If the email from resigning board members didn't make me a board member, is it ok for the management company to have full control over decisions and finances until some date they decide to ask for an election? That's what I don't understand.

There's never been an annual meeting with quorum and an election, yet we've had board members and they have directed the management company. How is this different?

Seems like we're stuck.

I get how it's supposed to work. I just don't see a situation where the lack of processes means the management company, only a vendor, paid by the HOA and homeowner dues, gets to make these decisions. If they had said back in April that we needed to have an election to formally accept my selection, or get others on the board, then I would have done that. They didn't have an issue until I gave them notice of plan to not renew.

Without by-laws or any formal documentation other than covenants, there's nothing to support and define the process.

The management company shouldn't have control in my opinion.
PatJ1
(North Carolina)

Posts:246


09/22/2021 2:10 PM  
Posted By ChrisC17 on 09/22/2021 1:37 PM
The HOA is an LLC according to the covenants document on file with the county.

These are all detached, single family homes.

In the event all board members resign without notice, a reasonable action would be to have an emergency election, yes? The management company can't just assume decision making authority?

Taking into account all the dysfunctional stuff going on and lack of any organization or processes, I can't see how the management company can do this. I'm trying to figure out what recourse I have, if any, to force them to do something. As long as someone is a board member, they can provide notice of not wanting to renew so we can actually get a competent management company in.




With a Board that has a quorum, I believe not allowing the contract to automatically renew, thus cancelling it, would be an action item requiring a Board vote.

If you can get recognized by the MC as a Board member, you can then appoint others to the Board and address the non renewal with a vote of the newly appointed Board.



Board members are volunteers. Many have no idea what they're doing. Educate them. Don't beat them up.
MaxB4


Posts:1339


09/22/2021 2:18 PM  
Chris

I think you need to contact the association's attorney and have them advise on the steps to activate the board and terminate the MC contract as quickly as possible.

In the MC contract, how can the association terminate and is it with or without cause?
ChrisC17
(South Carolina)

Posts:6


09/22/2021 2:27 PM  
I'm not looking to terminate, only not renew. Auto-renewal clause says it renews for 3 years unless notified 90 days in advance, which would be 10/1/2021.

To my knowledge, the HOA doesn't have an attorney they contract with. That was one of the questions I asked the management company when we were talking (as me a board member). "Which attorney handles collections?" I never got an answer.

Even if I did know, I'm not sure an attorney would talk to me under the situation. I also wouldn't take on any personal liability for attorney fees since I'm not formally recognized as a board member.

Changing gears for a second. Let's say I let it go through. We have some kind of election. I, or anyone else, is voted as board member and we are stuck with 3 more years with this incompetent management company (for many other reasons not cited).

Their contract calls for specific services to be supplied. In the event they don't provide them, what's the process to be able to terminate a contract for breach of contract? Would we have to notify them of the services not provided to give them a chance to remedy? What happens when services are not provided again, in another month?

I'm giving up on trying to do anything more for this year but am thinking about how to get out of it, assuming they don't meet the contractual obligations. Has anyone done this? Is it a difficult process?

If a contract says they will do these 5 things (as an example), and they don't, that can't just continue on inevitably without repercussions can it?
MaxB4


Posts:1339


09/22/2021 2:34 PM  
Currently, how many board members are there?

If, only one, get one more. Someone become president, and that person contacts an attorney on the association's behalf.

I would have it done in ten minutes.
JohnC46
(South Carolina)

Posts:11507


09/23/2021 10:10 AM  
Posted By MaxB4 on 09/22/2021 2:34 PM
Currently, how many board members are there?

If, only one, get one more. Someone become president, and that person contacts an attorney on the association's behalf.

I would have it done in ten minutes.



Sound advice.
BillC17
(Texas)

Posts:9


10/02/2021 3:24 PM  
Lawyers cost money, sometimes quite a bit, and frequently the HOA's money is in the sole possession of the management company.

Earlier this year we had started asking our MC some hard questions and they sent us their termination notice, effective in 3 months which was in accordance with the contract they had pushed on us. And then for those 3 months they ignored us and refused to do anything. They had all our money, we didn't have signing authority on the accounts and couldn't even look at them. Nothing we could do.
JohnC46
(South Carolina)

Posts:11507


10/03/2021 11:30 AM  
Posted By BillC17 on 10/02/2021 3:24 PM
Lawyers cost money, sometimes quite a bit, and frequently the HOA's money is in the sole possession of the management company.

Earlier this year we had started asking our MC some hard questions and they sent us their termination notice, effective in 3 months which was in accordance with the contract they had pushed on us. And then for those 3 months they ignored us and refused to do anything. They had all our money, we didn't have signing authority on the accounts and couldn't even look at them. Nothing we could do.




Our MC handles all our money with the exceptions of they can only deposit to our Reserve Funds, they cannot withdraw. Secondly our BOD has a password with our lockbox bank (who collects our dues) where we can stop all payments to the MC.
BillC17
(Texas)

Posts:9


10/03/2021 1:23 PM  
That's good, but can you access the HOA's money yourself if needed to hire a lawyer?
JohnC46
(South Carolina)

Posts:11507


10/03/2021 2:19 PM  
Posted By BillC17 on 10/03/2021 1:23 PM
That's good, but can you access the HOA's money yourself if needed to hire a lawyer?




We would order the MC to cut a check as we have in the past. Or the Pres and myself can withdraw from our reserves so we could get a check cut within 24 hours. We used to have a BOD checking account with $5K in it but we never needed/used it so we closed it and put the money in Reserves.

We are a 112 patio homes with no amenities. Municipal water, streets, and sewage. Association pays for landscaping of all homes (except fenced in rear yards) so that is our number one expense and source of complaints. We have few ankle biters and we believe in Benign Neglect...........LOL
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