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Subject: HOA Exceeded Spending Authority on Yards
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StevenS14
(California)

Posts:3


10/04/2017 2:45 AM  
I have an HOA in California that thought it was a good idea to enhance front yards with low water plants.
Unfortunately, the front yards were not part of the HOA common areas and were actually owned by the individual homeowners.
In addition, the HOA Board broadly defined this front yard renovation design project as a maintenance action and tried to do 20 front yards per year at a cost of about $27,000. The HOA spending authority per project, without a community vote, was $9,000. The HOA has completed about 20 homes, but now recognizes its mistake and has told existing unimproved homeowners that they are now responsible for any front yard renovations.

Given the above information, the Questions now are:
(1) How to fairly rebalance the HOA accounts. About 25% of the homeowners received new front yards out of the HOA's operating budget.
(2) What are the usual or appropriate penalties to the HOA Board for exceeding its spending authority.
(3) What new rules or definitions should be used to make sure future HOA Boards do not try to change "maintenance responsibilities " into new community design changes.
SheliaH
(Indiana)

Posts:3061


10/04/2017 4:42 AM  
We have a number of people from California who comment on Davis-Stirling the state's HOA law and homeowner rights, but the first thing to remember is that most of us aren't attorneys - if you want answers to legal questions, hire your own and ask him or her.

To save time and money, however, start with checking your documents. If the board overstepped its authority, the "penalty" often starts with recalling them, so your bylaws may have instructions on how that's done. If not, there should be language on how to call for a special meeting (usually requires a petition signed by a certain percentage of homeowners). At that meeting, you can discuss the board's conduct and vote to recall them or not. Just be sure if you kick them out, you have homeowners ready to step up and take over because your association cannot operate without a board. Perhaps YOU can be one of the homeowners who step up? If you want to hold them individually responsible for reimbursing the association for the money already spent, you might need to talk to an attorney about that because legal action would likely be necessary.

Your documents might already define what is common area vs. areas that are homeowner responsibilities, so it might not be necessary to issue new rules, so keep reading - if it's there, all you really need to do is ensure you have a board that will follow the rules. That being said, you might want to rethink your stance on changing maintenance responsibilities. Communities are always changing and sometimes change to the point the association budget can no longer handle certain responsibilities because homeowners kept yelling about assessment increases, not realizing they hurt themselves when deferred maintenance happens and escalates to the point they HAVE to pay a special assessment and live with fee increases well beyond what's in the documents because they made poor decisions. Similar to people who haven't been saving for retirement all along and now find they may need to work until they're 100 or die, whichever comes first.

That's why your documents need to be flexible enough to allow the community to evolve - a better step might be to have your association attorney look at them every 7-10 years or so to see what needs to be tweaked to be compatible with current federal, state and local law. Part of that would include looking at things like rule enforcement and polling homeowners to see what changes they'd like to see and are willing to live with.

Which brings us to community design standards - an easier way to handle that would be to have the board (the new one anyway) charter an advisory committee that can research and make recommendations on design standards, covering what can and can't happen regarding exterior changes, such as what type of treens can and can't be planted, house colors, etc. The board would vote on a resolution adopting those standards and that's what homeowners would have to comply with when they make changes to their home. Part of that process would also consist of polling homeowners to get their opinion and you tweak the rules from there. The documents probably allow the board to adopt additional rules as long as they don't conflict with the documents or state/local federal law (check them).

AugustinD


Posts:2947


10/04/2017 8:06 AM  
(1)
Some options to result in equitable benefit to all owners:

Impose a Special Assessment on all Members to pay for the rest of the yards to be renovated. Those that did not want the renovation could pocket the cash that would have been used to pay for their renovation.

I do not think it would be lawful to special assess only those who already obtained renovated yards.

(2)
I do not think a court would hold the individual directors liable and order them to pay out of their own pockets. The HOA insurer perhaps would have to pay, for the (volunteer) Board's error, but I think that's a serious legal battle.

(3)
From past experience with HOA lawsuits and serving on a board (following a major turnover), I feel the most effective and efficient route to improve things is to elect well-qualified board members.
JanetB2
(Colorado)

Posts:4211


10/05/2017 10:55 PM  
Posted By StevenS14 on 10/04/2017 2:45 AM
I have an HOA in California that thought it was a good idea to enhance front yards with low water plants.
Unfortunately, the front yards were not part of the HOA common areas and were actually owned by the individual homeowners.
In addition, the HOA Board broadly defined this front yard renovation design project as a maintenance action and tried to do 20 front yards per year at a cost of about $27,000. The HOA spending authority per project, without a community vote, was $9,000. The HOA has completed about 20 homes, but now recognizes its mistake and has told existing unimproved homeowners that they are now responsible for any front yard renovations.

Given the above information, the Questions now are:
(1) How to fairly rebalance the HOA accounts. About 25% of the homeowners received new front yards out of the HOA's operating budget. Well ... HOA's are ran by homeowners who as you have noted are not always that smart. However, the other homeowners went along with their plan and did not stop the process which would have been their right.
(2) What are the usual or appropriate penalties to the HOA Board for exceeding its spending authority. That would be a question to ask an attorney. Potentially if the Board now admitted they were wrong and stopped the process ... you can potentially throw Fudiciary Duty out the door. As that would be willful violation of the documents ... and it appears they potentially made an honest mistake.
(3) What new rules or definitions should be used to make sure future HOA Boards do not try to change "maintenance responsibilities " into new community design changes. EDUCATION and PARTICIPATION!!! As I noted ... HOA's are ran by the owners who are not perfect and will make mistakes. However, all other owners need to also be on top of what is happening and question your Board as needed. Most likely what happened is after some were completed an Owner finally questioned why the HOA was paying for something which was Owner responsibility and cited the document sections.
CjC


Posts:205


10/06/2017 5:44 AM  
This might impact the IRS standing if the HOA spent more than 10% to benefit a homeowner and not for common use.
StevenS14
(California)

Posts:3


10/06/2017 4:10 PM  
You made a good point. My attorney is already checking on that point.
It is interesting to note that the HOA said that they consulted with their HOA attorney and supposedly knew the risks and still re-started the landscaping project without a community wide vote. While a community wide vote to approve the project costs would help to resolve the issue, I presume that the Liability Insurance Company would not like HOA Board members who have a record of violating the HOA rules and laws that they were elected to follow.

Does anyone have any experience with HOA Liability companies that have pull their coverage of such HOA Board members ?
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