Important Things to Remember
I continue to gets calls and e-mails from new people every day asking for help with their associations. The stories are painful to listen to, and while I can help with some, others I simply cannot help. Their only recourse is thru the courts. In those cases I recommend legal counsel. Some common themes lately involve the CC&R’s or Declaration. I thought I’d take the opportunity to reinforce same basic points about CC&R’s that are very important for all of us to remember.
- The CC&R’s are the sum total of the covenants that run with the land. The only power the board has is what is specifically authorized in the CC&R’s.
- The only restrictions that the association can place on free and unhindered use of the land must be clearly specified or authorized in the CC&R’s. Any ambiguity or lack of clarity will result in free and unhindered use of the land.
- The Articles of Incorporation are subject to the CC&R’s and any conflict between anything in the Articles and anything in the CC&R’s the CC&R’s prevail.
- The Bylaws are subject to both the Articles and the CC&R’s anything in the Bylaws that contradict with the Articles or the CC&R’s than either the Articles or CC&R’s prevail.
- The association is allowed to generate rules only if the CC&R’s specifically authorize those rules. If the CC&R’s are silent on the ability to create rules than only rules that protect the common property may be implemented, based on the Duty of the Board to protect the common property.
- No rule is allowed to be implemented that contradicts with any provision of the Bylaws, Articles or CC&R’s. Any rule that does is invalid and unenforceable.
- Never ever take any proposal to modify the CC&R’s lightly. This change will impact you and everyone in your community forever. Do this very carefully and with deliberate thought.
- If you believe that the association or the declarant has changed the CC&R’s illegally or in an illegal manner consult a lawyer immediately. If challenged in a timely manner the CC&R change can be overturned in court.
- Even if the CC&R’s specify that normal changes to the CC&R’s need approval by a super majority of the members whatever that percentage is, some changes that materially alter the expected uses of the land and property from the original language will require unanimous consent of all owners to implement. The ability to lease homes or units is an example of this. If the original are silent on lease restrictions then any attempt to impose lease restrictions either long term or short term would require unanimous consent of the owners. If in doubt seek legal advice.
- Statute of limitations apply to everything that an association can do. So if you think that something smells fishy it probably is and seek legal advice in a timely manner or you may forever lose your ability to challenge even blatantly illegal actions by the associations or declarants. Interestingly there are no statute of limitation on the ability of the association to cite violations on a homeowner.
- Never ever vote to make a voluntary association mandatory. There is a reason that they are trying to do that and it will never be good for the homeowners and all future homeowners.
If you have any questions on any of these points or issue feel free to contact us at email@example.com, we will provide our experience on the issue or direct you to legal counsel as appropriate.
On the last bullet point — one call I got last week involved a homeowner in a community that for 30 years had a voluntary HOA. This homeowner did in fact pay the voluntary assessments as part of simply being a good neighbor; he loved his community, and was willing to help pay for the support of that community. One day the association asked all the homeowner to vote to make the association mandatory. The understanding is that they needed 100% of the community to agree to make this happen. This person voted to make the association mandatory because he did not want to be the only vote against it if everyone else wanted it. Big Mistake. Only 2/3 of the community approved the vote. Soon afterward the homeowner received a notice from the association that because he voted for a mandatory association they were going to modify his deed to make his property forever a mandatory member of the HOA. In the same note the association told him that they were not happy with how the county was maintaining the roads so the association board decided to take over the roads and maintain them themselves. He was immediately assessed a $20,000 assessment as his share of that cost. This notice went to everyone that vote to make the HOA mandatory. And not to anyone that voted no. His only recourse now is to seek legal relief and try and get the vote overturned and reversed. All of that could have been prevented with a simple no vote.
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This is very good information Dennis and after reviewing it again I am reminded of the important information here, Thank you for all the hard work you are doing to improve the relationship between Management Companies, BofD’s and Members. FYI, another word for Voluntary Associations is Neighborhood Associations. Too many in Tucson want to make the association mandatory. I think all the word tricks should be known to the naive buyer or HO.
Well, not anymore. The ADRE ALJ has decided that HOAs do not need a CC&R to write a Rule/Regulation and that is now law, evidently. My breach of contract lawsuit in Pinal County Superior Court judge as adjudicated that, if the ADRE ALJ says you don’t need a Restriction to write a rule, then my breaking the rule that was not based on any Restriction was still valid and has the force of a Restriction. I have fought this for well over a year and I guess I have to give up. If Arizona no longer requires Restrictions to write Rules, Texas is looking better.
I truly understand your frustration. The ALJ in this case clearly missed the point and bought into the arguments of the HOA’s attorney. This is their territory and they will throw everything at these judges hoping that something will stick. Attorneys are not bound to the truth in defending their clients, that is why an attorney is never sworn in under oath in presenting a case. The problem is that the burden of proof is on the petitioner to prove their case, not the other way around. A flag is not a sign and the sum total of the restrictions that can be applied to a property must be identified in the CC&R’s under property servitude law. Your governing documents have no restrictions on the flying of flags so their self created rule is invalid. The ALJ however can only consider the state law and the specific provisions of the governing documents.
Our Board, voted to submit an application to the IRS for a 501(c) (4)
They did this despite fact we have at least two CC&R’s that require the Board to obtain a percentage of homeowner votes. What can the community do?
You have nothing to worry about an IRS application does not require the approval of the community or a change to the CC&R’s.
Dennis, what about the Articles of Incorporation? My HOAs ARTICLES of INCORPORATION specifically state we are an IRC 528 Corporation. Wouldn’t we need to change the Articles of Incorporation before (or after) we made a request to the IRS?
IRS code section 528 address non-profit corporation that are HOA’s or Condominiums. You will then file your tax returns with either a form 1120 or 1120H. HOA’s and Condominiums are one of the few entities that are allowed to file their taxes under two separate portions of the tax code at the association’s choice. Obviously different rules apply to either option. You are most probable characterized as an IRS 501.C.6 corporation.
In January 2022m when our new board took office. They initially appointed a non-homeowner to the Board (there only 3 board members and they wanted a 7 member board). This month, at their March Board meeting, they changed that number to a 5-member board and this time did not include the non-homeowner. Is this legal?
If the board votes to increase the number of board members, they must hold an election to fill the new positions. The board is only allowed fill vacancies in an established board position for the remainder of the term of the original board member. A non-homeowner can only be elected to the board if the bylaws authorize that condition. Non-members are typically not allowed to be on the board other than under declarant control, where all the board members are appointed by the declarant and not elected by the members.
In January 2022, when our new board took office they changed our approved balanced budget. They removed $6,000 from the budget and reduced our HOA dues from $145 to $135. They NEVER, redid the budget or voted on a revised or new budget. Our by-laws call for a balanced budget to be in place at the beginning of the year. It was then this new board changed it. Is this legal?
What your board did is perfectly legal. I’ve never heard of anyone complaining that their board reduced their assessment. Please take a breath, there are many things to worry about in an HOA and 501 c4 and assessment reductions are not any of them.
At a board meetingthis month, our Board voted to apply for a 501 (c ) (4). despite the fact that we have a CC&R, which I believe does not allow them to change our charter with the IRS requirements to be a 501 ( c) (4). Below is a copy of the CC&R
Article 9, Specifcally: 9.3.1 The approval of Eligible Mortgage Holders holding First Mortgages on Lots the Owners of which have at least Fifty-one percent (51%) of the votes in the Association allocated to Owners of all Lots subject to First Mortgages held by Eligible Mortgage Holders shall be required to add or amend any material provisions of this Replacement Declaration, Articles or Bylaws which establish, provide for, govern or
regulate any of the following: (There is a list of 14 items, but the one below is the one i believe is applicable.)
(viii) Reallocation of interests in the Common Areas or the right to their use. Is this Article sufficient enough to prevent the Board from moving forward without a 51% of the Homeower’s vote?
The 501 c 4 classification is appropriate for all HOAs and Condo and does not require an amendment to the declaration. Unless your CC&R’s established the association as a for profit corporation as opposed to a non-profit corporation, which by the way is illegal in Arizona, planned communities can only be non-profit corporations or unincorporated entities. You are going in many different directions with your quotes from the CC&R’s. Is the association attempting to amend the CC&R’s for some reason?
I found you answer interesting on this issue. My HOA is going to be selling “Social Memberships” to people that are NOT Owners of property in the HOA. Does this jeopardize our status as an IRC 528 Corporation?
I’d have to see exactly what your association is trying to do with social memberships. When I’ve heard this (social membership) term in the past it has been applied to allow non-residents to use common property facilities like tennis courts and gyms. Any income derived from this type of membership is fully taxable as profit. It does not jeopardize the non-profit status of the corporation but may limit the choices for filing taxes with form 1120H, which will also complicate how the association can use reserve funds and annual decisions relative to excess funds.