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Can the Board remove items from the Reserves?

We are a small community established in 2006 and have an expensive septic system unlike the typical ones. Our CCRs state the HOA is responsible for maintenance and monitoring of the homeowner’s individual septic systems. The HOA pays for biannual inspections of the systems and our reserve studies done in 2006, 2013 and 2016 have allocations for septic pump outs. The original study done in 2006 while under original developer control states the component list is perpetual. The dues for the HOA was based off of operations and this reserve study. As of 7 mos ago, and after 2 more declarants, we have our first Board and an incompetent management company who does little to guide them. I.e. they have paid $9000 in lawyer advise in the 7 months (this is 30% of our Assoc dues intake). I had to tell the Board the septic pump outs were in the reserve study. The first septic pump out occurred in the summer of 2019, before the new Board, and was paid by the HOA. We now have many more homes with pump outs coming due. The Board has decided they should not be covered. We had about half of the community build out some 12-14 years ago and the rest building out now. Some homes have paid dues for the last 14 years with portions of their dues going to the reserves. We are financially healthy. Can the Board remove a component from the reserves ‘at their pleasure’? I suggested that the CCR ‘maintenance’ wording meant a 75% vote was needed to change CCRs. Board member told me some consider septic pump outs maintenance, some do not. I would think that having septic pump outs in 3 reserve studies would suggest the original developers, and 2 subsequent declarants, thought septic pump out was maintenance. I suspect if we push, we will be adding to the lawyer bill as the Board members are not rational thinkers and have no critical thinking skills on their own.
Thank you.

4 Responses

  1. dennisl

    Katkendall11,

    Please read your CC&R’s carefully. Unless your CC&R’s specifically identify the individual septic systems as common property, your articles of incorporation will in fact prevent the association from using association fund to benefit individual homeowners. The reserve study has absolutely no standing in the community governing documents. While the Declarant may have provided the maintenance of those systems in trying to attract buyers, he knew that he would never have to live up to that commitment unless you have clear documented letters from the declarant that the septic systems would be maintained by the association. That would constitute an implied contract and in fact would bind the association to do that in perpetuity. There is in fact legal precedence to that effect in Arizona. The documentation proof could be in the form of sales brochures or fliers and does not need to take the form of a direct letter from the developer to any homeowner. The test is, would a reasonable man infer from the documentation that if he bought the home that the association would pay for the routine septic for either a specified period of time or in perpetuity.

    From my experience it would be very unusual for the HOA to maintain individual homeowner septic systems.

    As to your specific question can a board remove an item from the reserve study the answer is yes, the real question should be should a board remove anything from a capital plan and reserve study with homeowner approval first and that answer is no. But lawyers and community managers do not advise boards on what they should do but rather on what they can do or can get away with.

    This is why it is so important for individual homeowners to get and stay involved in their communities because without that involvement no-one holds the association accountable to the law and the law becomes meaningless. There is no state oversight in the conduct or behaviors of these associations, the community managers or the attorneys that make a fortune advising them. There are only homeowner and the law.

    Dennis

  2. Katken

    Thanks Dennis. Our CCRs do require homeowners to install a specific septic system and states, after installation the Association “shall assume responsibility for the monitoring, maintenance and repair” of the system. It also states “with the costs thereof to be included as part of the Assessments payable by each Owner.” Capital improvements and replacement are on the homeowner. We also already have a lawyer interpretation on this from 2014–confirming dues pay for maintenance and monitoring and repair can be charged back as dues. I was hoping the lawyer interpretation with the reserve studies would make this a slam dunk. I do feel the CCRs on their own are clear enough.

    So we will probably be back to lawyers, that is if the Board deems it necessary to engage them. Otherwise the homeowners will have to hire one on their own or have the CCRs in violation by their own Board and just pay for their own septic pump? I do not know how other Board members approach issues in other communities, but ours seems to think their duty is to protect the Association from the homeowners. If we worked together, and the CCRs septic language was presenting a strain on the association in unforeseen liability etc., then it seems appropriate that the Board make a case to remove the language and get the vote to change the CCRs.

    We have a Board that does not talk to the community. We went through a Board removal vote a few months ago. Most of the neighborhood did not know why. The ballot read ‘recall’, not remove. There were no definitions or instructions, so many misinterpreted the ballot. The homeowners wanted the vote to be private to the community and Board, not shared with the Board members for fear of retaliation. The board refused. Half the Board was retained by one vote, the others a few more votes….but a split community. “Retain full Board’ was shared with the community, but not the actual votes that showed how split we were. Since the Board did not want to make the votes private, we could ask to see the actual votes as they were community documents. That is how people saw how they misinterpreted the voting. They signed affidavits of their intent to their vote, and the lawyer said it is up to the Board to accept or not. If accepted 2 Board members would be removed. The President could not make a decision and refused to even communicate this to the community. A letter from the voters with affidavits asked for an answer, they never received one, the President resigned. Only a few in the neighborhood know what really happened. The 2 Board members do not even acknowledge homeowners when walking dogs, so the fear of retaliation is real. The Management company told them a quorum is when any 2 get together, and by law that would require an open meeting. So he has advised them to communicate through his email to avoid the open meetings. So your statement, “But lawyers and community managers do not advise boards on what they should do but rather on what they can do or can get away with” is very true for our situation. We now have to live with these disgruntled Board members for more than another year as state law only allows removal once per term. We do have one Board member who listens, but the other 2 do not work with this person.

    Honestly, when I sell, I will never buy into a community with an HOA again…..I have never seen educated adults behave so poorly.

    1. dennisl

      Katkendall11,

      If what you say about the CC&R’s is correct then the board has absolutely no authority to decide otherwise without a formal revision of the CC&R’s approved by a super majority of the homeowners as specified in your governing documents.

      Your board interpretation of the open meetings laws is also incorrect. The definition of a meeting includes the use of technological means so that any e-mail between a quorum of the board would constitute a meeting and if that was not noticed 48 hours in advance and the members allowed an opportunity to participate in that meeting, it would constitute a violation of the open meeting laws for planned communities. There are no open meeting laws for regular corporations. Remember even HOA attorneys advise boards that they can conduct business via e-mail because of non-profit corporation laws or provisions in the CC&R’s but in reality the planned community statutes supersede both those documents relative to open meetings. This has been proven in court countless times. Please remember while the law is the law, the only oversight and enforcement of the law comes from homeowners, and boards and their attorneys simply do whatever they believe that they can get away with. Because it takes a homeowner to risk their own money to challenge any action of the board in court ,and the association is using all of your money to defend themselves. The Attorney can never be held accountable for the advise he provides a client and he gets paid whether he is proven wrong in court or not.

      Your story of the recall vote is also very interesting. Once again the specific process required by state statute for the recall election does not appear to have been followed. We have worked over the years to enact laws to protect homeowner, and ensure their ability to participate in their community governance and oversight of the elected board members. But far too often we come across board and their attorneys that simply don’t care about what the law says and they simply ignore that law.

      These laws don’t change by themselves that is why I started this coalition to try and get a voice for homeowners heard at the state house. But unless people get involved in supporting the legislative initiatives that I introduce every year the money and the paid professional lobbyist the HOA industry has at the capital will always sway the day and block any efforts for even moderate reform. I will be there fighting for all of you but thousands of Arizonians join me in the demand for better legislation we will never make any improvements in these communities.

      Dennis

      Dennis

  3. Katken

    I do hope these stories from the field help in some way to influence state law around what is really happening in our communities.

    Thank you for your efforts.

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