Receivership Authority
Good Morning,
Our HOA board is proposing a special assessment as the first of several assessments needed to repair the exteriors and roofs of all the association’s 138 properties over approximately the next 5 years.
The board has sent communication out with the following statement:
“If the special assessment does not pass, the associations attorney will need to go to court before a judge for options on how to raise money for the association. This could include the association going into a court mandated receivership, where a third party would take full control over the association and do whatever is necessary to get the community back on their feet and the cost is borne by the homeowners, including all the court costs for the attorneys and the appointed receiver”.
Many homeowners have perceived this as a threat and have not been provided any information on what receivership entails.
Literature on HOA receivership is very difficult to find, what I have found seems to indicate a receiver basically performs the same functions that a HOA board failed to perform in their stead.
My questions are:
1. Is receivership ever automatically “court mandated” or is someone required to petition the court for receivership?
2. Is a court appointed receiver still bound by the terms of the HOA CC&Rs or do they have the authority to levy an unlimited amount of monthly and/or special assessments that they deem necessary?
Thank you, Kathy
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Kathy,
Receivership is a genuine but scarce possibility for any association. It is far from automatic, and a court will not appoint a receiver if the board of directors is in place and can do their job. Special assessments are often needed when the association board fails to provide for the long-term maintenance of the common property in the reserve funds or spends those reserve funds for other reasons. These special assessments must be approved by a super-majority of the members established by the declaration itself. Those approvals are often difficult, but it is the board’s responsibility to explain the circumstances that generated the need for the assessment and sell that special assessment to the members. No one likes special assessments, but people are reasonable, and if the board does its job to carefully explain the assessment to the community and how the actions from past boards brought them to this point, they will get the approval to do what is right for the community. Rather than approach this assessment in this way, your association has decided to threaten all of you with lies and fear.
There are common law concepts that will allow an association to request a judge to excuse compliance with an unreasonable restriction in the declaration that prevents them from maintaining the common property, but that concept does not apply in this case. The association is required to comply with the declaration in the same way that all homeowners do. While I don’t know what your specific CC&Rs establish for the approval of special assessments your association may have an argument to reduce the approval requirement if the level exceeds 67% of the voting members. They could present a case to reduce the approval requirement to 67% of the voting members, but not to put the association into receivership and force the members to fund the repair without any approval along with the cost of receivership. I know of two communities that were placed under receivership. One was from the entire board resigning rather than satisfying a court order to supply documents, and the other was when the association declared bankruptcy.
These threats are completely scare tactics and have absolutely no basis in law.
Dennis
Thank you Dennis,
Our CC&Rs require a 60% quorum with assent of 2/3. If that fails, a subsequent meeting may be held with a 30% quorum and 2/3 assent. Not unreasonable or impossible to achieve.
Our absentee ballot for this special assessment states if the quorum is not met at the first meeting, they will use the absentee ballot from the first meeting to establish a quorum at the second meeting.
I do not see any state statute that allows one ballot to be used to establish quorum at two separate meetings. ARS 33-1812 says the ballot expires. Is there litigation that has changed the statute requirements?
Kathy,
The issue is that if the quorum is not achieved at the first session the meeting is not adjourned but rather continued to the second meeting with a reduced quorum amount. Even if that quorum was not achieved in that first continuation a second continuation would be required and all three of those meetings constitute the same meeting. Without quorum a meeting cannot be held and essentially never happened until a quorum is satisfied.
Dennis
Dennis,
If I am understanding correctly, a special assessment meeting is called to order for this purpose and is not adjourned until the reduced quorum is met (we were being told the meeting would NOT be called to order). Once quorum is met, votes are tallied.
The deadline to submit absentee ballots has no significance? They can continue to be submitted?
Thank you for this information.
Kathy,
Correct. The ability for additional absentee ballots to be received is logical but not automatic or specifically addressed in statute. But it should be simply started in the meeting that the meeting will be reconvened at a new date and that absentee ballots submitted prior to that reconvened meeting will be accepted.
Dennis
Dennis. I have a similar situation within my HOA. The HOA is running out of money. Our dues don’t cover our operating costs. Our reserves are at 11%. We have 8 million in end of life expenses according to our most recent reserve study. It was recommended by that reserve study to have dues increases over the next 3 years and to have a special assessment. Last year it was presented to our community to do these increases and a special assessment payable over two years. It was voted down twice. There is a lot of opposition and people spouting lies thinking we can save our way out of the problem. We are having to borrow money from our reserves to pay the month to month expenses. The board this year has not presented anything to save our HOA. I believe we need receivership to be able to get the increases and assessments needed to update our community. Our board is not a functioning board. It is divided, several members meet in secret, making sure not to violate quorum laws. We cannot function correctly. Is there a way to get the government involved. Is there a way to force receivership? At this point it is not a threat but a necessity.
JT
Clearly your board is dysfunctional and lack any transparency or any understanding of the law. There is no way to force receivership but you are all free to recall the entire board and replace them with people that will work for the members of the community. If your board was more transparent and honest with your community and presented a true need for increased assessment or even a special assessment they would be much more likely to get what they need to take care of the community. Clearly your community does not trust your board or their stories. It’s beyond time for the community to wake up and recall this entire board and get new people in place. Hard decisions need to be made by all of you and it is far better for all of you to drive this solution then to have a solutioon forced on all of you by a court appointed receiver.
If you would like me to meet with your community members I’ll gladly do that and help all of you out of this situation.
Dennis