How An HOA's Members Manage Their Boards of Directors


It used to surprise me if members of some HOAs or Condominium Associations felt controlled by their Boards, until I actually lived in an HOA. Therefore, I developed a strategy for dealing with this problem that may be helpful for others who feel the same way that I once felt. It may be a painful process for one member to follow; but I am comfortable that a group of members can develop a similar strategy. Therefore, members should become aware initially of their legal rights. Members elect their Boards; and usually the directors can be removed with or without just cause by a majority vote of the HOA's members at a meeting that a certain percentage of members can ask the Board to schedule. Or, it can occur by nominating new members to the Board at the annual homeowners' meeting when members consider adopting the Board's proposed annual budget for the HOA.

But, State laws usually have provisions that cover this issue if the HOA's governing documents do not cover it . For example the State of WA's, RCW64.38.020(5)states "The owners by a majority vote of the voting power in the association present, in person or by proxy, and entitled to vote at any meeting of the owners at which a quorum is present, may remove any member of the board of directors with or without cause." Therefore, this law enables 51 percent of the members to ask in person or by proxy for the removal of one or more board's directors for no reason whatsoever; but usually members do have legitimate reasons.

Every member of an HOA should want to vote for Boards that are capable of following the state laws and enforcing the HOA's rules that are stated in the HOA's governing documents. If members realize that their Board's have not followed state laws or their governing documents, the members have an obligation to remove the directors who have established a pattern that will only get worse, potentially leading to fraud.

According to Black's Law Dictionary, fraud is "knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment." Notice that fraud is intentional; the person committing the fraud knows that the statement or omission is not factual. Also, note that there are two kinds of fraud by omission defined as follows:

Fraud of commission, in which someone states a fact that they know is not true "That car has never been in an accident," (knowing that it has been) or Fraud of omission, in which someone conceals a material (important) fact, as in knowing that a car has been in an accident and not disclosing it. (source: https://www.thebalancesmb.com/how-can-i-protect-my-business-from-fraud).

For an HOA, Fraud by omission may be a Board's decision to amend an HOA's governing document in a manner that (1) was not disclosed to members, (2) was not in accord with the HOA's governing documents' process for amending the them that required a majority or super-majority of members to support it; and (3) did not disclose the Board-adopted amendment later so that members could challenge it. The Board's actions can be classified as fraud by omission if the Board chose to conceal the material fact, namely that the Board's actions would adversely impact certain members, in order to be able to require certain members to contribute to the cost of delivering services that would adversely impact them but would benefit others.Therefore, if members are aware of any instances of a Board's acts of Fraud by Commission or by Omission, they are obliged to remove the directors who may have been unaware about the limitations imposed on their responsibilities; but usually they were probably not equipped to serve on an HOA's Board of Directors .

I have found that most Boards of Directors for self-managed Associations usually have the basic collective skills sets needed to manage them; but their management styles can be problematic. For example, a successful former self-made business owner who is used to making 100 percent of the decisions for his or her business is not going to adapt easily to the environment of an HOA's Board of Directors because ordinarily certain issues that affect the Association must be proposed by one director, seconded by another after which the proposal must adopted majority of the Board, followed by sending the Board's proposal to the members for their vote of approval.

1. Therefore, members should recognize and state their needs and should expect that their needs are represented by at least 1 elected director on the Board.

2. The terms of office for Boards should be staggered so that a new incoming Board member can learn from the other Board members, assuming that the other members have learned their responsibilities and the limitations of them.

3. The Board of Directors cannot function correctly until it has actually read the Association's governing documents, and State Laws that cannot be violated. This is the area that most novice self-managed Boards of Directors mishandle because they assume that they did read these documents; but, untrained legal minds will usually interpret documents in terms of their previous experiences and their current preferences . Therefore, self-managed Boards can easily over-step their authority and potentially make a mess of things that may not be apparent immediately.

4. It is advisable for a "group of members" to meet with an elected Board of Directors and possibly the Board's attorney in order to ensure that the Board has the correct interpretations of State laws and the Association's governing documents. For example, an HOA's Bylaws usually state that the HOA's Treasurer must ensure that all paid invoices benefit the HOA, that the Treasurer must safeguard the HOA's financial records ; and that the Treasurer must share this information, including the balances and disbursements from Reserve Accounts with members at annual meetings. Finally, the Treasurer must make these records available by appointment to any member who would like to review them. Therefore, if a Board's rules deter members from viewing these records, the Board is deviating from its administrative and managerial responsibilities as stated in the Bylaws for the HOA's Treasurer's responsibilities that were written to promote transparency and members' free access to these records by appointment.

For example, examples that defeat the concept of transparency of the HOA's financial records could reflect the one or more of the rules: (a) the Board has not safeguarded all of the HOA's financial records,(b) the Board has all of the records but they have not stored them in a manner that an auditor would expect them to have been stored, (c) the Board cannot answer members' questions at annual meetings about their operating expenses or disbursements from Reserve Accounts, (d) the Board establishes rules that make it impossible for a member to review these documents, such as imposing a 1 hour per year to review documents, (e) the Board decides to store if financial records with its attorney instead of its Treasurer; and members who meet the Board's attorney must agree to pay the Board's Attorney who will supervise the member's inspection of records, irrespective of the condition or completeness of the financial records that the Boards chose to safeguard.

5. Following the annual election of a Board of Directors, it is important to have a delegation of members attend the first official meeting of the Board in order to hear who is elected as the Board's officers.This is possible in Washington State because members are allowed to attend any meeting of the Board. All meetings in Washington State are supposed to be held in accordance with Roberts Rules of Order and attendees must be given time to ask the Board's directors questions related to the agenda for the meeting. The Board's President controls the process for answering questions, and may limit the time available to do so; but the Board of Directors cannot do so in a manner that evades answering the members' questions. It is important to ask about the qualifications of the officers, especially the President and others who have control over the HOA's funds.

Probably, the most important votes from members in attendance at an Annual Meeting refer to the nomination and election of to the directors to the Board and the adoption of the Association's budget for the next budget cycle. The members should be unwilling to vote to adopt anything as important as a the election of directors, the operating budget, reserves and special assessments until the members' questions can be answered. (Other information about asking questions can be found at ,

https://www.afsc.noaa.gov/education/activities/PDFs/SBSS_Lesson6_roberts_rules_of_order.pdf

privacy rules).

In closing, if members interact with their Boards of Directors in the manner described above, the members will have an excellent Board of Directors that does not lose sight of its responsibilities.

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