As soon as an HOA’s Board of Directors decides that it can rely on an attorney to justify actions that seem to be impossible or implausible based on the contents of the HOA’s governing documents, it is time for members to take one of two actions: (1) put up a fight to regain control of the HOA or (2) give up an ignore the situation if the member does not want to sell his/her property. I have observed two types of actions that members have taken to control self-serving Boards. In one case, a Board was selectively enforcing a tree-height restriction. The Board's directors may have benefited from emotionally by requiring some, but not all members, to honor this restriction; but the the members decided to repeal the restriction. In the other situation, when a different HOA's Board tried to impose a special $30,000 assessment on each member for the purpose of making a number of repairs, the members resisted because the Board did not obtain competitive bids; and the members felt that some of the estimated repairs were unnecessary. In both cases, the members were ready to remove their Boards.
Depending on the State laws that govern HOAs, it will be easier in some States to remove a self-serving Board that it is overreaching its authority. For example, as stated previously on my website, a self-serving Board may amend certain governing documents hoping that no one will object to the fact that the documents only grant this authority to the HOA’s members. Such actions cannot be defended if the members object because the Board is relying on the Doctrine of Implied Waiver to justify its actions. This Doctrine states that a Board’s illegal actions are legal if the members do not object. However, the validity of relying on this Doctrine must be based on the fact that (1) members were aware of what the Board did, or planned on doing, and (2) the members did not object to the Board’s actions. IF the Board’s actions are not revealed, the Statute of Limitations does not usually apply until the actions have been revealed.
Setting Aside the Doctrine of Waiver, a self-serving Board may also try to rely on the Business Judgement Rule (BJR) which is interpreted differently by each State. But, but generally, the BJR does not protect the actions of Boards if a Board’s decisions were self-serving, meaning that the directors were the beneficiaries of the Board’s decisions, or if the Board committed an act of bad-faith, meaning that it committed an act of fraud. Fraud refers to harmful act that violates the terms of the implied contract that defined the delivery of certain services that an HOA’s member would receive and the HOA's management failure to deliver these services.
Setting aside how members can defend themselves against a self-serving Board, the most cost-effective approach for members to take may be finding a Persuader who can convince the Self-Serving Board to improve its management practices before HOA’s reputation suffers from these practices. That is, members do not want their property values to fall due to an HOA’s Board that is out of control. More on this topic in a upcoming electronic book that will deal with the art of persuasion. In the meantime,where there is a will, there is a way!
