Board of Director Woes: What remedies are available to the disenfranchised homeowner association member?

Often, the comment qua question arises, "My HOA board is [out of control][running amok/this place into the ground][fill in your comment here]. What can be done about it?"

This article will not discuss the legal remedies available to association members. This article does cover the corporate, or private methods available to association members for remedy of a difficult board situation.

The first step in resolving any dispute is to communicate directly with only those involved in the dispute. This direct communication does not include sniping at a board online or in emails. It likely includes scheduling time with the board to voice the complaints, even if one believes the board has tried to silence complaints in the past. Call this the "benefit of the doubt" stage. One important perspective in conflict resolution is to use the least amount of resources (i.e., paper, money, force, energy) necessary to resolve the conflict. Why have a lawyer contact the board if a personal visit from the member will resolve matters?

Direct communication is important because several results are possible by agreement from voluntary adoption of policies and procedures to voluntary resignation from the board. A result negotiated and agreed to by the parties is generally more satisfactory and binding that one imposed by an outside party.

In Oklahoma, and if the association is incorporated, the association's corporate existence was created by the filing of articles of incorporation with the Oklahoma Secretary of State's office. These articles are public record, which means copies of the articles are available to anyone, provided they pay the copying fee. It is possible to obtain the documents electronically from the secretary of state's office by searching and following the directions on the secretary's website. The articles set out the name of the corporate, its registered agent, principle place of business, term of existence, and likely other information about the workings of the corporation. It may be that the articles provide for special meetings, election/removal of directors, and shareholder (member) rights. It is in these articles that one will first look for information on how to effect change within an association via corporate procedure.

It may be that the necessary result is for removal of one or more board members. If so, it is important to understand that such a process will require a meeting of the members and vote. One would consult the articles and bylaws (if any) to determine the procedure for calling a special meeting and vote for removal. In most cases, the current board is not inclined to assist the members in calling the special meeting, so the motivated members will likely have to do the legwork themselves.

Of course, the motivated members could simply exercise their democratic muscles, announce their own candidacy before the next election and campaign for a spot on the board.

Matthew L. Winton, Oklahoma community association lawyer

Community Association Insurance: Condominium

This is the first in a two-part series on community association insurance issues. While not intended to be exhaustive, I do believe these articles will help serve you as a basis in which to evaluate your current association insurance needs.

Introduction

To some extent, community associations need insurance just like most businesses. Community associations need a variety of coverage, such as: liability/casualty, directors and officers, worker's compensation, flood, and various endorsements. However, the specific policy the association should purchase could vary significantly depending on the type of community association, the physical make-up of the project, the activities of the association, its directors, and members, the insurance requirements found within the governing documents, and applicable state law. This article discusses the different insurance policies available to community associations, along with considerations attendant with community association insurance.

Insurance - Generally

Initially, the board for an association should determine whether the association is required to carry certain insurance. Requirements for insurance may be found either in the law or within the governing documents. Even if the association is not required to carry insurance, the board should evaluate whether carrying some forms of insurance would be advisable.

Advisability may be determined by asking questions such as:

• Does the association own property or improvements at risk of loss to fire, elements, destruction?
• Do owners, invitees, and members of the public use property owned by the association or property owned in common by the owners?
• Does the association collect money from owners and spend those funds on community projects?
• Does the association have a maintenance responsibility?
• Does the association have employees?
• Are bonds in place to secure fidelity?
• Do the governing documents place minimum insurance requirements on the association?
• Does state law require the association to carry certain insurance?
• Do current lending underwriting guidelines require certain insurance?

  Underwriting Requirements

  The association's request for insurance will undergo what is called "underwriting." Underwriting is the process by which an insurer evaluates the association's insurance risk and determines whether to offer the association a policy of insurance. It is important for the association to understand the types of questions an insurer is likely to ask.

  Following is a list of questions an insurer is likely to ask when an association seeks to place an insurance policy:

1. What is the loss history of the association and its common area or structures?
2. What structures/improvements are to be covered under the liability and casualty policy?
3. Whether there has ever been any insurance coverage of the elements?
4. When the elements were constructed or put into use, what their value is?
5. Whether the project has completed the development phase, and what involvement the developer retains in the project?
6. What is the age of the development and its improvements
7. What is the legal structure and operations of association?
8. Whether potential liability areas exist within the development, such as detention ponds, swimming pools, athletic facilities, etc?

Finally, the association should expect the underwriter to request copies of all governing documents on file and any amendments, other various covenants or restrictions, financial statements like profit and loss statements or a balance sheet, and a list of directors and officers. Of course, if the record keeping of the association is in shambles, the fact will be apparent to the underwriter, who in turn will assume the association is a poor risk.

Types of Insurance Coverage

When looking to place an insurance policy for the community association, the board should consider its coverage needs. The types of coverage to consider are briefly discussed below. Other factors the Board should consider are:

1. How to value: will the policy cover actual cash value (ACV) or replacement cost value (RCV)?
2. What to value: will the policy cover just common areas and their improvements (Bare Walls), both common area improvements and Units (Single-Entity and All-in)?
3. What deductible amount to choose and whether owners may be responsible for the deductible payment in certain circumstances?

Casualty Coverage

Casualty insurance insures against the risk of property damage. It is imperative that the association have a comprehensive itemization of the property it owns and has maintenance or insurance responsibility. It is equally as important to have a realistic understanding of the property's value, so as to place sufficient insurance for its replacement in the event of destruction. Additionally, the association should periodically review these items to ensure proper coverage.

Liability Coverage

Liability refers to an association's exposure to loss as a result of a claim being brought against the association. The claim could sound in tort, such as negligence, or contract, such as breach of the governing documents. Liability insurance mitigates these claim risks.

Often, associations will cover these risks with a commercial general liability (CGL) policy. It is important for the board to understand the extent of coverage, the exclusions from coverage, and the additional endorsements available to the CGL policy.

Directors & Officers Coverage

The purpose for directors and officers coverage is to 1) protect directors and officers of the association from personal liability, 2) provide coverage for liability arising within the scope of the director and officer positions, and 3) fund corporate indemnification of the directors and officers. While no one expects perfection from directors and officers, the law does require those acting on behalf of the association to perform their duties within acceptable standards. If a claim arises questioning an act or omission of the board or its officers, a D&O policy may cover the liability, if any.

Further, as with other insurance policies, the D&O policy should provide the costs of defense of the claim, which is typically a substantial sum if litigation ensues. Depending on the policy, the costs of defense may or may not be counted towards the policy limits. It is important for the board to understand the policy exclusions, which may not cover claims for civil rights violations, claims for injunctive or other equitable relief, and claims occurring as a result of conflicts of interest.

Additional Coverage

Apart from the insurance types discussed in above, the association may have a need for other types of coverage. These needs may include:

• auto liability insurance
• workers compensation and unemployment for employees
• security guard liability, which provides assault and battery coverage
• business income insurance
• boiler and machinery
• flood insurance
• glass insurance
• inland marine insurance
• landscaping
• business records replacement

Contesting HOA decisions

After a recent OBA webinar, the following question was asked: Is it possible for a homeowner to bring an action contesting a decision by a HOA in Small Claims Court? Small claims courts would not seem to have jurisdiction based on the statute but it seems incongruous that an individual would have to hire an attorney to bring a claim for a dispute of this type.

It is true that small claims courts in Oklahoma are courts of limited jurisdiction. 12 OS 1751 provides that actions under the Small Claims Procedure Act are limited to actions for the recovery of money under $6000.00, except those sounding in defamation, and for the recovery of property under replevin. Declaratory actions and those seeking injunctive relief may not be brought in small claims court.

Regarding a challenge to an HOA action, if the intended relief is for a declaratory ruling, setting aside an election under the Oklahoma General Corporation Act, or injunctive relief, then the action must be brought in district court.

However, see the unpublished case of Robert Glenn v. Coffee Creek Homeowners Association, Inc., No.95,427, Division 4, Court of Civil Appeals, September 18, 2001, where a homeowner brought suit in small claims court ostensibly for collection of money damages, but in reality sought to change an HOA board's decision. Judge Glenn Jones wrote a fantastic opinion setting out the parameters of the rule of reasonableness.

One should keep in mind that often the least expensive and most effective method of overturning an HOA board's decision is to have a special meeting called of the membership or have a new board elected who will make the decision you want. Of course, this method requires heavier lifting than filing a petition in district court.

Constructive notice for HOA dues

Recently after a webinar for the Oklahoma Bar Association, I received a question regarding dues notices. Specifically, the question was posed, "Can an HOA rely on constructive notice for dues obligations and sue to collect delinquent dues without sending owners individual invoices?" Constructive notice (16 O.S. 16) is the rule that if notice is properly filed of record, then knowledge of the notice will be imputed to a person whether or not that person has actually viewed the notice. Liken this to the commonly heard, "Ignorance of the law is no excuse." While it may be technically correct that constructive notice will bind a person to a dues obligation, I believe HOAs should still send annual notices individually to owners. As attorneys, one way we assist clients is by reducing or negating arguments against our client's position. Having the HOA client send annual dues notices takes away the argument of a debtor that they shouldn't have to remit dues on a particular collection.

Resolving disputes before going to court

Someone once said, "Conflict represents an opportunity." Many interpret this to mean an opportunity to outsource the resolution to a judge or jury. However, a whole realm of conflict resolution lies before taking a claim to court. This article discusses some tips and techniques for resolving a dispute before going to court.

Sometimes, a dispute arises regarding the interpretation and/or application of specific governing document provisions. For example, an ambiguity may exist within covenants on whether occupants of a house are members of the homeowners association and therefore able to vote in board elections. Before going to court, the owners within the neighborhood may resolve the issue themselves by amending the covenants to expressly provide for who gets to vote. In the event an amendment is not practical or possible, then the dispute may be sent to court for a declaratory ruling.

Other times, the association or owners have already paid for some form of conflict resolution. For example, if my neighbor has a dog that barks incessantly, a city ordinance may cover such an issue, and I have paid through sales or property taxes for government to assist me.

Speaking of barking dogs, fences, parked cars, and whole host of other issues, the very first step in any conflict resolution is for the parties directly influencing and influenced by the matter to speak plainly and personally to one another. Recognizing that life happens all the time, circumstances may be explained in this initial conversation. Understanding may be reached that was not apparent before speaking with one another. Simply talking with one another, even after folks have hardened their positions and vilified the other party, has an almost miraculous effect on moving a conflict closer to resolution.

Now come some bulleted tips for conflict resolution:

• Think about the heart of the issue and how the other person might respond to your requests prior to speaking to the person.
• There is a difference between availing yourself of wise counsel and gossip; seek the former and avoid the latter.
• Sometimes involving a neutral third party, like a mediator, can assist parties in the resolution of their dispute.
• Legal fees and court costs add up. You and your adversary may be able to use those dollars for a resolution rather than seeking recovery of them in court.

I know, "Easier said than done." It may be that your words do not come out the way you wanted or practiced them. It may be that your attempts at settling your dispute with your neighbor aren't met with the same enthusiasm you expected. However, remember that there are no magic words for settling a dispute. As long as you and the other party remain in control of the dispute (i.e., you haven't yet submitted the claim to a court), the parties remain in control of the resolution. And who doesn't like control?

2010 Neighborhood Alliance Basic Legal Issues for HOAs slides

Here are the power point slides for the 2010 Neighborhood Alliance Basic Legal Issues for HOAs presentation: Download NA Basic Legal Issues For Homeowners Associations Workshop - 2010 - June and July

Matthew L. Winton, community association lawyer.

Oklahoma State Association of Parliamentarians 2010 Seminar - Slides

Download 2010 - Oklahoma Parliamentarian Workshop for the slides of my 2010 Oklahoma State Association of Parliamentarians presentation on Oklahoma condominium and homeowner associations, corporate law, and parliamentary procedure.

Thanks to Rod Davidson, professional registered parliamentarian and 2010 president of OSAP, for a great educational weekend.

When green meets the black letter…

In recent years, society has seen an increased interest in the "green movement."Loosely defined, the green movement seeks to incorporate more sustainable and Earth-friendly building and living practices into daily life. How does this comport with established guidelines for living within common interest communities?

For example, one aspect of green living may be to eschew the machine dryer for a clothesline. Yet, many if not a significant majority of real property covenants on file restrict clotheslines. What about edible landscaping? Perhaps such landscaping design doesn't meet the community's standard for yard maintenance. How are we to reconcile the urge to live more softly within the common interest community framework?

Of course, the community may amend their governing documents to expressly allow certain sustainable practices. But, governing document amendment projects may be difficult or impossible depending on the interest level among the owners. In some areas, legislation is being adopted to "trump" restrictive covenants, such as laws expressly allowing solar panels and private wind generators to be installed on lots within community associations. Some owners simply ignore covenants risking lawsuit – see for example the story of one Flower Mound, Texas couple who did just that (the link isn't to recommend this course or endorse either the owner or HOA, or any comments to the story).

For further thoughts on this topic, several blog articles exist: how to help your condo board go green; green your HOA; integrating solar installations.

Matthew L. Winton, Esq.

Practicing community association law since 2000

Slides for 2010 Edmond Neighborhood Alliance Summit

If you want a prior look or will be unable to attend the ENA Summit on February 27, 2010 at the Edmond Multi-Activity Center (the MAC), here are the slides [Download ENA Legal Seminar - 2010] for my breakout session.

Matthew L. Winton, Esq. - Oklahoma condominium and homeowner association lawyer

Leadership Training Available through Central Oklahoma Neighborhood Alliance

Neighborhood Alliance (NA), an Oklahoma City based nonprofit resource for community associations offers free leadership courses. Space is limited and much sought after, so get your application completed here or register online. From the NA website at www.nacok.org:

Neighborhood Alliance is accepting applications for their 2010 "Neighborhood Leaders for Today" leadership course.  This 8 week course begins on Thursday, February 25, 2010 and meets from 6pm -9pm every Thursday evening through April 15 (graduation).  The schedule also includes two Saturdays, TBD, 9-4pm.  The class is free of charge and is limited to only 30 participants.

This one-of-a-kind leadership program is designed to give citizens the tools they need to create, promote and sustain productive citizen-based neighborhood associations and to help create sustainable community improvement projects.  Utilizing over 30 community leaders as guest speakers, the class will learn the basics of grant writing, organizing crime patrol and crime watch programs, how to navigate City Hall, parliamentary procedures, establishing membership drives, effective communications, and team building.

Edmond Neighborhood Alliance 2010 Summit

On February 27, 2010 at the MAC in Edmond, Oklahoma the Edmond Neighborhood Alliance will host their annual summit. Attorney Matthew L. Winton of the law firm Vaughn, Winton & Clark^pllc will be presenting information at one of the break-out sessions regarding: real property covenants, changes in FHA rules, community association taxation and the law.

A link to an Edmond Sun article on the summit is here. More information regarding Matt Winton and his legal practice is found here.