Do you trust your Homeowners' Association Board?
By Deborah Goonan
I recently read a newsletter written by a Homeowners' Association (HOA) attorney from California. In the lead article, the attorney talks about how Boards can either build or undermine trust. In the summary, ignoring homeowner concerns, responding "in kind" to hostility, holding secret meetings, and refusing to provide access to official records of the Association are all cited as Board behaviors that undermine trust.
Who can argue with those valid points?
But let's take it one step further. Let's ask ourselves why it is so common for HOA Boards to behave in ways that undermine trust.
It's a matter of how HOAs are designed to govern their members
The current HOA governance model was originally designed by the founders of Community Associations Institute (CAI), a trade group that mainly represents Community Association Managers, Attorneys, and other industries such as insurance, financial services, and landscaping contractors, that serve HOAs throughout the US. CAI's "homeowner leader" members are in the minority, and have mainly symbolic representation on advisory committees that report to the Trustees. These "homeowners" are almost always HOA Board members, many of whom have professional backgrounds serving the HOA real estate industry in some way.
In CAI's early days since its founding in 1973, the original intent was to involve ordinary homeowners in policy making decisions for the industry. But over time, CAI's Trustees have become dominated by trade professionals. These days, the organization lobbies extensively at the national and state level for HOA-related legislation that mainly supports the goals and objectives of its trade members, rather than those of individual homeowners.
In fact, CAI policy and training for homeowner leaders basically says that the only real power the members have is to vote in a new Board! What CAI fails to mention is that the voting process itself is almost always undemocratic. (see previous blogs on this site for more details)
But you don't have to take my word for it. You can read it for yourself right here: (Source CAI's Community Association Living, pg. 30-31)
I added emphasis in italics. Below I will explain how many of these statements are blatantly misleading or problematic.
"A FORM OF DEMOCRACY
Community associations are one of the most representative and responsive forms of democracy in America today. Residents of a community freely elect neighbors to serve on the board of directors of the community. Numerous other owners or residents serve on committees and help with special tasks as they arise.
Board members and committee members are volunteer leaders who meet regularly to discuss pertinent details about running their community. A board meeting at a community association is comparable to a town council meeting of a municipality.
The basic authority in a community association lies with the owners. However, the owners elect a board of directors to act on their behalf. Usually the governing documents delegate almost all of the association’s decision-making powers to a board.
This leaves the owners with very few direct powers. Typically, owners have only the voting power to:
Elect and remove directors
Amend any of the governing documents, except board resolutions
Occasionally, owners will approve the annual budget for their association. But all other decisions are usually left to the board. As a result, if owners are unsatisfied with a board decision, they usually do not have the direct authority to “veto” or “undo” its action. Under such conditions, their only remedy is to elect a new board to represent them. On the other hand, the board has an obligation to listen to the owners’ concerns and to take those concerns into consideration in making its decisions.
Formal means for obtaining owner input include the:
Resident/owner forum at board meetings
Participation of owners on committees
Annual membership meeting
Other means of owner input include owner surveys and letters and suggestions from owners. Just as a board has the responsibility to encourage owner input via these means, owners have the responsibility to use them to make their views known.
Volunteers from community associations are clearly in charge of the operation and governance of their associations. These people are almost always unpaid volunteers, who devote their personal time to managing the affairs of their community."
Now for the truth about HOA governance
As a new owner in an HOA, reading CAI's training pamphlet makes the system sound benign, if not paternalistic. The reader is left with the impression that all Boards are altruistic volunteers, and that homeowners can easily oust Board members that do not serve their best interests.
Often, this is not the case.
Remember that CAI basically calls the shots when it comes to HOA policy and legislation. In Florida and other states, their state legislative committees have generally opposed homeowner-friendly legislation to create fair election processes. For instance, CAI generally favors less secure proxy voting to mail ballots, citing the additional labor and cost involved in creating and mailing the ballots. In Florida and several other states, where ballot voting has been mandated for condo associations, CAI lobbying efforts have thwarted efforts to get similar statutes enacted for homeowners' associations in planned communities. The industry will not even entertain the notion of eliminating weighted voting rights for developers, and insists upon allocating voting rights by Lot or Unit as opposed to residency.
The result is a corporate - not democratic - voting system that strongly favors majority property owners (akin to shareholders), even if those that own multiple properties do not live in the HOA. Alternatively, a few proxy holders often determine the outcome of an election or any attempt to amend the governing documents. Proxies are particularly troublesome when they are "general" or "non-directed," meaning that individual homeowners do not even have the opportunity to tell their designated proxy holder how to vote!
Board authority lacks checks and balances
Back to the concept of trust. The whole point of the US Constitution was to create a legitimate, trustworthy government, one that would counteract human nature to be selfish and controlling of others, by creating checks and balances. Those checks and balances don't exist in HOAs, unless the Board willingly adopts them.
For example, see this list of what CAI considers to be the powers of the Community Association Board (Source: CAI's Community Association Living, pg. 21)
Emphasis in italics.
"Examples of the powers generally granted by the governing documents and state law to the board include:
The authority to set goals, standards, and policies for the association
Enforcing the governing documents
Maintaining the property
Maintaining the association’s financial stability
Purchasing adequate insurance
Entering into contracts for services
Creating and supervising committees
Conducting annual meetings and board meetings
The board holds regular meetings as defined by the governing documents. Association members not on the board are always welcomed and encouraged to attend. The board also serves as advocates for members. They are available to listen to suggestions and concerns and answer any questions they may have."
Does this sound reasonable? Going back to grade school social studies classes, perhaps you recall the US has three branches of government:
Legislative - makes policy and law
Executive - enforces policy and law
Judicial - interprets or judges liability for alleged violations of policy and law
These are the checks and balances that define our Constitutional Republic.
But in an HOA, the Board serves as:
Legislature (setting policies in the form of rule making)
Executive Branch (enforcing governing documents and their own policies), and
Judicial branch (appointing Covenants and Architectural Committees that determine owner liability, and serving as the "appeals court" when the owner disagrees with the committees decision.)
In fact, the HOA Board even conducts the annual meeting to elect the Board, which commonly results in the Board re-electing itself!
How can the Board build trust with such obvious conflicts of interest, and without any meaningful division of power?
Is an HOA a "democracy?"
In a truly democratic organization, every affected member has an equal right to vote. So on that matter alone, the HOA does not meet the criteria of being democratic.
The statement comparing HOA Board meetings to a Town Council meeting is equally misleading. I have attended town and county council meetings, as well as Board meetings at my HOA. There is no comparison. The town council meetings adhered to Robert's Rules of Order. Members of the public had the opportunity to address the council before and after the meeting, or to write to their council members ahead of time so they could consider public input before voting on motions. In my HOA, as in the vast majority of HOAs, Robert's Rules is rarely applied. In most HOAs, only owners can attend the meeting - not tenants or the general public - and they may or may not be allowed to speak at Board meetings. It depends on state law.
In Florida, HOAs are required to have open Board meetings and allow owners to speak to items on the agenda for at least three minutes. However, in the state of Michigan, a law was recently enacted that eliminates the requirement for open meetings with democratic process for non-profit corporations, which includes most HOAs. (Source: PR Newswire, Robert Meisner Says Condo/Homeowners Associations Beware: The Michigan Legislature Has Dealt You a Severe Blow, March 25, 2015)
On a side note, even in states such as Florida, where I live, there is no guarantee that HOA Boards will uphold the statutes, and no meaningful method of enforcing them against individual Board members. CAI opposes strict enforcement of statutes for HOA Boards, simply because they are unpaid volunteers. The result is that HOA Boards can, and often do, ignore the statutes and fail to provide open meetings or annual meetings, because there is no consequence for breaking the law.
Given these factors, one can hardly trust in CAI's claim that HOAs are "one of the most representative and responsive forms of democracy in America today."
And with a corporate process rather than a democratic approach, it's no wonder trust-building is exceedingly difficult for most HOAs.