Marcia,

There are no state laws addressing long range planning or funding for these common interest communities. So unfortunately, each individual community is subject to their individual governing documents for any guidance in this area. In 2016 I drafted a comprehensive long-range planning and funding bill, but it went nowhere, and I simply had higher priorities since then. To get such a proposal adopted will take a major effort by homeowners from across the state to make this a priority for the legislators, we were certainly not large enough in 2016 and may still not be large enough to get this type of legislation passed. While my proposal was based on plain common sense and 30+ year of experience in major project and budget management , it will be an extremely difficult task to get the legislature to impose such controls in law.

I would not be too concerned about the reported % funding as this is simply smoke, and mirrors used by associations to justify and scare homeowners into more funding. The only true measure of funding readiness is what is known as baseline or just in time funding strategy. This is how every major corporation deals with capital expenditures, and funding. What it means is that it looks at every single planned maintenance project and makes sure that when that project is needed there are funds available to accomplish this project. It may look at projects 40 years down the road and make sure that when every project is planned there is enough money to pay for that project that year, the reserve fund never goes below $0. On a simplistic basis, % funding estimates look at all projects and determine how much money is available today to fund all of the projects if they were done today. A totally meaningless number. CAI and the HOA industry promote reserve studies and % funding because it helps them financially and not because they have any real value to communities or the people that live in them.
You can also see from your own observations that all of these funded reserve studies have done absolutely nothing to manage cost or even adequately predict the cost of any project. This is total bureaucratic waste and adds absolutely no value to your community. It is simply rationalized wasting of money for no purpose.

Dennis

Michael,

Typically, boards approve the minutes of a previous board meeting at the next board meeting but there is no requirement in law for them to do so, nor should there be one. What is relevant to me is the fact that boards refuse to provide drafts of board meeting minutes to members until they are officially approved by the board. Then and only then are they an official record of the association subject to the records request laws. What I will do is mandate in law that boards provide draft minutes of any meeting 10 business days after any meeting. This provides the members with the draft of the actions taken by the board at their meetings in a timely manner irrespective of when they actually approve those minutes. This new provision is in a new bill proposal that I’ve drafted for legislative consideration next session.

Dennis

Dave in a mixed-use community, ” lot” applies to single home lots and “units” apply to individual units in a multi-family complex . I would actually need to see your CC&R’s to discern what exactly they require for your complex. It would be contained earlier in the documents either in the definition for lot or unit or in the description of the property as established in the plat. You mentioned apartments, typically apartment occupants are not owners and therefore are not subject to assessments. If the occupants of the apartments are actually owners of their units, then they would be treated like the duplex owners. This is very important for your community because not only are assessments liability dependent on the total number of lots and units in the complex so is the total number of votes in the complex. I believe that the answer to your question lies in the CC&R’s and the recorded plat for the community, but earlier in the document than the section that you quoted. This is far to significant an issue to be left up to the interpretation of the board. It must be clearly established in the CC&R’s.

Dennis

Larry,
The law allows ballots to be returned in person and by absentee ballots. Absentee ballots can also be returned by e-mail or fax. The association must identify when all absentee ballots must be returned in order to be counted, which is typically prior to the meeting. The issue is when were the two mystery ballots returned. if they were returned prior to the deadline, why were they not counted and identified at the meeting. If absentee ballots were returned by hand by the voters to the management office, they are legitimate votes under the law. Proxy votes are not allowed in Arizona no matter what you CC&R’s say. Did the association report the outcome of the vote tally at the meeting? If so, why was the vote count changed and has the board explained what happened. I don’t understand your comment relative to three weeks after the meeting the management company stated that no ballots were sent to them?

So, while clearly suspicious nothing is actually wrong unless the two mystery votes were created after the meeting and the deadline to receive absentee ballots. You have the right under the law to request to see every ballot and the sign in sheet or participation log used by the association to track who voted, do this immediately.

Current law does not provide adequate controls and protections to ensure the integrity of these elections and votes and that is why my top priority legislation this year is my HOA voting rights and election integrity bill. Follow my update e-mails on the progress of this legislation.
Dennis

Rosalie,

The money gather from fines can be used by the association to reduce the common expense assessments for the homeowner by placing the money in the operating account. (Not recommended by me because it will most likely result in excess funds at the end of the year and then you have to figure out how you can address those funds separately. The association is also free to place that money into any reserve account for the long-term Maintenance and upgrade of common property irrespective of the identification of specific projects. While I strongly recommend that you establish a long-range plane for your community so that you can understand the reasonable major maintenance cost for your community and plan for the funding of those expenses thru regular annual contribution to the reserve accounts, nothing requires you to first identify specific projects before you can start saving to pay for those projects.

Dennis

Jamie,
If you want the best, then contact Jonathan Dessaules Law Group. Jonathan and any of the attorneys in his firm exclusively represent homeowners only in disputes with their associations. Please remember that because you believe that the association is treating you unfairly or is failing to meet your expectations for financial responsibility does not mean that it is illegal or that the individual board members or community manager can be held accountable for their actions. Johnathan will provide your guidance as to whether you have a legitimate and winnable case. Because of that they may refuse to take your case based on their time commitment and their ability to address more appropriate cases. This is not personal but rather a matter of time management.
There are attorneys that will take on cases and take your money only to lose in court, and subject you to paying the attorney fees for the association. Listen to Jonathan’s advice carefully.

Dennis

Deena,

Is your association required by your CC&R’s to maintain the exterior of the buildings? If so, the provision that you quoted covers that expense. Painting is maintaining the exterior of the buildings. While the pool area may be the only common property if your CC&R’s identify the exterior maintenance of buildings within the community as the responsibility of the association then that is a common expense and can be funded by reserves for that long range purpose or by special assessments. The association has the ability and the fiduciary duty in the annual assessment to apply money for long-term maintenance activities in the reserves for issues just like this. They do not have to wait until they are faced with a major expense to call for a special assessment to fund that expense. If the board was doing their job properly there would seldom be a need for any special assessment.

If the association is required in the CC&R’s to maintain the exterior of the building the association attorney has no idea what he/she is talking about.

Dennis

Rosalie,

You are correct while there are no state laws regulating the use of reserve accounts what they board is doing in co=mingling the reserve accounts and the operating accounts both violates the fiduciary duty of the board to the community and violates IRS regulations relative to the co-mingling of funds. The relative IRS rules depend on exactly how the association is classified by the IRS. Associations as non-profit corporations can be classified as either 501 C4 or C 7 corporations and are tax exempt. This is however very rare and very few HOA’s or Condo’s are classified as such. The vast majority of these communities are classified under IRS code 528 which is not tax exempt but parts of their income is classified as tax exempt while other parts of their income is taxable. They all must file either IRS form 1120 or 1120H. The rules for the use of either form is very specific but mandate that operating funds must be maintained separate from reserve funds. The good thing is that if the association is in fact violating the requirements for the appropriate IRS classification a simple anonymous phone call to the IRS will trigger an IRS audit and the IRS has the power to fine associations and imprison violators as appropriate.

Do a records request for the last association tax return and look up the guidance and requirements for that form, and the appropriate sections of code 528 that regulates how the association must report income. I’d be willing to bet that most associations know very little about this process and most if not all actually get it wrong. If you find wrong doing then inform the board and tell them to either change their practices or face an IRS tax audit that could result in the board members being held personally liable to fines and criminal penalties deemed appropriate by the IRS. None of them are the son of the President of the US so they have no immunity from IRS persecution. Just ask Al Capone.

Dennis

Dennis, Thank you for your prompt response. You are totally correct in that the Board members are either tennis players or connected in some way with the tennis court/club. So much for representing the best interests of the corporation when less than 1% of the total membership uses the tennis court. The other members have responded in an informal survey that over 70% of them would like to see it removed, leaving a majority of us providing the 1% with their private tennis court when they likely have a greater annual income than most of the membership.
As I noted, this would likely not be an issue had the court not been built in a drainage ditch requiring almost constant expensive repairs to it.

Joseph,

Unconscionable provisions have long been a condition of fundamental contract law for this country. When applied to the covenants that govern these communities the criteria for the validity of any provision in the declaration is defined in the Restatement of law property servitudes section 3.1.

ALL COVENANTS ARE VALID AND ENFORCABLE UNLESS THEY ARE ILLEGAL, UNCONSTITUTIONAL OR VIOLATES PUBLIC POLICY.
(a) COVENANTS THAT ARE INVALID BECAUSE THEY VIOLATE PUBLIC POLICY INCLUDE, BUT ARE NOT LIMITED TO:
1) A COVENANT THAT IS ARBITRARY, SPITEFUL, OR CAPRICIOUS.
2) A COVENANT THAT UNREASONABLY BURDENS A FUNDAMENTAL CONSTITUTIONAL RIGHT.
3) A COVENANT THAT IMPOSES AND UNREASONABLE RESTRAINT ON ALIENATION.
4) A COVENANT THAT IMPOSES AN UNREASONABLE RESTRAINT ON TRADE OR COMPETITION.
5) A COVENANT THAT IS UNCONSCIONABLE.

Dennis