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September 10, 2007

Needed: Better Disclosure, State Guidelines for Boards and Owners

In reading the posts of various"advocates" around the country, one of the newer trends they are pushing is for the state to create some form of punishment for boards of directors who don't follow the rules or exceed their authority in dealing with owners. The amount of litigation this would lead to, as well as the negative affect it would have on people volunteering for these unpaid positions, will probably keep it from ever happening, but it does raise the question of what the states are, or are not, doing to help board members do what they are elected to do.

Of all of the items I've seen proposed, I think there are three items that would have the greatest impact on association living and governance: 1) Better disclosure; 2) More uniform standards in the documents, bylaws and rules; and, 3) Guidelines to help both board members and owners function in a community.

Disclosure

Virginia probably has the most comprehensive disclosure law, requiring large amounts of information to be provided to any purchaser (new construction or re-sale). While more information is always better than less information, there is the strong possibility that this gets lumped into the rest of the closing papers, with only a passing glance. I would like to see every state require a simple checklist be provided by the association that answers some basic questions about the association: Pets allowed -yes or no - limits on types, numbers and/or sizes. Do you need approval for landscaping (front or back), exterior color changes, window or door replacement, play equipment (including portable hoops), sheds, tree removal, fence construction (color, type, height), etc. Vehicle and parking restrictions - can you park on the street, leave your pickup in the driveway, change the oil? Notice, hearings and fine schedules for violations. Assessments are due on what date, considered late on what date, and any late charges.

You get the idea. The key element of this checklist would be a signature line at the bottom where the purchasers would indicate they have read and agree to abide by the restrictions. A checklist would be more likely to be read than the 200 page CC&R's and the signature would remove the "I didn't know" response. Of course, a good disclaimer stating that they should still read the documents would need to be included. But the simpler we could make this, the more likely it would be actually read and have some impact.

Uniform standards

Right now the mishmash of state laws (or lack of state laws) often means that the governing documents of an association, especially HOA documents, are left to the developer's attorney, and there is very little guidance for a board member to follow in implementing them. Without getting into a major fight with the builders, bar or banking associations I think states could reasonable require certain standards for basic association operations such as: Meeting notices, defining open meetings, when an assessment would require a vote of the owners, the difference between maintenance assessments and capital improvement assessments, election requirements, handling rules violations, fines, etc. Basically the administrative operations of the association. This would go a long way in helping with number 3.

Guidelines

A few states, Hawaii, Florida, and California come to mind, try to provide some guidance for both board members and owners, on association operations and living. But here again, I think simplicity is what is called for. I like the use of checklists - they allow someone who is not knowledgable in certain areas to get through the process, and at least know they've covered the legal requirements. Establish the steps needed for an annual meeting and have the President sign off that they have been followed (sort of a Sarbanes-Oxley for CA's). Do the same for budgets, assessments, enforcement and other procedural areas and you at least provide the basic steps to follow. This isn't going to change the personalities of the individuals, but it should help those that are trying to do the right thing.

For owners, the checklists could cover architectural modifications, petitions, vioaltion appeals processes, etc.

Basically, the guidelines should help with the "how-to" that often eludes all of the players in the association community.

Posted by joewest at September 10, 2007 10:09 AM