Well, it turns out that the answer depends on a series of intertwined by-laws, covenants, precedents, and enforcement. While it looks simple, it is not. We will work our way towards an answer by looking at some history.
Navigating what is right and what is wrong in an HOA is more complex than navigating the White Oak River without experience or navigation buoys. The White Oak has a reputation for hidden oyster rocks that cause lots of damage to boats. You can see them on this satellite photo and a good example of an oyster rock up close and personal in this picture. Often the rocks are covered and just under the surface at high tide.
Our home near Swansboro, North Carolina, is just about three miles from those bridges over the White Oak pictured in the post. Back in 2006, when we bought a home in our subdivision, the last thing I thought about was the HOA. I was much more interested in having a dock behind the house so I could boat, kayak, and fish whenever I wanted to. Our last HOA only cared that our mailboxes were black. My first brush with our current covenants was figuring out that the skiff I hoped to purchase needed to be under 21 feet. Fortunately or unfortunately, if you fast forward several years, I ended up spending three years on the HOA's Board. I have also spent another three years trying to keep the HOA from running across a legal oyster rock that would sink it.
Being a member of an HOA Board is a thankless job, I certainly know that. I had one homeowner walk by my driveway and shout obscenities at me regularly. He was one of two homeowners who owned two lots and only paid dues for one. I was one of the board members who stopped that little game that the developer played. That alone cost the HOA an estimated $13,000 in lost dues which could certainly have improved the financial reserves of the HOA. While I was treasurer, I uncovered an estimated total of $47,650 in mismanagement that ranged from the HOA president okaying payments to mow the roadside of developer lots without the rest of the board knowing it to a septic subsidy that 75 lot owners paid to keep a system going for fourteen lot owners who got their septic services for the bargain-basement price of $50 a year.
The biggest problem with HOAs is usually the first words out of HOA board members' mouths, "We're only volunteers." I like to use the comparison of volunteer firemen. If you are a volunteer fireman, do you go out and fight fires without any training? The answer is likely no. You probably end up doing a lot of reading and training before ever going to a fire.
I am pleased that we take volunteer firemen so seriously because they are a life and death matter. While HOA volunteers are not first responders and HOAs can be a tempest in a teapot, new board members are often thrown directly into the fire after they are elected. Few take the time to understand the by-laws and covenants before they run for election. Even fewer spend the hours after being elected to familiarize themselves with the covenants, by-laws, and previous board rulings which are all part of what you need to know to be an effective HOA board member. When I got elected as a church elder, I got a full day of training and then got to work with a number of people who had been elders for years. My HOA training came the hard way.
When I got elected to our HOA board, there was no training and no one on the board knew anything more about HOAs than the other members. We did have an HOA secretary, part of our management agreement with the developer but her answer to most money questions after shuffling some papers was, "Sure the HOA has the money." Perhaps if I had not spent a few years as a real estate agent, I would have just cruised through my time on the board. However, I kept running into the words, Fiduciary Responsibility of HOA Board Members. While real estate fiduciary responsibility is a little different, both still boil down to putting the interest of your client or the whole HOA ahead of your interests or desires.
So like the volunteer fireman who wants to save lives while staying alive, I spent a lot of time learning about HOAs. That turned out to be a good thing since our management company, the developer, dumped us just as we were about to go into my third annual meeting as a board member. It wasn't a pretty sight, our last financial report from the management company was three lines. Our records were a jumble in a cardboard box. Our money was inaccessible. Our insurance company had to pay a bill for us because we had no money for the first few weeks. I did not get a receivables report until after the annual meeting started. It didn't take me long to figure out why I was so long in getting a receivables report, on it I saw a relative of the developer, a board member, and the developer were all paying their dues seven months later than the rest of us.
The greatest danger for HOAs is running the HOA to benefit a few people at the expense of the majority of HOA members. It is the hardest thing for boards to avoid because you have to be relentless in putting the good of others ahead of what might be good for you. You have to do the right thing even if it is the unpopular thing.
In straightening out all of our HOA mess, I learned that you cannot be an effective board member without being familiar with the history of the board. Our HOA despite its flaws had a complete record of minutes. My wife (the secretary part of our secretary-treasurer team) and I spent hours reading previous minutes to find guidance on how to do things the right way and to learn from the mistakes of the past. My wife spent a good part of our year in HOA hell organizing HOA records. If you are going to be on an HOA board, do your homework before you face a serious test or you will likely end up in a worse mess than we faced.
To provide further background to our pink stucco foundation question, I have to tell a story. Our HOA has an architectural guidelines committee. While I was serving my terms on the board, someone came to the architectural review committee (not to be confused with the board of directors) with a set of plans that had a stone foundation. Our covenants clearly state you can only have either brick or stucco-covered concrete block. The architectural review folks turned the person down, she appealed to the board, we backed the decision of the architectural review board. However, since the developer was going to lose the sale of a lot, he harassed the architectural committee until they gave in and approved it. He argued that stone was an upgrade.
I later learned that HOA law is a little different. You cannot use the argument that since the covenants don't forbid something it is okay. Covenants say what is permitted and you cannot write between the lines and make the assumption that something else is okay because it is not mentioned.
This story has a not so funny ending. The homeowner with the stone went on to become a board member and illegally rewrote our architectural guidelines to say that stone is permissible. The subtle thing that needs to be understood is forbidding stone on the foundation would not be legally enforceable but it is still illegal to modify the covenants without a proper vote of the community. Stone on foundations is now a regular feature in our community along with a variety of shingle colors that were never intended.
Though I still haven't answered the pink stucco question, you might guess the direction I am heading.
In September 2015, we held a special meeting to modify three of our covenants. We took the time to understand the rules and consulted a lawyer. The most basic thing in North Carolina about changing covenants is that you need 67% of the total members to make a change. In our meeting, the closest we came was 52 votes or 60%. All of our amendments failed so we went on about our business of enforcing the covenants that we were unable to change. The enforcement was not popular or fun, but it was the right thing to do.
If we fast forward to June of 2020, I have been off the board for four years but have helped several people try to navigate the intricacies of running an HOA board properly which to my mind includes regular and complete financial disclosure down to providing members with a complete list of checks the board has issued. I have written a couple more articles about HOAs, this one is a good primer on board members. I recently did one on board finances and how we turned our HOA'a finances around. Unfortunately, the problem with HOAs isn't the lack of the correct information, it is the we-are-only-volunteers mentality. Remember the difference between a firefighter volunteer and a typical HOA volunteer. There is plenty of information out there about how to run an HOA correctly. Unfortunately, Vulcan mind-meld does not work with it. You have to take the time to read and study it.
Our HOA held its annual meeting recently. We did not attend because we are over seventy, careful about meetings because of Coronavirus, and to be honest, I did not need the heartburn. We are also one year into a plan to move to be closer to our grandchildren.
The board proposed amending our covenants at the annual meeting. I briefly glanced at the amendments and was surprised that they had left out changing some of the things which historically have been the most difficult to enforce, but I sort of ignored the whole thing until I got the minutes of the meeting.
Because no one on the board took seriously the idea that they needed to understand the process of amending covenants, they declared that all of their amendments had passed including one that only got 32 votes which is 28 votes short of the 60 required to pass an amendment in our HOA.
Because I care about following the right process, I wrote an email to the board explaining the 67% requirement which apparently a couple of attendees to the meeting also tried to explain but were ignored. It took the board about a week to actually respond to me. My solution to the problem was for the board to hold another meeting with a new vote. It looked simple to me. The board had called a vote on the amendments and announced a deadline for proxies. They had the vote at the meeting, counted the votes, and announced the results. All they needed to do was explain that the amendments did not pass and have a new vote if they deemed the amendments critical. That was the simple solution. Because egos are often involved in board decisions, simple solutions get ignored regularly.
Our HOA board rejected my simple solution, a new vote. They decided that they have up to a year to get the votes to change the covenants. They did that because a lawyer told them there was nothing in the by-laws saying you could not do that. That has to rank as one of the worst legal opinions that I have heard. The precedent this sets for other boards in the future is appalling. I have never seen votes collected for a year after the results of a vote have been announced.
Everything that I have ever read says that once you call a vote, count all the votes including proxies, and announce the results, the vote is over.
Deciding to extend the deadline for voting is not in the best interests of the community. The board has now admitted that the amendments did not pass. Perhaps holding an open board meeting to build support for the amendments rather than "collecting" votes in private would be the wise way to handle a situation that is just going to cause divisions in the community. Their process will take place behind closed doors instead of in the open like another vote. The appearance of potential arm twisting is not worth the tiny expense to hold a new special meeting. I know exactly what it takes to hold a special meeting. We held one just for covenant amendments. That is what our lawyer to the board recommended.
Every board has its priorities and compromises. Our HOA spends around $1,000 a year on a decorative fountain that only a handful of lots can see. While I did not like the compromise when it happened, I went along with it because it was better than the $1,700 annually that we had been spending. It also brought some peace to the community. We were still able to prioritize safety and spend money on our dock boardwalk lights. Running an HOA is all about priorities. Safety issues like dock lights should always come first. Trying to push amendments that were defeated at the annual meeting just takes away from the important work that the HOA board must do. Sometimes, it is best to just move on and tackle other things, like boardwalk lights that do not work.
Finally, we can answer the question, "Yes, pink stucco is okay in our HOA because it isn't specifically prohibited just as extending a vote for twelve months isn't."
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