Quorum requirements for special meeting

[While originally writing this post, I did not have, for reference, the letter that was mailed to the homeowners with the ballots this last month. After re-reading it, it appears that the board president has positioned the handling of this vote and the upcoming special meeting in such a way that the meeting will be for vote counting purposes, only. As such, the entire matter is controlled by Corporations Code 7513, contrary to what I wrote below. This is not what I had intended when I agreed to set a date and time for a special meeting; however, it appears that little can be done about it now.

There is still the issue, as described below, of whether the measure fails or whether the vote is invalid if quorum is not met (which I'm still pursuing). I have been told (third-hand, unfortunately) that legal counsel has advised the board that a vote of this nature does not carry the same "weight" as an annual election; and therefore, if quorum is not met, the measure fails. If you truly care about this matter, please do your best to see to that quorum is met before the 20 May 2010 deadline.]

A little over a month ago, a number of homeowners requested a special meeting to reverse the rule changes adopted by the board of directors at the regular meeting on 21 January 2010. In response to a question from one of our board members about how to proceed on the matter, I sent an email to the board of directors outlining what I believed to be the required course of action. At the most recent regular board meeting and in an email to a number of homeowners, the board president expressed his (opposing) opinion that if the quorum requirement of 51% is not met, then the effort to reverse the rule changes simply fails without a reduction of the quorum requirement as applies with annual elections. What follows is what I found after further researching the relevant laws.

A reversal or "veto" of rule changes by an association's membership is governed by Civil Code 1357.140. According to subsection (a), 5% of the members are required to call a meeting; and according to subsection (b), they must do so within 30 days of the notification of adoption of the rules. Subsection (b) also requires the board to hold a special meeting and give notice of it in accordance with Corporations Code 7511 or alternatively, according to subsection (c), hold a vote of the membership by mail in accordance with Corporations Code 7513. If a meeting is held, then according to subsection (e), said meeting is governed by Corporations Code 7510.

Subsection (d) of Corporations Code 7510 reads, in part:

The votes represented, either in person (or, if proxies are allowed, by proxy), at a meeting called or by written ballot ordered pursuant to subdivision (c), and entitled to be cast on the business to be transacted shall constitute a quorum, notwithstanding any provision of the articles or bylaws or in this part to the contrary. [...]

The latter part of the quoted section turns over requirements for quorum to the association's bylaws which in section 3.03 state, in part:

The presence at any meeting, either in person or proxy, of Members entitled to cast at least fifty-one (51%) percent of the total voting power of the Association shall constitute a quorum for any action except as otherwise provided in the Planned Development Documents. If, however, such quorum shall not be present or represented at any meeting, a majority of the Members entitled to vote thereat shall have the power to adjourn the meeting to date not less than five (5) days nor more than thirty (30) days from the meeting date, at which meeting the quorum requirements shall be one-third (1/3) of the total voting power. [...]

The assertion that the measure would fail if quorum is not met on the first attempt appears to be predicated on subsection (b) of Corporations Code 7513 which states, in part:

Approval by written ballot pursuant to this section shall be valid only when the number of votes cast by ballot within the time period specified equals or exceeds the quorum required to be present at a meeting authorizing the action, [...]

The language here is not clear as to whether the measure "fails" or if approval is simply not valid, in which case the matter is not actually resolved and the association needs to find another or additional means by which to come to a final resolution.

It is my opinion that scheduling a special meeting as the board did at the regular March meeting makes Corporations Code 7513 irrelevant, however. Because a special meeting has been scheduled, Corporations Code 7510 is the controlling law on the matter which, in turn, gives control of the quorum requirements to the association's bylaws which are quoted above.

It is also worth noting (again) that this entire exercise may be academic as the rules may be unenforceable due to the fact that the board did not provide proper notice of their adoption in accordance with Civil Code 1357.130(c).

Agenda mailings

You may have noticed that, for the last two months, you've been receiving the regular meeting agenda in the mail as opposed to having it delivered to your door as part of Tom Crowder's (the board president) newsletter. I was told by Tom after last month's (March) meeting that he was no longer distributing the newsletter (he did not give the reason(s) why) and that that was the reason that the agenda was now being mailed. I explained to him, at that time, that the board was only required to post notice of the meeting and its agenda in the common area and that a mailing was only required to homeowners who had explicitly requested it.

After receiving the agenda in the mail again this month, I sent the following to Tom:

Is there a reason that the agenda was mailed out again this month instead of just placing it on the bulletin board?

After a day of waiting, I received no response, so I sent the following to the entire board (including Tom):

Does anyone know the answer to this? I didn't get a response from Tom.

According to Civil Code 1363.05(f), all that is really required is posting notice at the pool (unless I'm missing something). Considering that this mailing alone probably runs $150-$200, it seems it would be prudent to do that instead.

http://www.davis-stirling.com/MainMenu/Statutes/CivilCode136305/tabid/879/Default.aspx

I have received no response.

[Update: The other directors, at the April meeting, agreed that stopping the mailing was a good idea, and future agendas will be posted at the pool rather than mailed to homeowners.]

Us vs. Them

At March's open board meeting, the open forum portion of the meeting was dominated by discussion of the budget discussion of cuts to the budget overwhelming demand not to cut items from the budget... Well, that and a desire not to raise assessments.

I'm reminded of a post I wrote back when I left the board in 2007. Specifically, I'm referring to the need to find solutions, not more problems. In my opinion, the association has severely mismanaged its reserves and really, its finances in general, over the past few years. Currently, the association's reserves are just over 20% funded; it has "borrowed" approximately $30,000 from its reserves with no plan to pay it back; and its expenses exceed its revenue by almost $15,000 per year. In the face of all of this, homeowners are still demanding that no services be cut and dues not be raised. It's grotesque in its absurdity, and the disconnect would be hilarious if it weren't leading directly to the bankruptcy of this association.

As if this isn't bad enough, anger at the situation is being directed at the current board and the belt-tightening we all now face as if these problems merely appeared out of thin air and were not a direct result of financial mismanagement by previous boards of directors and the lackadaisical attitude the rest of the homeowners took toward the matter.

To paraphrase Walt Kelly: I have seen the problem, and it is us.

So, let me reiterate a couple of points from that previous post:

A homeowners association is exactly what its name implies. It is an association of owners of a given set of homes. All homeowners have an equal right (and in my opinion, responsibility) to participate. The board merely acts to handle the day to day business of the association and see that business gets done in the event that homeowners do not participate (usually the result of apathy, of which there appears to be a great amount). Homeowners who don't speak up should not be surprised when the board acts in a manner inconsistent with what they might have done.

and

The board of directors of an association has a fiduciary duty to the association, not its individual members. Decisions are made in the interests of the association. While the board should make an effort to be as accommodating as possible, eventually unpopular action may become necessary. This can have a disproportionately negative effect on individual homeowners, but that does not automatically make the decision a product of malice.

Let me also make a related point, explicitly. With regard to this problem, prior to now there was no "us", and there was no "them". There was only "we", and by "we", I mean every homeowner in this association. We are responsible for the situation in which we find ourselves. The board of directors may have made the decisions that brought us to this point, but none of the rest of us tried to stop them. We are now responsible for and bear the burden of rectifying this situation. The board of directors consists solely of homeowners within this association, and decisions that it makes to cut services and/or raise dues affect its members just as much as they do other homeowners.

We were the problem, and now we must solve it. There will certainly be disagreements about how to go about finding the solution(s), but the only "us" and "them" distinction that now exists is between those who are working toward the solution and those who are not.

Accounting and Finances

The board's treasurer and I finally met with our property manager and a representative from our property management company's accounting department last week. Our treasurer, as always, was on the ball with a number of questions. I didn't say/ask much since he had already prepared to cover the issues I had raised at previous meetings. Here is a summary of what we learned:

• The association is currently about $26,000 in arrears with regard to homeowner assessments.
  
• The reserve account(s) is/are approximately $30,000 in arrears with regard to budgeted funding.
  
  This point requires some explanation. I've written at length about our reserves being underfunded. The term "underfunded" in those contexts refers to the deficit between the amount of money the association has in reserve and the amount of money required to repair/replace association assets that have reached the end of useful life. For example, if $346,000 were required to repair assets that had reached the end of useful life, and the association had only $100,000, the reserves would be underfunded by $246,000. Alternatively, in this situation, the reserves would be at 30% funding.
  
  Now, saying that the reserve account(s) is/are in arrears by about $30,000 with regard to budgeted funding, using the previous example, means that instead of having $100,000 in the reserve account(s), there would only be about $70,000. Not coincidentally, this example is that of Park Lane's reserves.
  
  I've mentioned before that the 2009 board borrowed $10,000 from the reserves.
  
  The solution to the mystery of the remaining $20,000 was finally revealed during the course of the meeting. Bruner & Rosi (our property management company) has a policy of not funding an association's reserves each month unless that association's operating account contains at least 1 month's worth of assessments. Since our operating account does not contain the requisite amount of money, the management company has not been transferring money each month to the reserve account(s). Furthermore, this money is not explicitly accounted for anywhere and likely would not have been noticed save for the vigilance of our treasurer.
  
  It is my belief that this money represents a loan from our reserves in violation of Civil Code 1365.5(c)(2); however, the rest of the board (only one of the other members has explicitly expressed his opinion) does not.
  
• The management company reports assessments and reserves on what is known as an "accrual" basis. This means that when finances are reported to the board by the management company, the records show that all assessments are being paid and the reserves funded each month. It is not until one tries to reconcile these records with others that are provided that one realizes that this isn't the case. Furthermore, without extra work to reconcile these two reports, it is very difficult (if not impossible) to determine exactly how much variance in income the association has each month.
  
• Our property management company charges upwards of $.50/sheet of paper (it may be $.25/sheet; I don't recall exactly, now) for copies and, in addition, also charges the association for all outgoing phone calls made on its behalf.

In short, Park Lane's finances are an unmitigated disaster and seem to get worse with every layer of the onion that gets peeled back.