By Deborah Goonan, Independent American Communities
One of Missouri’s latest bills affecting homes associations, SB 398, has been dubbed by State Senator Gary Romine (R) as the Missouri Homeowners’ Bill of Rights.
Ironically, the title of SB 398 serves as a stunning admission by Community Associations Institute (CAI), a trade group that strongly supports the bill, that the common interest development industry has strategically removed, violated, or ignored homeowner rights.
As reported in the Kansas City Star (article linked below), Cathy Roth-Johnson, executive director of the CAI Heartland Chapter, claims the Senate bill would grant HOA homeowners specific rights to participate in open board meetings and obtain access to association records.
But if you read the fine print, SB 398 should be renamed the Homeowners Bill of limited and conditional rights, or more simply, the HOA Bill of Rights. See my punch list below for details.
It’s important to note that Romine has a history of fighting for protection of the rights of business owners and corporations over the rights of individuals.
As reported by St. Louis Today, Romine is also fighting for legislation that would directly benefit his chain of rent-to-own furniture stores in Missouri. The Senator’s company is embroiled in a discrimination lawsuit involving a former employee, and, if SB 43 were to become law, it would limit a former employee’s right to file a lawsuit alleging wrongful termination due to discrimination.
Another HOA bill, HB 1063, has been introduced by State Rep. Derek Grier (R), a Realtor/Broker specializing in luxury home sales in St. Louis, former Manager of a family owned HOA management company, and a Certified Manager of Community Associations and Accredited Management Specialist through the Community Associations Institute.
CAI backs the Senate HOA bill over the House version.
A recent article, written by Judy Thomas of the Kansas City Star, summarizes the content of Missouri SB 398, and a separate proposal, HB 1063.
Missouri lawmakers propose HOA legislation, but critics say it won’t protect homeowners
Read more here: http://www.kansascity.com/news/politics-government/article136350333.html#storylink=cpy
What’s in the Missouri Homeowner Bill of Rights (SB 398)?
A few good provisions:
SB 398 provides for substantive presale disclosures (at the time of sale contract) and minimum requirements for insurance coverage for HOAs. These provisions offer some benefits to consumers, but only to the extent that they also benefit HOAs.
The bill also creates specific minimum requirements for establishment of new HOA declarations and bylaws. Of course, that does not help owners of homes in existing HOAs, but it does work to the advantage of home builders still in control of communities under development.
Declarant (developer) rights and transfer of control of Association
Full control of the HOA board must transfer to homeowners after three-fourths of parcels are sold, but that only applies to new associations formed after Jan 1, 2018, not existing HOAs.
Furthermore, the Declarant would continue to hold onto majority control of the HOA Board until that three-fourths threshold is reached. According to the original draft, when one-fourth of units are sold, one homeowner member is to be elected to the HOA board. When one-half of units are sold, one-third of the board must be elected by homeowners.
But during the time prior to full transfer of control, the developer can continue to exercise reserved rights to expand the size of the community, thereby delaying transfer of control.
Amending governing documents
If enacted as drafted, HOA governing documents could not require more than 67% membership vote of approval for amendments. Any provisions to the contrary would no longer apply. Owners would have no more than one year to challenge the validity of any amendment. This provision benefits the Declarant when the bulk of lots and units remain unsold, making it easier to attain the threshold needed for amendments. According the definition, “unit owner” includes a declarant or any other person who holds a unit.
After transfer of control to homeowners, if the association cannot achieve a 67% vote, the board would be able to petition the court to allow amendment by a simple majority of unit owners, provided that no more than one-third of unit owners object. Once certified and recorded, one appellate challenge would be permitted. But, in general, this provision would allow for 51% of unit owners to override the rights of the other 49%. In the end, fewer homeowner rights are protected, creating even more potential for conflict and division among neighbors.
As currently drafted, the statute says bylaws “may” be amended by a majority vote of unit owners, but it does not specifically require a vote of the full membership. So there would be nothing to stop the board from amending the bylaws without a vote of membership. Six months after being adopted, a bylaw amendment’s validity could no longer be challenged.
Setting a time limit for challenging the validity of any amendment restricts homeowner rights, while shielding the HOA from accountability.
The only recourse for homeowners who object to previously enacted amendments (beyond the 6 or 12 month challenge period) would be to attempt another amendment, something that is very difficult to accomplish without cooperation from the HOA board.
Association rights specified and expanded
The Association board would retain all of its authority and power even if it has allowed its corporate status to lapse. Those powers include the right to establish budgets and assessments, to levy fines or withdraw privileges to use common amenities, to engage in contracts, to take loans in the name of the association, or to initiate lawsuits on behalf of the association.
The status quo would be maintained: your association would still be granted the right to a perpetual lien on your property for unpaid assessments, fines levied for violations to CC&Rs, any associated late fees, and interest. The association would also be entitled to recover its collection costs and attorney fees from the unit owner. The HOA lien would continue to take priority over the first mortgage, and could be foreclosed by a judicial or nonjudicial process, if the HOA board decides to do so. The Homestead Exemption would not apply to HOA foreclosures.
The HOA would also be able to collect rent from your tenant for any money you owe, and could evict your tenant for refusing to forward the rent to the association.
How would any of this increase rights for homeowners?
Homeowner rights severely limited
Access to records. A unit owner would have the right to examine association records, provided he or she first makes a written request, stating a purpose for examination of those records.
The Association has 5 business days to respond, and may charge fees for copies and for the manager’s time spent “assisting or supervising the unit owner’s inspection.”
But the bill provides no mechanism for the owner to enforce rights to access of records. What if the HOA disapproves of your purpose for the request? Can the association can simply ignore the request without consequence?
And, of course, HOA management companies benefit by charging fees to provide so-called “open” access records. Those same fees would serve as a deterrent to homeowners.
“Open” Meetings. As soon as one unit owner is on the board, the association would be required to conduct an annual meeting.
Board meetings would have to be announced at least 10 days in advance, and be open to members. (Note that the meetings are not open to the general public or members of the press. That alone limits owner rights and HOA accountability.)
However, the board may require the owner to obtain prior written approval in order to record or videotape a meeting.
Quorum would be established at 20% of unit owners, unless otherwise specified by the governing documents. Quorum may be reached by attending a meeting in person, or participation by proxy, absentee ballot, or electronic ballot.
Quorum tends to be easy for the declarant to attain prior to transfer of control (because the developer owns most of the units until they are sold). After transfer of association control to homeowners, it can be very difficult to attain quorum, because few homeowners show interest in the political process of their HOAs.
What if the HOA violates any of these meeting requirements? The homeowner would only be able to enforce the statute by initiating a court action within 60 days following distribution of approved meeting minutes.
This very limited set of homeowner rights would be difficult and costly to enforce.
Confusing and contradictory regulation of HOA assessments:
449.315 would void any restrictions on the maximum level of assessments or assessment increases that are written into the governing documents. Although this would theoretically prevent tying the HOA board’s hands with regard to taking on necessary repair expenses, it would also eliminate limitations on HOA spending.
But 449.323 is somewhat contradictory. It would provide a process whereby unit owners could reject ratification of the annual budget or a special assessment that exceeds 15% of the current annual budget. To reject a budget or special assessment, a majority of unit owners who attend a special ratification meeting would have to vote NO on the matter. Quorum would not be required for a ratification meeting, so, theoretically, less than 20% of members could attend the meeting and cast enough votes to reject the board’s budget proposal. If that happens, the HOA would have to continue with the previous year’s budget until a new budget ratification.
Sounds like it gives a bit more control to homeowners, right? Well, read on for the loopholes.
Exceptions and loopholes to unit owner rights:
1. Prior to full transfer of declarant control, the board can act by unanimous consent, without a board meeting. This defeats the purpose of requiring open board meetings as soon as even one homeowner is elected to the board.
Imagine being the lone homeowner representative voting against the remainder of the developer controlled board, thereby forcing an open meeting.
Who would want that job?
2. At board meetings, a member would be allowed to comment, but the board could set time limitations on those comments. As is common in other states, closed (executive) board meetings would be limited to matters involving litigation, personnel issues, and consideration of pending contract bid proposals. But the Missouri proposal would go one step further by allowing an executive session to discuss any matter that might “violate the privacy of any person.”
That kind of vague language provides plenty of excuses to hold meetings behind closed doors.
3. Membership voting on issues such as amendments to governing documents could take place without a meeting, with the use of absentee or electronic ballots. However, once cast, the unit owner could not revoke the ballot for any reason. And without a meeting, members would not normally witness the counting of those ballots.
Would you be comfortable with that process? Could homeowners trust the integrity of a vote without a meeting?
4. If members were to prevent ratification of a budget by voting to reject it, the board could still issue a special assessment or create an adjusted budget, neither of which would require a vote of unit owners, as long as neither the special assessment or adjusted budget exceeds 15% of the most current budget.
This is a gaping loophole that makes the homeowners’ rights to block ratification of the annual budget essentially meaningless.
As the reader can see, as currently drafted, SB 398 provides very few meaningful rights to homeowners, and further enables HOAs to serve the special interests of their industry stakeholders, including trade group CAI and the homebuilders their attorneys represent.
What about the House Version of MO HOA Bill (HB 1063)?
Meanwhile, in the House, a bill introduced by Derek Grier, also proposes regulation of HOAs. While some of its proposals are similar to SB 398, there are very significant differences.
The following amendments written into the House bill would apply to ALL mandatory associations, regardless of the so-called contractual terms of existing governing documents.
Amendments to any of the governing documents (CC&Rs, Bylaws, articles or amendments) would require a nine-thirteenths vote of approval (69%) of all unit owners within the association. The proposed threshold would be higher than the two-thirds (67%) majority currently required by SB 398 and some existing associations, but less than 75, 90, or 95% thresholds required by some governing documents. The threshold could not be made higher or lower. Unlike SB 398, there is no restriction on unit owner challenges to amendments.
All associations created after the enactment of the law would be required to incorporate after turnover from the Declarant (developer). Existing HOAs that are not incorporated could only do so with majority unit owner approval. (SB 398 requires all existing associations to incorporate following transfer of control from Declarant.)
The House version provides for a ratification process for the annual budget in the same manner as provided in SB 398: to prevent automatic ratification, a mjority of unit owners at a pre-noticed budget meeting can reject the budget by voting NO. In the house version, the opportunity to reject ratification exists in all cases, even if the budget is not increased in excess of 15%. Similarly, any special assessment proposed by the board is subject to the same ratification process. Unit owners would have more power to reject annual budgets and assessments under the House proposal. On one hand, owners might have more power to control costs. On the other hand, owners might be unwilling to adequately fund necessary maintenance and repairs.
However, there is still a loophole: “emergency” special assessments would require only a two-thirds vote of the executive board, and subsequent notice to all unit owners. Notably, the statute does not define what constitutes an emergency.
An association would be required to provide access to records (with the usual exceptions) within 5 days’ notice, specifying the records requested. Unlike SB 398, the unit owner does not need to state a purpose for the request. There is no provision for charging owners a fee for copies or for the management agent’s time to “supervise” owner’s access. There is no exception to records access for reasons of ensuring “privacy” of any person. However, unit owners would not be entitled to see minutes of meetings for executive sessions of the board. As with SB 398, the bill does not provide for means to enforce the right to access records.
The House version, unlike the SB 398, would require associations with annual revenue of $50,000 or more to obtain an audit once every 5 years. Members of associations with smaller annual budgets would have to opt in to the audit requirement with a two-thirds vote of unit owners.
The following amendment proposals offer little benefit to homeowners and buyers, with potential to restrict the owner’s rights even more than SB 398.
A seller would be required to provide a copy of important documents to a buyer at least 48 hours prior to closing, and the association would have to make copies available to all owners. The seller disclosure requirement is very weak and nonspecific by comparison to SB 398. For one thing, the documents would be disclosed too late in the sale process for a buyer to rescind a sale contract without penalty.
The bill requires an annual meeting, and an opportunity to speak at any meeting, but remains vague with regard to an owner’s right to attend meetings of the board.
Turnover from Declarant would occur as follows: when 50% of lots have been sold for residential purposes, unit owners would elect one member to the board. When 95% of lots have been sold, unit owners would be able to elect a majority of the board. Full transition to an owner-elected board would not occur until 100% of lots have been conveyed to owners that are not affiliated with the Declarant. In other words, the Declarant could retain one or more seats on the board, even if he or she holds onto only one lot or unit.
The absolute worst part of the House bill concerns the appeals process for an owner who faces a fine or other penalty imposed by the board of the association. In most states, and according to most governing documents, the owner can appeal directly to the board, and, if that is ineffective, the owner can proceed with a lawsuit against the association.
A common complaint of HOA residents is that the only way a unit owner can defend his or her rights is to engage in a costly litigation process. A better alternative is needed.
The House bill would provide for an alternative method of appeal.
- The unit owner would have to obtain a petition signed by one third of unit owners, challenging the board’s decision.
- The board would then be required to submit a question to all unit owners, asking them to vote up or down on the matter of rescinding the fine or penalty against the unit owner.
- If 50% plus one unit owner votes for a reversal of the board’s decision, the fine or penalty would be rescinded. Otherwise, the board’s decision would stand, and could no longer be challenged by the aggrieved unit owner.
However, this proposed alternative to the civil court system would place a nearly impossible burden upon the unit owner, who would have to fight against the tendency of most owners to remain uninvolved in the political affairs of their association. The likelihood of obtaining a sufficient number of signatures on a petition would be low, and, even if a unit owner were successful in obtaining a petition, it would be even more difficult to convince more than 50% of unit owners to bother to vote on the question regarding the board’s decision.
The entire process would also be tantamount to a popularity contest, with a unit owner at the mercy of neighbors who might not be any more objective or reasonable than the board of directors. An unpopular owner would not stand a chance, even if the board’s decision would otherwise be considered discriminatory or unreasonable.
It’s clear that CAI and advocates in the real estate industry support legislation that results in contract impairments that benefit the HOA, while opposing legislation that might benefit individual homeowners and residents.
Missouri SB 398 And HB 1063 provide more concrete proof of that fact.