Can Chicago homeowners override condo board’s $500K special assessment?

By Deborah Goonan, Independent American Communities


CORRECTION: I received the following statement from Michael Novak, with regard to the Fair Housing lawsuit: 

The federal judge actually gave approval that the federal fair housing case can move forward (after motions to dismiss were ruled on) on September 15, 2014, or almost 3 years ago. We’ve been in discovery since then which should wrap up in the next month or two. 
I was recently provided a copy of a memo written by State Parkway Condominium Association, notifying condo owners of a $500,000 special assessment that was approved by the board for the purpose of funding ongoing litigation with condo owner Michael Novak.

As previously reported on this website, the half-million dollar special assessment has become necessary, according to the board, because the condo association’s insurance policy limit hs been exhausted at $1 million, and the excess insurance provider has denied coverage due to a specific contract exclusion for litigation involving Novak.

Novak and his wife have spent the past 11 years defending their rights on issues involving Fair Housing complaints, as well as failure of the association to provide access to financial records.

Last November, a Judge gave approval for a Federal housing discrimination lawsuit that Novak has filed against State Parkway. The dispute involves noise and other complaints over Novak’s service dog.

Novak is a Certified Public Accountant with several serious concerns about the fiscal management of State Parkway. He has been vocal critic of the board and management of his condo association, and has made numerous specific records requests. Illinois law gives condo association members the right to access official records of the association upon written request, and within 30 days.

However, the basis of Novak’s current litigation is that while some of those requests have been honored, others have been ignored or denied. Novak claims a $10 million shortfall in the budget is responsible for two substantial assessment increases, in the past two years, with more to come.

For readers unfamiliar with the history of Novak’s disputes with State Parkway, please refer to previous articles here, here, and here.

The official notice of this substantial special assessment explains that the members of the association have the right to “veto” or reject the assessment if a majority of the total membership of the association votes in person or by proxy at an August 31st meeting.

Otherwise, it’s a done deal.

 

An impractical, undemocratic policy?

It is my observation that the real estate industry has created onerous policies in order to make it very unlikely that owners can ever override a decision of the “all-knowing” board. Community Associations Institute (CAI), the trade group primarily representing the interests of its member attorneys and management companies, insists that association-governed common interest communities are democratic. But, in reality, many of their public policies have turned democracy on its head.

Allow me to explain.

If you were to read CC&Rs (Covenants, Conditions, & Restrictions) and Bylaws of older associations prior to the mid to late 1990s, you would see that standard procedure used to be that owners would get to vote in favor of any annual budget increase or special assessment. Sometimes the board could do a nominal increase to reflect inflation or cost of living. But nothing significant without taking it to the owners for approval.

Back then, non-votes did not count as being in favor of the budget proposal. A non-vote conveyed tacit disapproval. So if a majority or super majority (depending on the requirement in the governing documents) did not vote affirmatively in favor, there was no budget increase, and the board had to continue the prior fiscal year budget and/or go back and draft a new budget for the owners to consider.

But in the past decade or two, due to pressure from lobbyists from CAI, states such as Illinois have amended their laws and/or attorneys have worked with association boards to amend governing documents to require a majority vote to veto or reject the board’s budget/assessment increases above a certain threshold. Depending on governing documents or state law, an administrative board of an association can go ahead and increase the annual budget by 10% -20% without any membership vote. (Because those thresholds have gradually increased, too.) If the increase is higher, or a special assessment is approved by the board, then state law or the documents or both require the board to notify owners and give them the opportunity to vote to reject what the board has already decided.

The industry knows that a lot of owners do not pay attention and do not vote at all. CAI decries the apathy among owners. But then they take advantage of that apathy. In this new scenario, a non-vote, by default, is tacit approval of the board’s decision to increase assessments or issue a special assessment. This is the exact opposite of the democratic approach that CAI claims to be the norm among association-governed communities.

The same trend is becoming prevalent for associations to make certain amendments to their governing documents, or for enabling the board to enact new rules and regulations restricting the rights of its members — instead of requiring a super majority to vote in favor of the amendment, a majority of unit owners must vote against the amendment. For example, this is becoming the method of choice for associations to adopt amendments waiving requirements to fully fund the reserves or to conduct annual audits.

Compare this to public policy. What if your local or state government created a referendum for a major community project or amendment to its state constitution, and, instead of counting votes in favor vs. votes against the referendum, the election process required a minimum number of NO votes to prevent the government’s favored proposal from going forward?

There would be widespread outrage. The media would be reporting the story. Political pundits would weigh in.

But it is all accepted as perfectly normal and legal in association-governed communities.

We have to ask ourselves why.

 

Statutory References:

Illinois statute (765 ILCS 605/) Condominium Property Act.

Relevant Excerpts:

(765 ILCS 605/18) (from Ch. 30, par. 318)
Sec. 18. Contents of bylaws. The bylaws shall provide for at least the following:

(8)(i) that each unit owner shall receive notice, in

the same manner as is provided in this Act for membership meetings, of any meeting of the board of managers concerning the adoption of the proposed annual budget and regular assessments pursuant thereto or to adopt a separate (special) assessment, (ii) that except as provided in subsection (iv) below, if an adopted budget or any separate assessment adopted by the board would result in the sum of all regular and separate assessments payable in the current fiscal year exceeding 115% of the sum of all regular and separate assessments payable during the preceding fiscal year, the board of managers, upon written petition by unit owners with 20 percent of the votes of the association delivered to the board within 14 days of the board action, shall call a meeting of the unit owners within 30 days of the date of delivery of the petition to consider the budget or separate assessment; unless a majority of the total votes of the unit owners are cast at the meeting to reject the budget or separate assessment, it is ratified, (iii) that any common expense not set forth in the budget or any increase in assessments over the amount adopted in the budget shall be separately assessed against all unit owners, (iv) that separate assessments for expenditures relating to emergencies or mandated by law may be adopted by the board of managers without being subject to unit owner approval or the provisions of item (ii) above or item (v) below. As used herein, “emergency” means an immediate danger to the structural integrity of the common elements or to the life, health, safety or property of the unit owners, (v) that assessments for additions and alterations to the common elements or to association-owned property not included in the adopted annual budget, shall be separately assessed and are subject to approval of two-thirds of the total votes of all unit owners, (vi) that the board of managers may adopt separate assessments payable over more than one fiscal year. With respect to multi-year assessments not governed by items (iv) and (v), the entire amount of the multi-year assessment shall be deemed considered and authorized in the first fiscal year in which the assessment is approved.

NOTE: The same principle applies to board enacted rules and regulations.

(C) that if a written petition by unit owners with at

least 20% of the votes of the association is delivered to the board within 14 days after the board’s approval of a rule adopted pursuant to subparagraph (B) or subparagraph (B-5) of this paragraph (9), the board shall call a meeting of the unit owners within 30 days after the date of delivery of the petition; that unless a majority of the total votes of the unit owners are cast at the meeting to reject the rule, the rule is ratified;

Novak’s lawsuits address the issue of State Parkway Condominium Association’s failure to provide access to official records as specified in IL statute. Here is what the law says:

(b) Any member of an association shall have the right to inspect, examine, and make copies of the records described in subdivisions (1), (2), (3), (4), and (5) of subsection (a) of this Section, in person or by agent, at any reasonable time or times, at the association’s principal office. In order to exercise this right, a member must submit a written request to the association’s board of managers or its authorized agent, stating with particularity the records sought to be examined. Failure of an association’s board of managers to make available all records so requested within 30 days of receipt of the member’s written request shall be deemed a denial.
Any member who prevails in an enforcement action to compel examination of records described in subdivisions (1), (2), (3), (4), and (5) of subsection (a) of this Section shall be entitled to recover reasonable attorney’s fees and costs from the association.

Source: http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2200&ChapterID=62

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