February 2023 IAC HOA News Digest: Condo, HOA living is getting a lot more expensive
By Deborah Goonan, Independent American Communities deborahgoonan@gmail.com
Last year, IAC posted an update on Pennsylvania state legislation (HB1795) that promised to offer consumer protection for homeowners in HOA-governed common interest ownership communities. (See Nov. 2021 post, scroll down to Pennsylvania, for a summary of the original draft of HB 1795.)
At the time, the bill’s two primary goals were to require a neutral third party to collect and tally ballots for HOA elections, and to create enforcement penalities in state law for HOA boards, managers, or other persons who interfere with elections, or mishandle ballots.
This post summarizes the current status of HB1795, as amended in both the House and Senate, and explains why the bill is now essentially toothless as currently drafted.
Readers who wish to learn more about the legislative history of HB1795, can do so by following the link to Page 2 of this post.
State lawmakers turned a strong consumer protection bill into meaningless HOA reform
In my opinion, state Legislators started with a strong HOA consumer protection bill, but now support a half-hearted attempt at upholding homeowner voting rights in HOA-governed common interest ownership communities.
One key provision of HB1795 gives the appearance of strengthening homeowner rights, but, upon closer examination, offers consumer protection for owners of property in a very small percentage of HOA-governed communities in Pennsylvania.
Specifically, HB1795 requires an “Independent Reviewer” for elections and voting on ballot issues for communities of 500 or more members. However….smaller communities must “opt in” to this important HOA election consumer protection.
The vast majority of HOA-governed communities in Pennsylvania consist of fewer than 500 dwellings.
The Senate’s shift to a 500-member threshold is a significant amendment from the version of the bill approved unanimously in the House. The House version of the bill required an Independent Reviewer for elections in communities with 100 or more homes/units.
And, as introduced, the bill required all communities of 25 or more homes/units to use an independent reviewer for HOA elections and voting on ballot issues.
Also, in the House-approved version of HB1795, owners associations with 100-499 homes/units are enabled to vote to OPT OUT of requirements for an Independent Reviewer for HOA elections. By default, however, all common interest ownership communities with 100 or more dwellings would be required to have a neutral third party collect and tally ballots for HOAs.
Last month, however, the Senate amended the bill to completely reverse that default. The Senate version of HB1795 now states that owners’ associations with less than 500 members — who wish to adopt “independent reviewer” of election provisions — must vote to amend their HOA bylaws, in order to OPT IN. By default, only large communities with 500 or more homes or units would be required by law to use an Independent Reviewer for HOA elections.
The Senate version of the bill outlines the process for two different scenarios, as follows.
AT TURNOVER from DECLARANT: To OPT IN to Independent Reviewer requirements for HOA elections, at least 51% of votes collected in person, electronically, or by absentee ballot, must vote in favor of OPTING IN. The bill’s language is a still a bit unclear as to whether the amendment requires a majority vote ALL unit owners, or just those present at a meeting at the time of turnover.
FOLLOWING TURNOVER FROM DECLARANT (Developer): To OPT IN, at least 51% of ALL UNIT OWNERS must vote in favor of amending HOA bylaws, to authorize the association to OPT IN to the “Independent Reviewer” requirements.
NOTE: Turnover of control from Declarant requirements:
- when 25% of units/homes sold, at least 25% of board members must be elected by unit owners
- when 50% of units/homes sold, at least one-third of board members must be elected by unit owners.
Note that homeowners are always disproportionately underrepresented, as long as the Declarant/developer remains in control of the community.
What exactly is an ”Independent Reviewer?”
HB 1795 defines an Independent Reviewer as a person selected by a Declarant or Executive Board of an HOA, condominium, or housing cooperative). Home and unit owners at large play no role in selecting the third-party election monitor.
The bill requires an Independent Reviewer to be either a Certfified Public Accountant (CPA), an attorney that specializes in HOA/condominium/co-op OR Real Estate law, or a “vote management system” (which is defined as “A third-party vendor who operates a digital or subscription service that securely manages the conduct of elections and voting procedures.”)
To avoid potential conflicts of interest, the Independent Reviewer:
- Cannot be a unit owner, or a direct family member (defined narrowly as a “parent, spouse, child, brother or sister”) of a Declarant, HOA board member, or home/unit owner in the HOA, either directly or indirectly.
- Cannot share a “financial interest” (not defined) with a unit owner, a Declarant, or an HOA manager – and – as stated in the bill,
- “If compensated by the declarant, a director, the association or a condominium manager, [the Independent Reviewer] has disclosed the terms of the compensation to all unit owners at a scheduled meeting.”
You might have noticed that the last two conditions appear to contradict one other. After all, doesn’t “compensation” by a Declarant, HOA board, or HOA management company create a “financial interest?”
Duties of the Independent Reviewer:
- to collect votes from unit/home owners
- to tally votes and report elections results to Declarant, HOA board, and unit/home owners
Other important details in the bill:
- votes may be cast by paper ballot or electronically (e-vote)
- unit/homeowner must be “in good standing” with HOA to be permitted to vote.
The bill does not define what constitutes “in good standing.” Presumably, that means the owner must be current on HOA fees, and must not have any unresolved covenant violations.
But there’s a potential problem with restricting voting power to owners in good standing. HOA boards can (and sometimes do) abuse their power to enforce covenant violations and impose fines, conveniently right before the HOA annual meeting. It’s a strategy sometimes used to throw out votes of owners who oppose members of the HOA board, or its decisions or political agenda.
That’s why some states, such as Texas, do not allow HOAs to take away a homeowner’s voting rights, as long as they continue to own property in the community.
View this videotape of the PA House discussing HB1795, in its earlier stages, as of June 2022.
No more penalties under the law for messing with HOA election procedures or ballots
While the PA Senate just limited the requirements for an Independent Reviewer for HOA elections and ballot issues, the state House previously stripped HB1795 of its enforcement mechanisms.
In June 2022, the House Appropriations Committee voted on the original draft of HB1795.
The original draft of the bill contained three key provisions to deter HOA election misconduct. Specifically, HB1795
- Created an enforceable penalty for individuals who would interfere with HOA election procedures as delineated by state law. Specifically, if found guilty of violating state law, an individual would be fined up to $10,000, or sentenced to up to 5 years in prison, or both.
- Designated a Declarant’s (real estate developer’s) or Executive Board Member’s willful violation of meeting and election procedures to be an ‘unfair trade practice,’ subject to prosecution by the state Attorney General.
- And, most importantly, if an investigation resulted in a conviction, the court would have had the authority to award punitive damages and recovery of attorney fees for unit owners.
The June 15 vote on HB1795 went along party lines. All 22 State House Republicans voted YEA, all 15 Democrats voted NAY, leading to the removal of all Criminal and Unfair Trade Practices penalties against persons who would willingly violate HOA statutory election procedures, or improperly interfere with HOA elections or ballots.
Curiously, Republicans committee members caved into pressure from HOA management industry lobbyists and their Democrat colleagues, even though Republicans well outnumber Democrats in the PA House.
As the reader can see, HB1795 is another prime example of Regulatory Window Dressing — it creates the appearance of consumer protection, without actually providing any.
Despite these amended provisions, which obviously weaken consumer protections for homeowners, there might be a few potentially beneficial nuggets in HB1795. But, as the saying goes, the Devil is in the details.
HB1795 creates new requirements for amendment of HOA bylaws
Under the current language of the bill:
- All amendments of HOA bylaws require a vote of members. Put another way, the HOA board cannot change bylaws without a membership vote.
- A vote on bylaw amendments must take place at an official meeting, with at least 14 days’ notice to all home and unit owners.
- At least 51% of all unit owners must vote by ballot or by proxy in favor of the amendment.
- Absentee votes must be submitted to an Independent Reviewer.
BUT…If a residential community’s bylaws already require a larger majority for amendment, the HOA must meet that higher threshold for amending its bylaws.
The bill creates additional bylaw requirements for all associations
First and foremost, HOAs must conduct at least one in-person meeting each year. Notice must be sent by postal mail or e-mail, corresponding to the stated notification preference of each unit owner.
The bill allows for additional virtual meetings, but only with advance notice of meeting by postal mail or courier service, or — only if the owner has authorized it — notice by email.
Al unit/homeowner may participate in a meeting using remote electronic services (such as Zoom), and their online presence is counted toward any quorum requirements.
All HOAs must hold a special session at least 7 days prior to an election of executive board members, so that candidates have a chance to introduce themselves to all members. Each candidate would be allotted equal time to address participants at the meeting.
Any HOA meeting may be recorded, but such recording must be announced at the start of the meeting. HOAs must allow owners access to any recording for 6 months following the date of the meeting.
As currently drafted in the Senate, HB1795 raises several questions
Of course, the intents to include all owners in HOA meetings and the bylaw amendment process are good things. But good intentions are not enough. There are important questions that must be considered by the Senate.
For example, how long must the HOA actually retain a copy of a recording of the HOA meeting? Suppose the HOA decides to keep a copy of each recording for a year or more. Does that mean that, if an owner requests to listen to or view a recording after 7 months, the HOA can legally deny access?
Do absentee votes cast for a bylaw amendment have to be submitted to an Independent Reviewer in all cases, for communities of any size, or does that only apply to communities with 500 or more homes or units?
Let’s consider the proposed ”OPT IN” process, which would require a bylaw amendment. If there is no independent reviewer required for bylaw amendment votes for communities with less than 500 homes/units, then how can the HOA’s members ever feel confident in the results of a bylaw amendment campaign to require and Independent Reviewer?
Legislators need to consider that the lack of an Independent Reviewer requirement is likely to prevent owners from OPTING IN to having an Independent Reviewer!
And perhaps that’s why the HOA industry lobbyists proposed such convoluted amendments.
Recall/removal of board members (except members appointed by Declarant)
HB 1795 also provides that two-thirds of home/unit owners present at an officially noticed recall meeting can vote to remove any board member, with or without cause.
This is potentially useful for homeowners, assuming they can garner enough qualified votes to remove unwanted HOA board members. The question is, who gets to collect and tally the ballots?
In practice, recall votes are rarely effective. And when they are, they tend to divide communities. That’s why it would be best to improve the process for regular HOA elections — so that HOA can simply avoid having to recall board members.
Approved Methods of Voting
HB1795 includes the following section on “Approved methods of voting.” In my opnion, it is poorly written, utterly confusing, and completely meaningless. See my emphasis added, highlighting two contradictory clauses.
(E) APPROVED METHODS OF VOTING.–METHODS OF VOTING SHALL BE IN ACCORDANCE WITH THE FOLLOWING:
(1) EXCEPT TO THE EXTENT EXPRESSLY PROHIBITED IN AN ASSOCIATION’S DECLARATION OR BYLAWS, THE VOTING RIGHTS OF A UNIT OWNER MAY BE CAST OR GIVEN IN THE FOLLOWING WAYS:
(I) IN PERSON OR BY PROXY AT A MEETING OF THE ASSOCIATION;
(II) BY ABSENTEE OR ELECTRONIC BALLOT IN ACCORDANCE WITH THIS SUBPART; OR
(III) BY ANOTHER METHOD OF VOTING EXPRESSLY PROVIDED IN THE ASSOCIATION’S DECLARATION OR BYLAWS.
On one hand, this bill says that an HOA’s Declaration of CC&Rs and/or its Bylaws, can prohibit proxy voting, absentee voting, or e-voting, regardless of state law requirements.
On the other hand, it also says that the governing documents can provide for “another method” of voting, whatever that may be.
Essentially, if the governing documents allow different methods of voting, anything goes. The entire paragraph might as well be omitted from the bill.
Election by Acclamation would be allowed
HB1795 states the following:
ACCLAMATION.–UNLESS THE BYLAWS OF THE ASSOCIATION PROVIDE OTHERWISE, IN THE EVENT THAT AN ELECTION FOR A POSITION ON THE EXECUTIVE BOARD IS UNCONTESTED, THE OFFICER OR CHAIR PRESIDING AT THE ELECTION MEETING MAY DECLARE THE NOMINEE ELECTED BY ACCLAMATION AFTER DETERMINING THERE ARE NO FURTHER NOMINATIONS.
This is another relatively weak and useless regulation of HOA elections. It allows HOAs to avoid holding an election, by simply determining that there are no other nominations for the seat on the board.
Tell me, how will that determination be made? Will HOAs be required to allow nominations from the floor, on the day of the annual meeting? Or will the HOA create a nominating committee, who will simply decide who can be nominated?
Conclusions
As the reader can see, HB1795 is another prime example of Regulatory Window Dressing — it creates the appearance of consumer protection, without actually providing any.
It’s a shame that the PA Legislature cannot seem to enact meaningful regulation of the HOA industry and the stakeholders that derive their profits from homeowners paying mandatory HOA fees.
Maybe some state Legislators don’t reside in HOA-governed housing, and just don’t understand the realities faced by homeowners. Perhaps some of our elected lawmakers are heavily invested in real estate, including residential properties in common interest ownership communities.
Whatever the reasons, if any PA state Legislators are actually serious about enacting true consumer protections for owners of HOA-governed homes, they should vote NO on HB1795, and start all over again in the next legislative session. Next year, get input from real homeowners and knowledgeable housing consumer advocates. Don’t rely on the word of trade group professionals, or a small number of HOA board members (vs. owners at large) who have been carefully groomed by the HOA management trade group and Legislative Action Committee.
Track House Bill 1795, and read current version of the bill, PN 3513 as amended by the Senate, Urban Affairs and Housing committee on September 23,2022
See list of bill sponsors below.
PA HB 1795 Sponsors (2021-2022 session)
Rep. Rosemary Brown (R-189) PRIMARY SPONSOR, serving parts of Monroe and Pike Counties, Chair of the House Urban Affairs Committee. Currently running for PA Senate.
Jack Rader, Jr. (R-147), a Monroe County resident, and a Resort Manager in the Poconos.
Susan C. Helm (R-104), serving portions of Dauphin and Lebanon Counties, outside of Harrisburg.
Milou Mackenzie (R-131), serving parts of Northampton, Lehigh, Montgomery Counties. Interior designer and small business owner.
Joe Ciresi (D-146), portions of Montgomery County, assigned to Commerce, Tourism & Recreation Development, and Gaming Oversight committees.
Valerie S. Gaydos (R-44), Allegheny County, small business owner, Angel investor, and President of Fifty-First Associates, LLC (”The Firm provides government relations, lobbying, associations management, public outreach, education, event management and fundraising services for non profit organizations, professional associations and corporations.”)
Tina M. Davis (D-141), serving portions of Bucks County, Democratic Caucus Secretary, owner of a trucking business.
For advocates and others interested in learning about the legislative history of HB1795, follow the link to Page 2.