HOA Hierarchy, Why it Matters

To more fully understand HOA Hierarchy, Why it Matters, it’s first necessary to understand the HOA hierarchy of governance.

HOA Hierarchy, Why it Matters
HOA Hierarchy, Why it Matters

HOA Hierarchy Begins With HOA Laws

State and federal laws are at the top of the HOA hierarchy. Thus, a law will always trump the governing documents. That is, unless it specifies that the HOA’s Declaration or Bylaws apply. If an article in the governing documents conflicts with the law, the law takes precedence.
 
The Non-Profit Corporations Act of ARS Title 10 governs all non-profit corporations.
 
Most planned communities are non-profit corporations. If they were not corporations then all homeowners could have individual liability.
 
The Planned Communities Act of ARS Title 33 governs all planned communities.
 
An HOA should research the Non-Profit Corporations Act and the Planned Communities Act when seeking answers to legal questions. The Planned Communities Act is specifically for planned communities. Therefore, one should look for an answer there first. That’s because in most cases this Act will trump Title 10. Yet, one should also look to Title 10 to be certain that it doesn’t contain language that would override Title 33. If Title 33 doesn’t address a question, then one would proceed to Title 10 to search for the answer.

 

Next in the HOA Hierarchy is the HOA Governing Documents

  • These are the internal documents that govern an HOA. They are collectively referred to as the “governing documents.” They are:
    • Plats;
    • Declaration of Covenants, Conditions and Restrictions (CC&R’s);
    • Articles of Incorporation;
    • Bylaws;
    • Rules and Regulations.
  • A board of directors governs the association and acts in compliance with the state laws, local ordinances, and the governing documents. It also complies with federal laws such as the FHA, ADA, and any others.
  • The homeowners elect the board of directors to govern the association.
  • The homeowners elect the directors. Thus, only homeowners can remove a director. In planned community law, there is a specific procedure for homeowners to remove a director.

Some association Bylaws may have a section providing that a board may declare a director position vacant if a director is absent from three consecutive regularly scheduled meetings.

HOA Hierarchy, Why it Matters Explained

  • The board of directors elects the officers of the board.
  • Usually, there are four officers: president, vice president, secretary and treasurer.
  • Directors who are not officers are “directors at large.”
  • Directors at large may serve on committees or undertake special projects.
  • The officers have specific assigned duties for their office, yet they can delegate those duties to the management staff.
  • The board of directors can remove an officer from the assigned office, after which that person reverts to being a director at large.
  • The entire board has the fiduciary duty to act in the best interest of the association.
  • The owners cannot micro-manage the board.
    • Yet, the owners can and should attend meetings, ask questions, and voice their concerns and desires for the community.
  • The Bylaws will spell out the powers and duties of the board.
  • The board hires and supervises a community manager to run the daily operation.
    • The board makes the policies that the manager must follow.
    • The manager hires and supervises his or her staff.
    • The board cannot micro-manage the manager or the staff.

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HOA Document Retention Policy, It’s the Law

Recently, someone asked about an HOA document retention policy, it’s the law. They asked if there is a statute covering HOA document retention, and which documents a planned community must keep, and for how long.

HOA Document Retention Policy, It's the Law
HOA Document Retention Policy, It’s the Law

The answer is found in the Arizona Statutes, ARS 10-11601 which is posted down below. You’ll notice that the last paragraph, subsection F states:

“Notwithstanding this chapter, a condominium association shall comply with title 33, chapter 9 and a planned community association shall comply with title 33, chapter 16 to the extent that this chapter is inconsistent with title 33, chapters 9 and 16.”

There is nothing in title 33 regarding HOA document retention, therefore, this title 10-11601 applies.

All of the requirements for an HOA document retention policy are listed in the title 10 statutes, along with the time required to retain the documents. Every Association that works with a professional property management company or has in-house management will, or should have, an HOA Document Retention Policy which lists in more detail what records should be maintained.

As an example, here is the requirement in ARS 10-11601 subsection 5:

“All written communications to members generally within the past three years…”

To me, that means all emails, all regular postal service mail, and all other written communication to members. If an association sends Notices of Non-Compliance, Notices of Violations, Notices of Fines, etc., in a form format, that is a communication with members and must be retained. In fact, if any of those types of forms are sent to a member regarding a violation, and the copies are not retained, the Association may be placed at risk for a lawsuit with a member alleging that the Association either,

  • violated the contract by not sending the appropriate Notice, or
  • that the Association violated the law, ARS 10-11601, by not retaining the required copies.

The duty and responsibility of maintaining Association records is that of the board Secretary. In many cases, the duty of maintaining the records, along with other duties, is relegated to a property manager. However, the Secretary cannot relegate the responsibility. The buck stops with the Secretary, and ultimately, the board.

Since all HOA boards have the responsibility to supervise their employees and contractors to see that their work is properly performed, it may be feasible for a board to form an “Oversight Committee”, whose responsibility could include various oversight duties including monitoring records retention, etc., and reporting regularly to the board.

Below is the complete HOA document retention statute:

10-11601. Corporate records

  1. A corporation shall keep as permanent records minutes of all meetings of its members and board of directors, a record of all actions taken by the members or board of directors without a meeting and a record of all actions taken by a committee of the board of directors on behalf of the corporation.
  2. A corporation shall maintain appropriate accounting records.
  3. A corporation or its agent shall maintain a record of its members in a form that permits preparation of a list of the names and addresses of all members and in alphabetical order by class of membership showing the number of votes each member is entitled to cast and the class of memberships held by each member.
  4. A corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time.
  5. A corporation shall keep a copy of all of the following records at its principal office, at its known place of business or at the office of its statutory agent:
  6. Its articles or restated articles of incorporation and all amendments to them currently in effect.
  7. Its bylaws or restated bylaws and all amendments to them currently in effect.
  8. Resolutions adopted by its board of directors relating to the characteristics, qualifications, rights, limitations and obligations of members or any class or category of members.
  9. The minutes of all members’ meetings and records of all actions taken by members without a meeting for the past three years.
  10. All written communications to members generally within the past three years, including the financial statements furnished for the past three years under section 10-11620.
  11. A list of the names and business addresses of its current directors and officers.
  12. Its most recent annual report delivered to the commission under section 10-11622.
  13. An agreement among members under section 10-3732.
  14. Notwithstanding this chapter, a condominium association shall comply with title 33, chapter 9 and a planned community association shall comply with title 33, chapter 16 to the extent that this chapter is inconsistent with title 33, chapters 9 and 16.

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