Wednesday, April 10, 2013

"My HOA is Governed by Chapter 617, Not 720" - And Other Lies Your HOA Tells You!

Your homeowners’ association tells you it was created a long time ago under Chapter 617 of the Florida Statutes and Chapter 720 does not apply – that they do not need to follow Chapter 720. What they are telling you is partially true. Actually, it is 100% true if they want to declare they are a voluntary association and you are not a mandatory member required to pay them assessments. Voluntary associations are not governed by Chapter 720. Since I doubt they will do so, let’s look at what is true and what is not true.

Chapter 720 did not exist before the year 2000. Certain language in Chapter 720 did exist prior to that in Chapter 617, as sections 617.301 to 617.306, but those sections were not enacted until the mid-1990s.

Your association is correct it was created under Chapter 617. Your association is correct Chapter 617 applies. All associations are governed by Chapter 617, which covers “not for profit” corporations, unless they were organized as a “for profit” corporation under Chapter 607. Both Chapter 720 and Chapter 617 govern homeowner associations and if the two conflict Chapter 720 prevails. Chapter 617 even states in some sections the section does not apply to community associations (homeowner associations and condo associations).

The association is twisting the ruling in a recent case, Cohn v. The Grand Condominium, which reinforces an earlier case, Pomponio v. Claridge of Pompano Condo., Inc., which held Article I, Section 10 of the Florida Constitution prohibits new laws from being applied retroactively to change existing contracts.

Your Declarations, Articles of Incorporation and Bylaws are contracts between homeowners and the association.

This means you must look to the statutes that were in effect the year your association documents were recorded and those statutes are applicable.

But….there’s always exceptions to the rule, especially in the practice of law.

If a statute is passed as a matter of public policy or was enacted as a remedial measure or a curative measure (to fix a problem), the new law is applicable. That covers most of sections 617.301 to 617.306, which were passed as a matter of public policy and with the intent of regulating ALL homeowner associations in the State of Florida. That’s right out of the committee notes when the bill was voted on by the Senate.

So now that we have established your association has told you a big lie, let’s look at the other lies based on the big lie:

• We are not required to provide notice of meetings or have open meetings to allow all members to attend.

TRUTH: Fla. Stat. §720.303(2), which was passed as a matter of public policy, requires all associations governed by Chapter 720 to post notice in a conspicuous place at least 48 hours in advance of a meeting and all meetings must be open to all members. This includes meetings of committees as well as board meetings. If the meeting will include imposing an assessment or discussing rules affecting parcel use, then the association is required to mail notice to each member’s address fourteen (14) days in advance of the meeting and the notice must include a disclaimer of the nature of the meeting.

• We are not required to have elections.

TRUTH: Fla. Stat. §720.303(2) states the association shall hold an annual meeting in accordance with the Bylaws and the election of directors, if one is required to be held, must be held at or in conjunction with the annual meeting. If you read your Bylaws you will find annual elections are required unless your association allows directors to serve more than one year and there are no terms expiring.

REALITY: Voter turnout for association elections is low. If you and your neighbors do not go to the annual meeting to vote, chances are there is no quorum. There must be a certain number of members present to establish a quorum. If no quorum is established the election is canceled and the previous board of directors gets to reappoint themselves or their replacements. THIS DOES NOT MEAN THE ASSOCIATION CAN ASSUME THERE WILL BE NO QUORUM AND IS NOT REQUIRED TO AT LEAST TRY TO HAVE AN ELECTION. They have to at least try!

• We are not required to give you access to our records.

TRUTH: Fla. Stat. §720.303(5) was another public policy statute and requires the association to provide you access to the official records within ten (10) days of receipt of a certified letter requesting access. If you want copies they can charge you a reasonable fee. Pretty much everything is an official record requiring the association to allow you access to view the records. The exceptions are personal contact information for members, social security numbers and certain personnel information (but not wages – wages are not protected from disclosure!!)

• We can have closed board meetings.

TRUTH: Fla. Stat. §720.303(2)(a) allows the board to have closed board meetings if the association attorney is present and the purpose of the meeting is to discuss pending or potential litigation. Not all board meetings attended by the attorney can be closed and any closed board meeting better have the attorney in attendance.

• We can conduct board business by email or telephone.

TRUTH: Fla. Stat. §720.303(2)(a) states any time a majority of the board members gather and discuss board business it is a board meeting that must be noticed and open to the members. Logic will tell you members cannot attend sessions held by email and telephone. Furthermore, Fla. Stat. §720.303(2)(c)(3) states board members cannot vote by proxy or secret ballot. If it’s not cast in front of the members, then it’s being cast in secret!!! This same section states this applies specifically to committees and other similar bodies, decisions on expenditures of funds, and any body with the power to approve or deny architectural decisions.

23 comments:

  1. We have people in our park who say we are governed by 617 and they voted to allow the membership to choose officers and directors. I thought there was a section 617.0817 that said "the board" is responsible for all activities of the association. So, shouldn't the elected board pick their own officers.

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  2. What is your fee structure ?

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  3. What is your fee structure ?

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  4. can an HOA have a reserve at the end of fiscal year and it is not designated for anything--in fact it shows under Liabilities on balance sheet??

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    1. My apologies. The system did not alert me to any comments.

      A reserve is a liability because in accounting terms it is money which does not belong to the corporation, but is being held in trust for the members.

      A HOA cannot have a reserve which is not designated for anything. The Florida Statutes are very specific on how reserves are created and calculated, with the requirement to keep a record of how much is allocated to each asset.

      Simply putting any profits the corporation realizes at the end of the year into a "reserve" account is not proper. The money should remain in the operating account to offset future asssessments.

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  5. This comment has been removed by a blog administrator.

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  6. If a statute is passed as a matter of public policy or was enacted as a remedial measure or a curative measure (to fix a problem), the new law is applicable. Ambiguous "a statute" and the "new Law" no antecedent basis. Which comes first?

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    1. I apologize the system did not alert me to your comments.

      I am not sure I understand your question. A statute is a law. New laws or new statutes are not applied retroactively unless they are public policy, remedial, or curative.

      In other words, your HOA documents are a contract which cannot be changed without the consent of the parties. This is in the Florida Constitution. An exception is provided. An example of this is the requirement in many HOA documents for homeowners to have St. Augustine grass. The Florida Legislature enacted a new statute, called the Florida-Friendly Landscaping (FFL) Statute, which states HOAs cannot prohibit homeowners from implementing FFL and using other types of grass which are more drought tolerant and resistant to diseases. The first sentence of the statute states "The Florida Legislature finds, as a matter of public policy..." Any time you see that language it trumps the language in the HOA documents.

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  7. My HOA was created in 1987 or 1988. Around 2009, we publicly filed several amended/updated doc's, one or more asserting that we follow/mirror Ch 720. In this light, I have a question about who is eligible to be a "member", and by extension to serve on our HOA Board. The issue involves people with their homes in Trust, where they're serving as both the trustee and the beneficiary, and they're residing in the home. A person in this situation can always serve as the 720 requisite "record owner of legal title" to the property by serving as the trustee/homeowner, but they don't want to do this because such eliminates the asset protection benefit of the trust structure.

    Ch 720 appears to prohibit the beneficiary "individual/non-homeowner" from being considered a "member" (thus seemingly prohibiting such bene's from serving on HOA Boards as "individual/non-homeowners"), but Ch 617.0802(2) seems to turn this equation on it's head... seemingly allowing any home trust bene (living in the home) to serve on an HOA Board in that capacity as an "individual/non-homeowner". Ch 617.0802(2) doesn't appear to be turning these individual/non-homeowners into individual/homeowners, but instead asserting that the 720 membership rule requiring a member to be "the record owner of legal title to the property" null & void in the case of these home trust beneficiaries.

    So we can have a situation where an HOA Board is entirely composed of these "individual/non-homeowners" and this is legal? We're close to this point in my HOA. One or more of our 2009 and later filings assert that our HOA follows the 720 rules, and where there may be a conflict between our own HOA rules and 720, that 720 wins. Our original 1987 Docs likely say we follow Ch 617, but the 2009 and later Docs drop all reference to Ch 617 (again asserting we follow Ch 720). On this issue, Ch 720 & Ch 617 certainly appear to be in contradiction. If my HOA asserts they follow Ch 720 (without additionally explicitly asserting that we also follow Ch 617), does this disallow these home-trust-bene-individual/non-homeowners from serving as such on our HOA Board?

    Another observation: FL laws allow BBQ food trucks, large 18 wheel transporters, big boats on trailers... but our HOA rules specifically/explicitly prohibit these (and this is apparently legal). So if FL Ch 617 allows such home-trust-beneficiaries to serve in their capacities as "individual/non-homeowners" on HOA Boards... but our HOA's explicitly stated membership rules contradict this by asserting the Ch 720 rule that members must be "the record owner of legal title to the parcel"... Is this the same thing as the BBQ truck? As in “some HOAs may allow this - but we don't” ??

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    1. I think you may be overthinking this situation. There are a number of ways in which individuals or non-human entities can have title to property besides outright ownership.

      Chapter 720 does not limit membership to "the record owner of legal title to the parcel." In fact, the definition of member in FS 720.301 is "“Member” means a member of an association, and may include, but is not limited to, a parcel owner or an association representing parcel owners or a combination thereof, and includes any person or entity obligated by the governing documents to pay an assessment or amenity fee."

      The key is the words "may include, but not limited to..."

      The Department of Business & Professional Regulation, which has jurisdiction over HOA elections and recalls only, as well has condominiums, has ruled on the rights of the trustee to vote on behalf of the trust, which is a non-human entity owning the property. Likewise, corporate officers are allowed to vote for corporations or LLCs.

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    2. I'm particularly focused on persons, Board members, who have transferred titles to their homes away from themselves individually into their trust, naming themselves as sole trustees. Before this transaction, who owns the house? Who is the "HOA member"? After this transaction, who owns the house? Who is the "HOA member"? As a result of the transfer of the home into the trust, does anything change? Is the individual still the homeowner? Still the "HOA member"? Or does the trust now own the house? Is the trustee now the "HOA member"? After the transfer of the home away from the individual into the trust, can the person still serve on the HOA Board as the "individual homeowner" and the "individual HOA member" as if the home title transfer never happened? Are they not forced to afterwards serve on the Board as the "trustee/homeowner", as the "trustee/HOA-member" instead? Or is the home title transfer away from the individual into the trust such a legally trivial matter that it's OK (legal) for them to continue serving in their new individual non-homeowner/non-HOA-member capacity (as if the home title transfer never happened)?

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    3. Before the transfer to a trust, the individual who is named in the deed is a member of the association. After the transfer to the trust, the trust is the member and the trustee has all rights as the representative of the owner, so the trustee can serve on the board. A board member is a director and does not have a designation as a trustee/homeowner or trustee/HOA member. In fact, most HOA documents do not require a director to be a member of the HOA. Very few have the requirement for a director to be a member, but if the bylaws do require this, then the trustee is a member and can serve.

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    4. My HOA has the provision that Board Directors must be members, and members are the record owner of legal title. Given such, we have a challenge in my HOA of persons serving on our Board who have their homes in trust (naming themselves as the sole trustee). When you look at their signatures on HOA documents (both private & publicly filed), there is no "TR" suffix. When I ask these persons in which capacity they're serving on the Board, as the trustee/homeowner, or as the individual/non-homeowner, they answer "as I'm executing - as the individual/non-homeowner". When I complain that this appears to be improper, they reply that their personal asset protection strategies require them to serve as the individual/non-homeowners, not the trustee/homeowners.

      My community now has 3 of 5 such persons serving in this like manner on our Board. When asked to explain how they assert legal authority to serve as individual/non-homeowners, they insist this is legal but refuse to cite any FL authority. In my own research into this, I discovered that FL 617.0802(2) seems to allow this, but appears to be in total contradiction to Ch 720 on this issue, and also against our own HOA rules (“record owner of legal title”) on this issue.

      My HOA was founded in 1987. In 2009 we filed an amendment declaring that we follow Ch 720. Once we proclaimed Ch 720 our authority, does this mean we no longer follow FL 617, especially contradictory (to Ch 720) sections such as 617.0802(2)? Or, can all these home trust beneficiaries on my Board successfully cite 617.0802(2) as their authority to serve as individual/non-homeowners?

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    5. I think you have too many people trying to make legal interpretations and making incorrect assumptions. First, both Chapter 617 and Chapter 720 apply to all mandatory homeowner associations, whether the documents declare they are applicable or not. Second, the trust is the legal owner of the property. Since the trust is a non-human entity, it must have a human representing its rights and interest, which is the trustee. The trustee has all the rights, duties and interests that a owner in fee simple would have. The trustee can vote (and should put "trustee" behind their name when doing so, but this is not an error that would invalidate the vote), is liable for the payment of assessments, has a duty to maintain the property in compliance with the governing documents and can sit on the board of directors.

      There is no conflict between Fla. Stat. 617.0802(2) and Chapter 720. Fla. Stat. 617.0802(2) specifically states trustees and beneficiaries of trusts are members of an association under Chapters 718, 719, and 720. Chapter 720 does not address property held in trust or exclude property held in trust from membership.

      The last issue is the members of the board need not sign "TR" behind their names. They are signing HOA documents as board members, not as trustees. When they vote as a homeowner at a membership meeting or on a recall, the "TR" should be designated because they are exercising the vote of the trust, not the board. DBPR has ruled the failure to designate the person is the trustee will not invalidate the vote if the person is named as trustee on a deed or other legal document. I'm not sure why this would be against the legal strategies of the trust because I am not privy to the trust documents.

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  8. In this discussion about FL 617.0808(2) providing home trust beneficiaries the legal right to be HOA “members” and by extension also HOA “Board Directors” in this manner (in addition to their discretionary legal right to serve as an HOA “member” and by extension also HOA “Board Director” in their capacity as the trustee/homeowner), I’m concerned about a seeming ‘moral hazard’ this allows.

    In the most-common circumstance (people without trusts), if a person is serving as an individual-homeowner/HOA-member, serves as a Board Director and is found personally culpable of bad behavior in their performance (they’re caught ‘stealing money’ from the HOA for instance), this person has ‘skin-in-the-game’ in the sense that his local home can be attached/liened-on for damages/restitution by his victims.

    In a contrary less-common circumstance (people with home trusts), if such a person is serving as a home trust beneficiary (specifically allowed by 617.0808(2)), HOA “member” and HOA “Board Director” and is found personally culpable of bad behavior in their performance (same example – they’re caught ‘stealing money’ from the HOA), this person serving in his home trust beneficiary capacity has no ‘skin-in-the-game’ – he doesn’t own a local home (as a home trust beneficiary, he’s an ‘individual non-homeowner’), the home that he occupies can not be attached/liened-on for damages/restitution by his victims.

    When I verbally ask these people on my Board with home trusts in what capacity they’re serving, they readily assert that they’re serving in their role as trust beneficiary, not as the trustee/owner. If these people get caught stealing money from the HOA, our community is simply “out of luck” in any attempts to recover damages/restitution from such lawyerly-papered-up “homeless” (trust provided “penniless”) people? We can't attach/encumber their local home?

    As in my first posting above I return to the question: Can our HOA legally adapt rules prohibiting such home trust beneficiaries from ever being a “member” or a “Board Director”, in effect allowing such persons to only serve in their trustee/homeowner (‘skin-in-the-game’) roles instead?

    So again, FL laws allow smelly/smokey BBQ food trucks (and 18 wheelers, boat trailers, RV’s, etc., etc.) but our HOA (seemingly legally) prohibit these. Can we similarly prohibit FL 617.0808(2) to avoid this prospective moral hazard of ‘no-skin-in-the-game’ home trust beneficiaries from being HOA members or serving as Board Directors?

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    1. In reality, very few people are found personally liable for their actions as board members because they are protected by the Business Judgment Rule, which states board members are not personally liable for their own errors or stupidity. The threshold to prove liability is high. It requires theft or self-dealing. The insurance covers these issues if a claim is made against the board member. The HOA is required to have the insurance company bond anyone who handles money.

      To answer your question, no, the HOA cannot legally adopt rules prohibiting trustees or beneficiaries from being a member of the HOA or a board of director.

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    2. PS -- your analogy to BBQ trucks is not comparing apples to apples. The right for property owner to be a member, and thus every member to be a candidate for the board of directors is a vested right to have a voice in the matter of living in a HOA. Taking away someone's right to vote is not the same as taking away their right to park their RV in their driveway or paint their house purple. If these people are not members, they would have no duty to pay assessments or comply with the restrictions against parking RVs or painting their houses purple.

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  9. In my proposal to prohibit trust beneficiaries from being HOA members or Directors, I'm not restricting the rights of the property owner in any manner one iota (I'm not taking away the rights of the property owner to vote as you say) - as I’m making the necessary distinction of this one person’s two available roles you seem to be improperly conflating into one - the trust beneficiary is NOT the "property owner", and my proposal doesn't affect the member/Director (voting, etc.) privileges of the trust/trustee property owner at all.

    Before a person puts their home into a trust, they're one legal entity - an "individual", and by extension an "individual homeowner". After they put their home into a trust, and name themselves as the sole trustee, they become two separate/distinct legal entities - the trust beneficiary (aka the "individual non-homeowner"), and the trustee (aka the "trust/trustee homeowner"). Am I mistaken in assuming that in any given legal context, this (now “trusted”) person must clearly indicate which of these two available roles he's performing in? Such that, this person can't simultaneously perform as the "trust beneficiary/non-homeowner" and the "trust/trustee homeowner" at the same time and place in the same matter... it's always just one or the other role – not both.

    The typical asset-protection intention of the trust arrangement drives use of the trust/trustee identity to be dormant/hidden/inactive - once explicitly used, this performance is than exposed to potential liability, thus obviating its main reason for being. But this is properly a personal/private matter of concern – not a public matter of concern. It feels to me (and I suspect many other reasonable people also) that 617.0808(2) provides unjust privilege to (no-skin-in-the-game) home trust beneficiaries at the expense of their (skin-in-the-game) HOA individual/homeowner member neighbors: 617.0808(2) appears to serve no legitimate public purpose.

    Your observation about HOA’s being required to carry insurance against Director malfeasance and/or various other FL laws providing HOA Directors ‘personal stupidity indemnification’ does not obviate the latent injustice of a law enabling non-homeowners to serve on HOA Boards. As these “trust beneficiary” persons have the ready capability to serve as the trustee/homeowners at will, providing them to authority to serve on HOA Boards as non-homeowners really stinks of extremely niche special interest legacy legislation that’s overly ripe to be plucked/repealed.

    I don’t sense one way or the other whether or not you’re a supporter of FL 617.0808(2)… Do you understand my assertion that this is a law worthy of repeal? That’s it’s inherently disrespectful of individual homeowners’ service on their HOAs by enabling non-homeowners the same privilege of Board participation? Do you sense logical and/or justice problems with my assertion that HOA Board participation should be restricted to homeowners only, and not allow “individual non-homeowners” (aka “trust beneficiaries”) to serve? That is… besides to pointing out that this is the reality of the law we’re sitting with at this time & place? Do you think it’s a stretch for me to assert that FL 617.0808(2) is ripe for repeal?

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  10. I am about to send a request in writing to my POA to have access to all records allowed by FL law. The Article of Inc were written under the provision of Chapter 617. I would like to do an audit essentially of the records and was hoping to under the FL Statute 720.303. I have gone back and read through tis portion of the 617 statute and under the title; 617.1606 Access to Records, it states sections 617.1601-617.1605(all having to do with the records a member can request and under what purpose, ..says theses sections do not apply to a corporation that is an association, as defined in 720.301.

    So, my question is, can do I then follow the statutes in Chapter720.303 to request records?

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  11. All mandatory homeowner associations in the State of Florida are governed by Chapter 720. You can submit your request per Fla. Stat. 720.303.

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  12. My HOA conducts elections for the BOD using mailed out paper ballots. The ballots can either be mailed back in or brought to the annual meeting and turned in. Our HOA docs say that the ballots will be counted at the annual homeowners meeting. At our annual meeting, there was no quorum, so the annual meeting was not held. But the BOD held an informal meeting and had the ballots counted and the new winners announced. My question is, was this a legal election, since there was no annual meeting held?

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  13. If there is no quorum, there is no election. The incumbent board members remain on the Board of Directors unless they decide to resign, in which case they can appoint their replacements. Most likely they decided to appoint "the winners" as their replacements, which is legal, just not an election.

    If you want to dispute their actions, you have 60 days from the date of the election to petition for arbitration with the Department of Business and Professional Regulation (DBPR).

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