Category Archives: Government

Differences Between Incorporated & Unincorporated HOAs

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(drawn from different sources)

The law allows a homeowners association to be either incorporated or unincorporated. An incorporated association has a legal identity that is separate from that of its members, just as Microsoft has a legal identity that is separate from its shareholders. Unlike Microsoft, which is a for profit corporation, an incorporated homeowners association is a non-profit mutual benefit corporation which means that its powers are limited to those normally associated with a homeowners association, and it is exempt from certain governmental fees and taxes.

Traditionally, homeowners associations have been incorporated to protect owners from responsibility for association debts, losses and liabilities. California law extends most of these protections to owners of unincorporated associations provided the associations have proper insurance. Under current law, the advantages of incorporation are some (very limited) additional protection from owner liability, ease of opening association accounts with certain banks and vendors, and qualification of the units or lots for mortgage loans from lenders that require an incorporated association. Balanced against these advantages are the costs of forming the corporation, the burden of annually filing a form with the Secretary of State, and additional procedural formalities such as having officers and directors, and conducting formal meetings. States other than California will have their own laws which could differ greatly.

An unincorporated association can be incorporated by its owners at any time. The process of incorporation involves amending the governing documents, preparing Articles of Incorporation, and filing with the Secretary of State.

Must the HOA have directors?

Incorporated associations are legally required to have directors. Unincorporated associations need not have directors.

Must the HOA have officers?

Incorporated associations are legally required to have at least (i) a chairman of the board or president, (ii) a secretary, and (iii) a chief financial office or treasurer, but, unless prohibited by the governing documents, one person may hold all of these offices. Unincorporated associations need not have officers.

IRS and tax liability?

If an association has lost its tax exempt status through a lapse in its non-profit status, the IRS can certainly begin looking at the money an HOA has raised from dues paying residents. Sun City Anthem in Las Vegas, even though legally incorporated as a non-profit, was hit with millions of dollars worth of fines and back taxes because it failed to declare money from its country club restaurant as income. It’s almost a sure bet that someone will be looking at the books of any HOA that loses its non-profit status.

Source: http://www.andysirkin.com/HTMLArticle.cfm?Article=17

Does an HOA technically need to be incorporated?

If the CC&Rs lay out the existence of the HOA, and each homeowner’s deed requires the homeowner to adhere to the CC&Rs, then it’s possible to have a defacto association that operates without the benefit of the corporate structure or protections.

Without being a corporation, what you’re left with is one big partnership. That means each homeowner is individually liable for anything the HOA does. If an employee, for example, sues the HOA for back pay or sexual harassment or discrimination, then every homeowner is equally liable as if they had been the employer. That’s because, just like in any business partnership, they are. That’s the nature of partnerships. Everybody is responsible for every other partner’s actions.

It may be that founding CC&R documents require the HOA to be incorporated. If so, ultimately, the homeowners can sue the officers to make them incorporate. In the end, it’s all up to the lawyers.

Source: http://www.dailyrepublic.com/business-and-real-estate/does-a-hoa-need-to-be-incorporated/

 

Legislative fix for FL condo takeovers?

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guest blog by Deborah Goonan 

In 2007, Florida passed a law that has been dubbed “Eminent Domain for Condos.” The law allows for 80% of voting interests to approve a plan to terminate the condo association for the purposes of redevelopment, as long as no more than 10% of voting interests object to the plan.

At the time the law was passed, the stated intent was to make it easier for owners of hurricane damaged or functionally obsolete condos to sell their ailing building to investors who would then redevelop on valuable land.

However, in the 8 years since enactment of this law, real estate investors and developers have descended like vultures, preying upon distressed condominium associations. Taking advantage of FL statutes, investors have been buying unsold units in bulk, at pennies on the dollar, taking control of the association, amending the governing documents where necessary, and voting to terminate the association.

In most cases, their intent is to convert all of the units to rental apartments, at a time when record numbers of people are renting rather than buying condos. Investors have forced nearly 20,000 condo owners – many of them homestead owners – to accept termination proceeds equal to one-third to one-half of what they paid for their units at the height of the real estate market prior to 2007. Essentially, condo owners have been kicked to the curb, many with outstanding mortgage balances for homes they no longer own. Cash buyers lost most of their hard-earned life savings with nothing to show for it.

An op-ed written by two attorneys from Greenspoon Marder Law firm states that a proposed bill in Florida “could satisfy public outcry” over condo takeovers that have forced nearly 20,000 owners to sell their homes, many of them at a fraction of their purchase price.  (You might recall from my previous blogs on this topic that Steven Geller, the sponsor of the 2007 legislation amending FL condominium termination process, is now a shareholder at the same law firm.)

Condo owners adversely affected by Florida’s flawed legislation have pressured their state Representatives and Senators to take action. Florida Realtors, who have helped to draft HB 643, have also expressed deep concern. The current draft provides that bulk buyers must make  “third-party” owners whole at termination, by paying 110% of the condo owner’s purchase price or fair market value, whichever is higher.  In addition, all first mortgages must be satisfied, and a relocation allowance is payable to homestead owners.

Realtors hope that legislative change will renew confidence in the condo market. Between negative media coverage and word of mouth, buyers are reluctant to purchase real estate in Florida, particularly condominiums that have been featured in the media. Additionally, many condo owners are finding it difficult to sell their units, except to other bulk buyers hoping to snatch up units at a low price.

The current bill, (HB643), retains 80% vote of approval – as long as no more than 10% of voting interests reject a plan – for optional termination of condominium. That provision remains unchanged as sponsored by Geller and signed into law by Governor Christ in 2007.

As has always been the case, the governing documents can still provide a lower percentage of owner approval for termination.

Attorneys Mark F. Grant and Raul Valero claim in their article that unanimous consent of owners for a condominium termination is unrealistic and that a single holdout can extract too much money out of the termination settlement.

Grant and Valero go on to explain that in 2010 the FL Legislature passed the Distressed Condominium Act, a law set to expire on June 30, 2016. The Act reduces liability of condo-buying investor groups for construction defects and deficits in reserve funding allegedly caused by the original developer. The Optional Termination and Distressed Condominium statutes, when combined, created the golden opportunity for hostile condominium takeovers in Florida.

As currently written, HB 643 still does not address a key issue. Voting interests are allocated to the number of units owned or proportional share of condominium ownership, not to individual owners. The result is that we have real estate investor corporations outvoting homestead owners, terminating the condominium and forcing them to sell, even at a substantial loss.

As long as votes are allocated to the property vs. people, investors will find a way to exploit that loophole. Because FL statute sets no absolute minimum threshold for termination approval, a bulk-buyer-controlled Board that holds sufficient voting interests can simply amend the governing documents to reduce the approval threshold, thus making termination possible on their own terms.

The only ways to remedy that situation is to more equitably allocate voting interests among the people involved, rather than tying them to inanimate units. Bottom line: opportunistic investors should not be able to trample the rights of homestead property owners.

Grant and Valero characterize bulk buyers as some sort of saviors that have “rescued” failing condominium associations, the buyers later concluding that a de-conversion would make better financial sense.

Whether or not you believe that the condo takeover fiasco was carefully crafted or the result of unintended consequences now is the time to consider the rights and needs of condo owners that thought they were buying a home as opposed to a real estate investment property.

Tragically, even if a homeowner-friendly bill is passed, it will be too late to help tens of thousands who have already lost their homes, their life savings, and their credit.

(link to op-ed regarding Condo Termination legislative proposals)

(link to FL HB 643)

Insurance Nightmares: Of Interest To All Homeowners

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Feel free to send my web link to everyone you know. This story should go viral.

It’s hard to make long stories short, but I’ll try.

When my wife and I were out of state a number of years ago, a squirrel got into the house and did thousands of dollars worth of damage, chewing up the sofa, all the drapes, the carpets. I called State Farm and asked if I was covered. They said “no.” If an elk or a bear had gotten in your house you’d be covered because those are wild animals.

“Aren’t squirrels wild animals?”

“Nope, they’re rodents and there’s an exclusion in all home insurance policies for rodents.”

“What if a rabbit had gotten into the house?” I asked.

“They’re rodents and they’re excluded.” Wow, I thought I had them there because I knew that rabbits and hares aren’t rodents, they’re lagamorphs. Look it up. One way or another, I’m sure the insurance company would find a way to do its customary screw job.

I started studying the exclusions and discovered another few I didn’t know. (Yes, sometimes I’m deadly stupid). But flood damage is another tricky one. If a raindrop touches the ground before it enters your house it’s considered a flood and insurance companies have tricky ways to exclude flood damage. That also means if the corroded water line to your house breaks, the water hits the ground first, so you’re not covered. If the raindrop hits your house before coming inside, then the coverage is good.

BTW, so called Smart Meters are being installed in millions of homes across the country. They’ve exploded or melted, caused thousands of house fires in the U.S. and Canada and…you might have guessed it… Smart Meters aren’t UL listed, therefore insurance policies automatically exclude any fire damage that comes from a non-UL listed device. Smart meters have also blown out entire kitchens full of appliances. Again, no coverage.

While we’re speaking of damage and insurance companies, let me refer you to another interesting story that broke last week. I won’t try to prejudice you with my thoughts…. I’ll just send you to the link.

(insurance issues in Hurricane Sandy)

 

Update: Osceola delegation denies HOA residents’ third request to make Poinciana a city

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guest blog by Deborah Goonan

A few months ago I blogged about a very large Florida HOA with over 45,000 residents, and the fact that a homeowner’s group (PINCHOS) has been trying for three years to incorporate as a city. In all, Poinciana has nearly 60,000 residents. Under the latest proposal, roughly 47,000 live within boundaries that were to create a new municipality.

News reports indicate that Osceola County Legislative Delegation vote was split 2-2, along party lines on the matter, with two representatives not present at the time the vote was taken. A Department of Revenue report, based on a feasibility study, has concluded that Poinciana meets the financial requirements of a city, and stands to take in millions in revenue if it incorporates as a municipality.

At the hearing conducted last month, the delegation reportedly heard from residents both in favor of the proposal and opposed. Those opposed fear that becoming a city would lead to a tax increase, despite a feasibility study’s conclusion to the contrary.  Debate on the finer points has been put on hold for yet another year.

One of the reasons PINCHOS is in favor of municipal incorporation: typical of large HOAs, Poinciana is divided into 9 Villages, and the President of each Village Board serves on the Master HOA. Property owners elect the Master Board, but many of those owners are not actually residents of Poinciana. Meanwhile tenants have no voting rights to elect their leaders. That’s equivalent to taxation without representation! Predictably, the HOA Developer and the Board spoke against Poinciana becoming a city at the Delegation meeting.

According to another recent television news report, Poinciana has been struggling with crime and vandalism. Because they don’t have City status, they cannot have their own police department. Therefore the HOA has decided to spend $100,000 on increasing security staff and adding security cameras.

Keith Laytham, spokesperson for the owners’ group in favor of municipal incorporation says his group will continue to work with State Rep. John Cortes to put Poinciana on the map as a city in its own right.

(Bay News 9 article on controversy) 

(Orlando Sentinel article on Poinciana)

(Letter to Ledger.com from a Keith Laytham)

(WFTV video, Poinciana HOA to spend $100,000 on increased security)

(Previous blog about Poinciana, and why many residents want to create their own city)

Dr. Solomon Wins A Round

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One of the heroes of our movement, Dr. Gary Solomon, has won a round in his own battle against an out-of-control HOA in Nevada. It involved an idiotic fine of $100 so he tried to get it heard in Small Claims Court, where it really belongs. That court kicked him upstairs to District Court which really has no business hearing 100 dollar claims. After two years, Solomon has won the right to take the case back to Small Claims. Here’s the decision:

Minutes
12/09/2014 3:00 AM
– This is an appeal from a Small Claims Judgment entered in the Las Vegas Township Justice Court. By this Judgment filed May 5, 2014, the court found that it lacked subject matter jurisdiction over this case, and that it had to be filed in District Court instead. This case involves a fine of $100 imposed by Respondent Palm Hills Home Owners Association (the HOA ). Petitioner Dr. Solomon ( Solomon ) disputed the imposition of the fine. It appears that a lien was placed by the HOA against the subject property as well. Pursuant to NRS 38.310, because this dispute involved the interpretation, application or enforcement of the community’s CC&R s, the dispute first had to be submitted to arbitration or mediation with the Nevada Real Estate Division ( NRED ). Solomon filed a complaint with NRED which resulted in a ruling in favor of the HOA and against Solomon. The arbitrator also awarded the HOA $7348.17 for attorney s fees and costs incurred. Pursuant to NRS 38.330(5), within 30 days after the final decision and award in this nonbinding arbitration, Solomon was permitted to commence a civil action in the proper court concerning the claim which was submitted for arbitration. This action would be a de novo proceeding. Solomon filed this case in Small Claims Court in the Las Vegas Justice Court. The Justice Court found it lacked subject matter jurisdiction and dismissed the case, holding that NRS Chapter 38 . . . requires that such disputes be adjudicated in District Court. However, nothing in chapter 38 specifies that this de novo proceeding must be filed in District Court. Moreover, the case the HOA relies on, Hamm v. Arrowcreek Homeowners Association, 124 Nev. 290, 183 P.3d 895 (2008), does not address the question of jurisdiction as between district court and justice court. The HOA also argues that the lower court lacked jurisdiction pursuant to NRS 4.370(2) because this is an action in which the title of real property . . . [is] involved. However, in the Hamm case, the Nevada Supreme Court held that even a dispute about HOA fines where a party sought to release a lien imposed does not relate to title to the property. Additionally, while the HOA disputes whether Solomon ever held title to the property at issue in this case, this defense of the HOA is not to be considered in evaluating subject matter jurisdiction, which instead is based on an evaluation of the face of the complaint. The fact that the HOA may challenge Solomon s ability to proceed as a real party in interest does not deprive the court of subject matter jurisdiction. Thus, this case in which Solomon filed a small claims complaint for less than $7500 was properly filed in Small Claims Court and that court s dismissal was in error. Accordingly, the Small Claims Judgment is hereby reversed and the case remanded for further proceedings in accordance with this Court s ruling. CLERK’S NOTE: The above minute order has been distributed to: Gary Solomon, 1001 Calico Ridge Dr., Henderson Nv. 89011, & Troy Dickerson (Angius & Terry) 1/28/15 kr