In other posts we have discussed the homeowners association’s governing documents. Many of the communities were created 20-40 years ago with governing documents that have worked well for the developer, mostly the community association. However, many of these governing documents are outdated. Virginia and federal laws regarding community associations have changed dramatically. If your board has not been involved in auditing your communities’ governing documents in the past five to seven years, it should.
What is the “audit” of the documents of our ruling regime?
An “audit” of your documents is an in-depth review by the HOA’s board of directors in collaboration with your association’s attorney. The Board reviews each document noting any sections that lack clarity, no longer apply, appear to no longer apply to your community, protect an outdated developer, or do not provide the association with appropriate remedies. The board prepares a list of concerns or problems facing the community, such as homes that are not maintained, large amounts of back appraisals, or the enforcement capabilities of the association. The council provides this information to the association’s lawyers.
When should documents be amended?
Although there are many reasons to modify documents, these seven are the most common:
1. The documents do not comply with Virginia or federal law.
Board of directors of a community association of volunteers. Documents that do not comply with the law create difficulties in calculating the community union. The board members read the documents and decide that they should enforce the covenant, only to discover that the covenant has been impeded by a change in the law. Instead of requiring the continued involvement of an attorney to interpret and advise the Association as to whether the provisions of the Documents have been changed by new legislation, amended Documents that comply with the Act allow the Board to perform its duties without the ongoing and continuing involvement of an attorney.
2. The documentation includes the language of the author/developer.
Once the term of the developer/permitter has expired, the Board shall consider removing the provisions relating to the rights of the developer/permitter. It is possible that most of the provisions containing the rights of the developer / permitter are no longer relevant and may cause confusion among the owners. Removing these provisions provides clarity in your document and can often result in a significant reduction in the page count of your documents.
3. The documents contain high quorums for meetings or difficult requirements for amending documents.
Many associations encounter indifferent owners. Reducing the quorum requirement for an association allows for more flexibility in conducting business. Reducing the quorum requirement encourages the owner to participate because an owner who wants to vote “no” on an issue can choose not to come to the meeting, and, effectively, the “no” vote is done by not participating. Increased quorum requirements require the owner to participate in the meeting in order to record their “no” vote. Amending documents should not be a tedious process. Societies need to prepare for change. Amended documents must be effective and maybe. Reducing the percentage needed to approve the amendment makes our societies more viable in the future.
4. Documentation requires mortgage approval.
Although this requirement is still necessary for residential communities to allow financing through government-guaranteed loans, single-family communities no longer require mortgage approval. In the ever-changing world of mortgages, non-subscriber communities that wish to consider removing mortgage requirements may also want to consider authorizing the board of directors to make changes to documents if necessary for government-guaranteed loans.
5. The documents only allow the association to implement covenants and rules by filing a lawsuit.
Filing a lawsuit is the most expensive remedy available to associations. Amendment of documents to permit assessment of fees under the Virginia Condominium Act or Homeowners Association Act allows for the lowest cost enforcement by the association. Associations should also consider adding provisions allowing the association to “self-help” in certain situations. Some communities have been plagued with abandoned homes that are neglected and in disrepair. Allowing the association to correct the deficiency and estimate the costs to the owner is more efficient and less costly than a lawsuit.
6. The documentation includes unrealistic maximum limits for increments in ratings.
All communities want to keep ratings low. However, the reality for some communities is that they are unable to pay the necessary operating expenses and adequately fund reserve accounts because documents restrict the amount of valuations that can be increased. Amending the documents allows the association to remove the old caps and replace them with a cap that allows for an appropriate budget by the association.
7. The documentation includes strict limits on the types of building materials allowed in the community.
Building materials have changed today. Providing flexibility in the documents to allow the use of new materials is not only convenient for the owner but may also provide significant cost savings to the association in respect of its responsibilities.