Homeowners’ associations often breed bickering

Is it just me, or does it seem to you lately that the world is divided into two categories — those who belong to homeowners’ associations and those who do not. If you are among the former, then your world is further subdivided (no pun intended) into two subcategories: those who manage the homeowners’ association and those who want to kill the managers.

I was recently involved in a controversy between a homeowners’ association and various homeowners within the rather large residential development (in a land far, far away). It was a new experience for me and it opened my eyes to yet one more variation on how we human beings seem to leave no stone unturned in adding to our communal pool of conflict and dissension.

A homeowners’ association is typically set up as a nonprofit corporation. The structure of a nonprofit corporation does not differ markedly from the structure of a for-profit corporation such as Ford Motor Company, Bank of American or FedEx. Each type of entity is made up of one or more owners. In a for-profit corporation, the owners are called shareholders; in a nonprofit corporation, they are generally referred to as members. In the case of the homeowners’ association, the members are the lot owners of the residential development.

Each type of corporation is managed by a board of directors. In all but the larger corporations the directors are usually shareholders. The board of directors has the responsibility of setting polices and managing the affairs of the corporation, which are then implemented on a day-to-day basis by the president or general manager.

The primary difference between the two types of corporations is money, money, money. Ford Motor Company has as its goal selling as many of its motor vehicles as it can in order to generate lots of profits for its shareholders.

The homeowners’ association, on the other hand, was created to tend to different needs, such as taking care of the roads within the subdivision, establishing and enforcing rules for building houses within the development, maintaining water and sewer issues, dealing with nuisance dogs, and so on.

And unlike Ford Motor Company, whose executives devote their lives to the job and get paid fabulously well to do so, the members of the board of directors of the nonprofit homeowners’ association are working folks just like you and me with full-time jobs and, more often then not, minimal experience in managing a large business entity. Which makes for some interesting material.

Given my recent experience, I am now convinced that it will remain of life’s great mysteries why decent, God-fearing human beings volunteer to be directors on a homeowners’ association board. The job is incredibly time consuming, and it generally pays about the same as trying to make your boss happy.

Aside from watching neighbors get in each other’s faces, I learned a thing or two about nonprofit corporations which surprised me.

Most of us have heard about attorney-client privilege and confidential communications. When you hire a lawyer, virtually all of your communications with your lawyer, whether in person, by telephone, or in writing, are confidential. Neither you nor your lawyer can be forced to disclose anything discussed between the two of you (with some exceptions which are too technical to bore you with here). Well, the same is true of communications between a homeowners’ association board of directors and lawyers hired by the board to give it advice and counsel. Even though the board of directors is elected by the homeowners and even though the lawyer (or law firm) is hired by the homeowners’ association board with funds contributed by its members, communications between the board and its lawyer are privileged and confidential, and individual homeowners cannot compel the board to disclose them.

In the case I was involved in, when the homeowners attempted to find out why the board of directors took certain action, the response was that it was based upon the advice of counsel and could not be disclosed. That was as far as the homeowners were permitted to go. Another surprising issue came up in attempting to obtain information about the salaries of the employees of the homeowners’ association. It is a sensitive matter involving conflicting policies between privacy issues and the right of the members to know. Courts are apparently reluctant to allow this information to be disseminated.

The homeowners also sought to inspect election data from a recent election of board members. The board directors took the position that these documents were confidential. Courts around the country are split on this issue, some taking the position that homeowners cast their ballots with the expectation that the ballot process is secret and must be kept that way at all costs.

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