Q: What can homeowners do when their HOA (homeowners’ association) board is not following its own bylaws, which in this case require an annual audit performed by an accountant? Only accounting “compilations” have been done in the past, even though the budget line item for the expense says “auditing fees.” Also, final year-end financial statements are not mailed to the homeowners. At the annual meeting each December, we are provided only with a budget for the upcoming year and preliminary financial statements for the current year-to-date.
A: Many older communities have a provision in their bylaws that the HOA financials be “audited” every year. If the HOA’s bylaws have such a provision, the board should of course have an audit completed each year. The Planned Community Act (PCA) only requires an audit, compilation, or review upon the request of a majority of the board or the members. Therefore, a board that does not wish to undertake a yearly audit may lawfully amend the bylaws to do away with or relax the annual-audit requirement. In my experience, while a yearly audit might sound like a good idea, full audits by an accountant can be very costly and may be unnecessary. At the same time, it bears noting that while accounting reviews or compilations are less intensive and less costly, they are no substitute for an audit. Depending on the community, I often recommend that HOAs amend their bylaws so that an audit is only required once every two or three years. For more information, go to http://www.condo-smart.com.
North Carolina law only requires that the annual financial statements be “made available” to homeowners within 75 days of the end of the fiscal year. I interpret that to mean that copies must be provided to members who request one. If our wise state legislators intended for HOAs to mail a copy of the year-end financial statement to every homeowner (most of whom won’t bother to read it), the law would likely include such a mandate, but it does not. In practice, however, most HOAs mail the statements to the owners or post them on the community’s password-protected Web site.
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Q: Our HOA board never holds open sessions during its meetings, and they will end the meeting if a homeowner shows up. Thus, homeowners are not given an opportunity to discuss and resolve these issues at a board meeting. The board members state that they don’t have to abide by the open HOA meeting laws in North Carolina because our HOA was incorporated before the Planned Community Act became effective.
A: It is a common misconception that HOAs formed prior to 1999 are not subject to the North Carolina Planned Community Act (PCA). The PCA includes a list of provisions that are “retroactive,” and which apply to all HOAs regardless of when they were formed (except condominiums, which are not subject to the PCA). One of the retroactive provisions, N.C.G.S. § 47F-3-108, reads: “At regular intervals, the executive board meeting shall provide lot owners an opportunity to attend a portion of an executive board meeting and to speak to the executive board about their issues or concerns. The executive board may place reasonable restrictions on the number of persons who speak on each side of an issue and may place reasonable time restrictions on persons who speak.” If your board members refuse to allow owners an opportunity to speak at regular intervals, which does not necessarily mean at every board meeting, they are violating the law. And by holding “secret” or closed-door meetings, the board members are only encouraging suspicion and contempt among homeowners, which is never a good strategy.
Originally published in the Charlotte Observer on March 2, 2013.
Tom Miller, retired chief legal counselor at the NC Real Estate Commission, gave some very good advice in regards to needed oversight for HOA management especially when it comes to financial transactions. At this point, I don’t think our current system works in the most efficient way especially with the number of compliants voiced. Some type of oversight authority might provide HOA members with recourse for reporting complaints/problems. Some of these non-profits are handling sizeable cash collections.
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I attended a recent lecture you gave for HOA board members and I thought you said that it was not legal for boards to vote via email unless it is unanimous. Did I hear you correctly and if yes, what law covers this?
The NC Nonprofit Corporations Act says that board take action by majority vote at a meeting. A face-to-face meeting, with the open discourse that naturally occurs, leads to more well-informed decisions. Recognizing that action may need to be taken between meetings, the NC Legislature added a provision for boards to action action outside of meetings, with the unanimous written consent of the directors. The statute is 55A-8-21:
§ 55A-8-21. Action without meeting
(a) Unless the articles of incorporation or bylaws provide otherwise, action required or permitted by this Chapter to be taken at a board of directors’ meeting may be taken without a meeting if the action is taken by all members of the board. The action shall be evidenced by one or more written consents signed by each director before or after such action, describing the action taken, and included in the minutes or filed with the corporate records reflecting the action taken. To the extent the corporation has agreed pursuant to G.S. 55A-1-70, a director’s consent to action taken without meeting may be in electronic form and delivered by electronic means.
(b) Action taken under this section is effective when the last director signs the consent, unless the consent specifies a different effective date.
(c) A consent signed under this section has the effect of a meeting vote and may be described as such in any document.
Note that the statute refers to another statute for voting by electronic means (i.e., e-mail). That statute reads:
§ 55A‑1‑70. Electronic transactions.
For purposes of applying Article 40 of Chapter 66 of the General Statutes to transactions under this Chapter, a corporation may agree to conduct a transaction by electronic means through provision in its articles of incorporation or bylaws or by action of its board of directors.
Thus, if the board wants to allow action outside of meeting by the unanimous written consent of the directors by e-mail, you should either amend your bylaws to add such a provision, or adopt a resolution at a board meeting to allow it in the future, perhaps limiting its use to emergency situations.