HOA Audits and Open Board Meetings

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.

20 thoughts on “HOA Audits and Open Board Meetings

  1. 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.

  2. Pingback: homeowners association bylaws | Villa Home Refinancing

  3. 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.

  4. I know this is an old thread – so no one may be monitoring, but I was wondering if Chapter 47C of the North Carolina Condominium Act would apply to Open Board Meetings for condominiums since they are excluded from PCA – particularly § 47C-3-108. Meetings. (b) Meetings of the executive board shall be held as provided in the bylaws. At regular intervals, the executive board meeting shall provide unit owners an opportunity to attend a portion of an executive board meeting and to speak to the executive board about their issues and 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.

    Many Thanks,
    Darcy

    • The language you quote from the NC Condo Act is identical to the language in the PCA. So the answer to your question is yes, condo boards have to allow owners to attend at least a portion meetings at “regular intervals” to ask questions and raise concerns (or even commend the board on the good job they are doing!).

      • The statutes don’t offer any guidance as to what a “regular interval” is. However, I think every other board meeting, or once per quarter would be sufficient.

      • Mike – I know you go by “HOA Laws” and not by “Best Practices” of a Business that serves a large number of people. If your suggestion for Owners being able to speak at “every other Board Meeting” were offered in the “Real World” of Business and Customers were not allowed to speak up at every opportunity, the Business wold be out of business by the time there was another “Meeting”. Let’s stop forcing the Laws upon Owners that are (and never were) designed to protect Owners, but rather to protect the HOA and those that make money from them. Let’s work together, not in opposition. Thanks Jim Lane http://www.hoaowners.org

      • Jim – you’re not living in the “real world”. If shareholders of public companies were allowed to attend every board meeting to raise their concerns and ask questions, no board business would ever get done. I have long advocated open board meetings, with the understanding that sometimes the board needs to into a closed “executive session” to discuss matters of a sensitive or confidential nature. Allowing board members to attend board meetings to observe and listen, however, is not the same thing as allowing them to ask questions and, in extreme cases, monopolize the board’s time. It’s all about balance – giving homeowners a forum to voice their concerns and opinions, while allowing the directors to perform their duties.

  5. Re: open board meetings:
    1. What is the legal status of we (the homeowners) being allowed to attend regular board meetings, even if we can’t speak? Is that a legal requirement, or a best practice?
    2. “Regular intervals” – what if the board only meets 1x/quarter – would all be considered open? Any precedent, or another “best practice?”
    3. Do we, the HOA members, have the right to board meeting minutes? From § 47F-3-118, Association records, it appears that we do have that right. Is that correct?
    4. Do we have the right to financial statements?

    Lots of questions; if you need to charge me, feel free (I’m going to contact you anyway).

    • North Carolina law (both the Condominium Act and the Planned Community Act) require HOA’s to allow members the opportunity to appear and speak to the board “at regular intervals”, though the statutes give no guidance as to what that means; nor is there any case law to guide us. If meetings are only quarterly, I would suggest that at least every other meeting, and preferably every meeting, have a period of time set aside at the beginning to allow owners to attend, ask questions and raise concerns.

      Members do have the right to inspect and copy board meeting minutes and the financial statements of HOA’s. This right is found in Chapter 55A of the NC General Statutes, the Nonprofit Corporations Act.

      • HOA Board meeting minutes often contain confidential information about other residents. To give these minutes out seems inappropriate. Can the board do a set of minutes for resident use that is “cleaned up”?

      • What you are asking about is “closed” board meetings, otherwise known as “executive session.” Such meetings are called when the board needs to discuss or take action on confidential or sensitive matters, such as vendor contract negotiations/disputes, personnel issues, delinquencies and violations. Minutes of executive sessions should generally not be made available to members without a court order, subpoena, or a proper discovery request in a pending civil action, due to their sensitive nature. By “cleaned up” – if you mean that the meeting minutes should not actually reflect what action was taken, the answer is no. A colleague of mine wrote an article on this topic, and it can be found here: http://www.jimslaughter.com/Executive-Session–Closed-Meeting-Issues.cfm

  6. I live in a 35 year old townhouse and our dues have gone from $90 a month with insurance paid by the HOA to $325 with out paying the insurance. We have never had an audit. This may at the annual meeting a vote to have an audit passed almost unamously. The HOA board decided not to conduct an audit. Also a few HOA spouces are given paid jobs. A few strange things have happened such as two of the three bidders were not qualified to paint the buildings and the contractor who had painted the buildings for years was refused his offer to quote. Also special escrow accounts in the nearly $10000. were not accounted for after asking at several meetings. This is one or two of the reasons why the vote for an audit was called. What is our next step. I am trying to sell out but have had three folks refused after hearing of the monthly fees. I then contacted an agent. She suggested I might be facing a $70000 to $90000 price reduction and the rationall was the payments on a 70k to 90k loan at 5.25% yielded $325 a month. I could go on but I may be forced to not sell and rent it out.

    • IF you feel that the board of directors has breached is fiduciary duty, and you are getting no satisfaction from your efforts to deal with them directly, you should team up with like-minded owners and hire an experienced HOA attorney to press your cause.

    • Minutes of closed or executive session board meetings are generally not subject to inspection by members (see Roberts Rules of Order). Providing those minutes to members without a subpoena or court order would defeat the entire purpose of execution session.

    • There is no statute in South Carolina that requires the board to keep meetings open to members of the community. In my opinion though it is a good practice to at least set aside some time at meetings or hold a separate meeting where members may come and attend and also voice their concerns.

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