HOA Insights: Common Sense for Common Areas

028 | On The HOA Board? Now What?

November 06, 2023 Hosts: Robert Nordlund, Kevin Davis, Julie Adamen Season 1 Episode 28
HOA Insights: Common Sense for Common Areas
028 | On The HOA Board? Now What?
Show Notes Transcript Chapter Markers

Learn the key responsibilities and rights for HOA board members. We’ll show you how to maximize your board's effectiveness and explain your exact role!
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Jump into the world of HOA board governance in our latest episode of HOA Insights. Today we’re diving into the complexities of managing homeowners associations. From the basics of understanding laws and documents, to mastering decision-making and compliance, we cover every angle for new and existing board members. Featuring consulting expert and seasoned HOA board member, Tom Connolly, take away his advice and practical tips today. Learn about the importance of relying on professional experts in every field, navigating board disagreements, ensuring transparency, and prioritizing the community's greater good. Whether you're a new board member shocked by the responsibilities or an experienced member seeking fresh perspective, we’ll provide invaluable wisdom to make your tenure successful and impactful.

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Chapters from today's episode: On The HOA Board? Now What?

00:00 Intro to being on the HOA Board
02:17 About Tom Connelly
03:01 Dealing with a Divided HOA Board
04:32 Reasons for Joining HOA Boards
07:47 What New Board Members Should Know
13:44 Understanding HOA Responsibilities
15:34 Community Financials Ad Break
16:11 Making HOA Decisions for the Greater Good
19:33 Using The Business Judgment Rule
23:24 Board Member Roles: You Need True Experts
25:26 Deferred Maintenance
26:23 The Rights of the HOA
30:09 What Isn’t Your Role as a Board Member

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Basically, as a board member, you're you're not an expert in all areas or you're a community member trying to do the best for your community. So when it comes to say, doing a reserve set, or doing a large construction project or a repair project, you don't necessarily have the the skills, knowledge and abilities to pull that project off. So you need to rely on outside professionals to feed input to the board so that the board can make an educated decision on whatever project there they're considering whatever. Reserve reserves that is reserve expenditures, budgeting those kinds of things.

HOA Insights:

Common Sense for Common Areas exists to help all 2 million volunteer board members nationwide have the right information at the right time to make the right decisions for their future. This podcast is sponsored by four companies that care about Board Members Association insights & Marketplace, Association Reserves, Community Financials, and Kevin Davis Insurance Services. You'll find links to their websites and social media in the show notes. Welcome back to Hoa insights common sense for common areas. I'm Robert Nordlund. I'm here today with a special guest to discuss the motivations that draw people to serve on the board. This is episode 28. And before I make the introduction to our guest expert, I want to encourage everyone to check out Episode 27, which was a great discussion with regular co host and insurance expert Kevin Davis, on how to minimize your associations exposure to lawsuits. If you missed any other prior episodes, take a moment after this episode to subscribe to this podcast on any of the major podcast platforms or you can also listen for a podcast on our website hoainsights.org. Or watch it on our YouTube channel. And if you have a hot topic, crazy story or a question you'd like us to address, leave us a voicemail message at 805-203-3130 or send us an email at podcast@reservestudy.com. Well, today it's my pleasure to welcome Tom Connolly to the program, Tom served a career in municipal law enforcement. And for last 15 years has served as a consultant for many private sector and HOA clients. Tom has over nine years of experience on the board for two different HOAs and is currently vice chair of the board members club for the educational community for homeowners, also known as ECHO that's a nonprofit resource organization or trade organization for homeowner associations throughout California. So Tom, welcome to the program. Thanks, Robert. I'm honored to be here. Thanks for having me. Well, I thought we could start out today's program as we often do with an audience question. And this one is from Tom in Dallas, our board is regularly divided between the "keep it like it is" and the "let's make some change" members. So can we start with offering any advice for Tom in Dallas? Oh, Tom, that's that's a difficult problem. Because as you know, being on a board and being in a community, everybody has varying opinions and and ideas on on what makes the community best. However, the reason that you're on a board and the reason that there's typically an odd number of board members is so that you don't get mired. And in that kind of situation, a majority of the board wants to go to the right and a minority wants to go to the left, then you're gonna end up going to the right and the board has to make that decision, you can't not make a decision and hope that something happens because it won't. So tomorrow and two weeks down the road and the two months in two years, you're gonna be in the same place you are today. So the best thing to do is is use your board and do your research and let everybody express their opinion. But then you have to make a decision. And if it's three to two or four to three, however big your board is, then that's the way that it should go. Let me ask you, you've been on a couple of boards. I was president to my condo association long ago. What motivated you to get on the board for your two different So the first board position I had was in a community that we associations? owned a rental and we we weren't overly involved in the community and I spent quite a bit of time there doing some renovations. And I was retired I was a police administrator and was retired and I saw it as an opportunity to have an impact on the community in hand to share my managerial and leadership skills with a board and and to get involved in the community and try to try to make it a better place. What about the second one? So the second one, I was, at that time, I had already started working in a consulting role with a number of HOA boards. And so when we moved into that community, I was somewhat noun and I was shoulder tap to you to run for a vacant board position almost immediately upon moving into that community. And so that one was a little little different. The first one was, yeah, we both work for the same reasons, because I think I have some skills and knowledge and and some ideas that that will, would have helped both communities to be better places to live and, and to help increase property values and and to just be a positive influence. Yeah, well, I heard two things right there. One is an ability to give you had some skills, you had some time, and something to offer, and then property values. That's something to get. And there's a lot of satisfaction that you get in helping the community. There's also a pretty big reward when you can help property values go up. And it's not just for you, it's for everyone at the association. And that's a tremendous thing. I got on the board of my association when it was probably just a couple of months after I'd become an owner. And I mortgaged up to my eyeballs. And I thought I should find out what's going on here. And so I went to the, I think it was my second board meeting, and the entire board resigned. And so they looked around at the few people that were in the audience, and they said, can you guys be the board? And I, internally, I didn't say it out loud. But well if you knuckleheads can do it I certainly can. So it was almost a crisis situation. And you had two different stories, I have a story. I bet there's as many stories as there are people, whether it was a crisis, an opportunity to volunteer, a specific project that they wanted to get done adding a dog park, or nowadays, maybe it's converting a tennis court to a pickleball court, whatever project we have lots of reasons people get on the board. But I think we have to make sure everyone here again, big picture. We're trying to equip and encourage board members to have success. So what are let's, I want to make sure we spend some time with your area of expertise and that's you're consulting, what do board members need to really know as they get onto or take a board position? While that's, that's huge, because, you know, there are a number of reasons that that people get on their boards, and most of them are noble reasons, right. And we've discussed this to make it a better place. And and all of that, what tends to happen when when somebody gets on to their their association board, is you get hit with, oh, wow, I didn't realize it was this complex, I didn't realize there was there were a whole body of laws. And I'm familiar with both Nevada and California. In both states, and I would imagine in most others, there is a huge body of law that governs how homeowners associations can be governed and run. And then you've got, oh, we'd have these things called governing documents, we have bylaws. And we have rules. And we have CC and Rs, and as a board member, you it's pretty much your responsibility to become familiar, very familiar with all those governing documents and with the the laws, especially the laws that govern how you can operate as a board member and how a board is to operate and how the needs are to be conducted. And notice and that kind of thing. I had a little bit of background because I dealt with City Councils and so you know, we had the Brown Act, which was the Open Meeting Act in in California you have the Davis Stirling laws and the Civil Code. And basically it's the same thing, you have open meetings, a board cannot run an association in the dark behind behind the curtain. Board business has to be handled in front of the membership because it's for the membership. It's for the homeowners and so there there is so much to learn. When you're a new board member, especially if if you just said hey, I've never done this before, but I want to impact my community. There you are. There's Robert. Yeah just raise your hand and thought I can do it. Yeah, yeah. yeah, and wow, I've got, you know, 450 sections of law that And govern what I do. Plus we have, you know, 250 pages of governing documents that I need to familiarize myself with. And that, that tends to be kind of that and when you first get on board, you go, Whoa, did I make the right decision. However, it's, it's not overly difficult. And you know typically, most most homeowners associations that I work with are professionally managed. And it's, it's the job of your manager to help with that educational process. And to make sure that you're not you're not stepping off the stepping off that cliff as it were, and making decisions or an operating a board meeting, or, Hey, we're going to talk about this in the executive session when it's not something that qualifies for Executive Session, and needs to be addressed and handled in front of the membership. And so those are the kinds of things that, you know, I see, you know, as new board members, it's just the shock. Hey we've got this, and then the other shock is, once you know that and looking backward, you see, oh, we haven't been doing things lawfully we haven't been doing things in compliance with our governing documents for years and years and years. And how do we fix this? And and what is my role in fixing this? Yeah, I'm again busy here with no, I am smiling. Because as I'm nodding my head, I'm betting but most of our audience is also nodding their head thinking, oh, yeah, that was me. Oh, my God on the board, I thought it was, you know, couple, our meeting a little bit of prep and go on with my life. And not fully appreciating, like you say, the body of law, the governing documents, all the compliance type things, and arguably a lot of governing documents is the corporate mandatory stuff that needs to be there, because you're a corporate entity. But there is a lot of it must be done this. And these are how elections happen. And this is how many board positions they're in and these are the terms. But there's definitions like common area, what it is and what it isn't. And when you don't know, you need to know enough to reach out to your attorney, get a professional opinion. I love your reminder that the managers are there to perhaps the glue, provide consistency from year to year when you get at least partial new board members, or maybe an entirely new board to remind them of what's the right to institutional knowledge, this is how we've done it, these are the things that work, these are, this is the reason why we created this rule last year, all those kinds of things, remember this, the annual calendar, the things that have to happen at certain points in time in the year. And I just love the idea of these new board members with fresh energy and fresh idea, their ability to say, let's make the community better, let's add, or let's have dog waste stations, near the grassy lawn area, a simple little thing that can just do the little things like that can be great to help an association, relatively inexpensive, but the good ideas that come with new board members. And you know, they may have gotten on the board for some reason of their own. And all of a sudden you realize that they have a dog and they need something like that. And they can use their position now as a board member or committee member to start making good things happen at the association. Okay, hey, what do you think the fraction or the percentages of people who get on the board and really have don't have a correct understanding of how much time and responsibilities involved? I would say that's a very high number. I think people, you know, unless you've been on a board before, and then you came off and got reelected, but as a new board member, that's that's a huge number. And yeah, I would say, you know, unless you're in a, you know, professional environment where you have similar requirements, I would say, you know, high 80-90%. And, right? It's a multimillion dollar nonprofit multimillion you know, one thing I was going to allude to is, you know, being on the board of a homeowner's association is just like running any other business because that's what it is. It's a business. And you're also every, every state that I know of board members are bound by the business judgment rule. So when you're making decisions, you know, you're bound by this world where you do your research and and you don't just, you know, pull decisions out of the air. You have to rely on experts and you have to rely on On, on your record business acumen and rely on your manager and and let everybody have input. And now you're you're making decisions or a business. And that business just happens to be yourself and your neighbors, dollar when you talk about the value of all the assets, and it's a nonprofit, and that's a significant responsibility. Well, Tom, let's get back to that fiduciary responsibility and business judgment rule in just a moment. But let's take a quick break for to hear from one of our sponsors. Is your HOA or condo self managed and you don't want to work as hard volunteering? Are you full managed and looking to save money? Are you looking to split the accounting from a manager's role for better service? Let Community Financials handle the monthly accounting for you. We collect dues, pay bills, produce financial reports, include portals and help with other support services, all while providing awesome service, we'd love the opportunity to help you make your community accounting stress free with our industry leading systems and expert team. Visit our website communityfinancials.com to learn more. Well, Tom, we spoke about or you spoke about fiduciary responsibility and the business judgment rule. Clue our audience in on what more of what you're talking about here. So as far as fiduciary responsibility, most laws in most states require board members to act as a fiduciary. And that basically breaks down to you are your decision making is governed by what's best for the whole what's best for the entire community, not necessarily your own self interests. And the so that the greater good over what, what would benefit you the most, let me stop you right there. Because, again, there's that tension, because you, there's probably a lot of board members that got onto the board because they want to accomplish some thing. And that they had had a good idea, even the illustration I had a moment ago about something in a common area yard. But that has to go against the tension of as a board member, your higher responsibility is what's best for the association, even more than your pet peeve, good idea. I shouldn't say pet peeve, good idea. It may be a fantastic, good idea. But number one is what's best for the association. Right. And and, you know, in a situation like that, I mean, you let's say the that waste stations you can you can bring it up to the board as a you can make a motion I move that we investigate you know installing pet waste stations, and you either don't get a second, or you get a second and you get out voted, that's the scenario where you know it, the greater good and, and the the board acts as a as a, an entire entity out as individuals. And so you know, that's, that's, that's part of the whole process. And then that kind of tends to the people that get on for the single item. And they're not really focused on the greater good. They usually get discouraged pretty quickly. And sometimes they quit or they don't run for reelection down the road. Yeah. And that may lead to the introductory question from Tom and Dallas, our boards regularly divided between, keep it like it is people who don't want to fiddle with new things, and maybe the new board members who came on because they want to make some changes. So we've got these different backgrounds, we've got the agendas, ideas, energy levels, but hopefully, we're adjusting those people to understand that. We're talking about the association here. It's the community, the community has a pulse it has a personality, and has some guiding principles as the governing documents. It has the state laws and their state. And so hopefully, the board members are appreciating that we need to fall in line with these bigger principles. And how can we bring our association Happy Valley Vista? How can we make it the best that we can? And some of that is just acting responsibly, the fiduciary responsibility you touched about business judgment rule, can you spend a moment to talk about that issue? So there is a legal termination that that I don't I can't pull off the top of my head right now. But basically, if you if somebody outside of the organization is looking at a decision that you've made, and hey it could be you know, we know most of our associations have been subject to lawsuits for one one reason or another. So you're gonna have attorneys and judges, and experts in the field, looking at decisions that you make. And basically, as a board member, you're you're not an expert in all the areas board, you're, you're a community member trying to do the best for your community. So when it comes to say, doing a reserve study, or doing a large construction project or repair project, you don't necessarily have the the skills, knowledge and abilities to pull that project off. So you need to rely on outside professionals to feed input to the board so that the board can make an educated decision on whatever project they're, they're considering whatever. Now, reserve reserves, that is reserve expenditures, budgeting, those kinds of things. Yeah or maybe as simple as wanting to get some fresh color in the landscaping right by the entryway. And you've got this idea of these great plants that are at the grocery store down the street, and you love the look of that. And you need to be reminded that you need to check with is this perhaps the right thing, check with your landscaper, and see if the soil, the orientation of the buildings, make sure they have the right water, the right soil, the right sunshine, people make those plants grow, because you don't want to push your agenda, when it may not be the right thing. It may be futile. So I got I'm not providing legal advice. But from the work we do on reserve studies I think of the business judgment rule as three parts - a duty of care, means you care about getting something done well for the association, kind of a quality aspect, duty of loyalty, which is just what we spoke about a moment ago, where association comes first. And then as you suggested, the duty of inquiry, so asking when you don't know. And that may be what is common area what is not who can paint this fence? Can you paint the inside and the association paints the outside just so many things like that, knowing when to go for help asking your manager asking your attorney asking the landscaper and those parts. I don't want to say temper board members trying to do their job. Hopefully they they guide and help the board decisions flourish when you're thinking about it in those in those ways. Correct. You just took the word right out of my mouth. It's a guide, its guidance to those making decisions. Yeah, I like board members thinking how can we make our association flourish? How can we bring our community forward? I had a new employee asked me or told me that he's the kind of guy who likes to think outside the box. But he at least needs to know where the walls of the box are. And the governing documents, the laws, business judgment rule, those are the walls of the box. Within that we want you our audience to do wonderful things for your association. But we also want you to not get yourself in trouble or go down a with a dead end in trying to accomplish some idea that is maybe a long shot. I totally agree. And here's the here's the example. At a board meeting that I was in. We had a board member who was a practicing attorney and school, educational law, people were looking to this person to give expert advice on legal matters that the association was was facing, oh, common area, foreclosures, things like that huge lawsuit, we had a wrongful death lawsuit. And you can't rely on if you're a board member and you have you have say you're a CPA, you're an attorney or whatever. Just because you have that title does not make you the expert that the Board should and and in most cases shouldn't rely upon for guidance. Yeah. Can we use the word independence? Do you want to talk about that for a moment? Okay, go down, slow down that go down that conversation line. I seen it and heard it with clients, I saw it and when I was a board member and when I was a board president and you just need the it may cost you a little bit of money. But that's that business judgment rule. That's that fiduciary responsibility that you have to the rest of your community to to make decisions based upon the best information from your experts, right? And remember the decisions that you make to help your association flourish, that builds property values, and its property values, your property values times 50 times 100 times 251, whatever it is your association. So don't skimp upon$200, or $500, when we're really talking about 1000s, or perhaps better part of a million that is really in play here. We want to encourage the board members to run their association like that corporation, the nonprofit that you spoke about, like a business and see it as how can we move this entire platform this community forward successfully into the future. And one thing to add on to that is deferred maintenance. That's a that's a huge thing. People want to defer maintenance, because it's costly. But you know, $500 today is $1,500 next year, because whatever you are maintaining is either deteriorated more, the cost of the cost of materials and labor is higher. And, you know, my recommendation tip boards is maintenance is maintenance and take care of it when it's when it's supposed to happen, unless it really doesn't need to be done. But if you're deferring it just because it cost that's, that's, in most cases, a bad decision. Yeah, that in from my point of view, that is not money saved. That is a foolish, foolish decision. Hey, Tom, I want to make sure we spend a little bit of time talking about board members as board members, members of the community, what can you speak to rights and privileges? And some of the limitations personally, ownership, power. Can you spend a moment to look into that subject, please? Sure. Absolutely. When you're on the board, you have more power than everybody else. Got it? Not him? Not really. I'm joking you folks, well, let's take that you are one of three or one of five or one of seven, that are empowered to make the decisions. But you said it earlier, you don't have the power. You are one of seven on the board. When you disagree on the board, and you come out of a board meeting, the answer is the association has decided it's not "I did" or "I didn't" or "I was the dissenting opinion", you need to be a one of one mind, we are the board. And this is a way of moving forward. But yeah, there's, again, those nuances there, where you're, let's say you're one of the five members on the board, that's at least a time responsibility. And you carry that burden as you move forward. Right and, however, you know, and the word du jour is Karen, don't be a Karen, right. And don't be cutting down people's mailboxes, because it's six inches too high. Saw that commercial too. And as a board member you you are obligated and privileged to act as a group. But in most cases, as an individual board member, when you're outside of the boardroom, and not acting as a as a board, and you know, as a board itself, you have no more power than any other member or or owner to to take upon yourself enforcement of the rules or enforcement of CCRs or Yeah, anything that is the responsibility of the board as a whole. And that tends to create, because that's usually a small fraction of board members that do that. But it tends to create angst and problems internally with a board and what you want to do as a board, you want to develop as a group as a team as an effective body moving forward the initiatives for your community and when you have one or two people that are that are not on board with that or that one person who leaves the meeting after after a decision is made and starts telling people Well, that wasn't my decision and your dues are going up a certain amount, because because they made that decision not me. That is divisive, and it's not not productive for for a an effectively operating Homeowners Association board. Yeah. And I'm thinking so many things that there's there's nuance in that, but that is clear. You want to keep in mind, what am I doing for the board to help the association flourish? And that's the that's that big picture. There will be times I would imagine when your neighbor, someone in your building or another building says, there's a sprinkler that has broken outside my home, can you call the landscape company because they know you're a board member and that may be a time to act quickly as an individual. That may be a good thing. But then you talked about taking too much power, for you to be walking around and giving the landscaper and global instructions about what to do that is more like a board decision. So can you explore that just a moment? Yep. So So, in my experience management of contracts. And so when I've been on the board, we've always been professionally managed. And so you have contracts with the pool guy, the landscapers, the, you know, the maintenance people. Yeah, I mean, it is security and those kinds of things. And so your contract that you have with those, with those vendors, kind of spells out the services that they'll provide. And and I always laid the responsibility for managing those contracts and managing the contractors upon the community manage the board, the board of directors is is a higher level decision making and forward looking body that shouldn't be involved in in day to day operations of the homeowners association, and should not be directing. Individuals especially should not be directing work being performed by eating by your contractors, good. And, and you know that that is fraught with problems and say, you've got a you've got a contractor, they're doing some, some repairs, some maintenance repairs, and you don't want to get involved and tell them how to do their job. And hey, you don't need a two by four there. Well, yeah, code requires a or, or whatever it may be. And it's, it's just best in my experience that the board backs away from operational stuff backs away from from managing contracts and contractors and leaves that to their management company or project manager or whoever, whoever you've engaged to oversee. Whatever project or whatever task it is. Right. We'll Tom I thank you for that reminder of making sure that you are leaning on your team, as part of being a good board member is appreciating duty of inquiry, what do you know, and then working on the team, relying on the manager to help do the nitty gritty the daily details that they've been paid to do. So there's so many aspects where, yes, you want to work hard as a board member, but you want to work within the framework of what what powers limitations, you and the rest of the board have to lift the association up Association up and help it to flourish. So you've got me again, a lot of notes here from our conversation. Great stuff. So thank you for joining us, Tom. Please let our audience know the best way to get in touch with you if they have any follow up questions or ideas that you'd like to share with you. Great, thanks, Robert. again for having me today it is a privilege and and I do really enjoy this this area, because you know, it was you know, it's important that communities are well run. I can be reached via email, tom (T. O. M.)@connellyconsulting (all together one word) .org. So tom@connollyconsulting.org For our YouTube audience, it's on the background right behind him. Well, and again to our audience, we hope you learned some HOA insights from our discussion today that helps you bring common sense to your common area. We look forward to having you join us for another great episode next week. You've been listening to HOA Insights, Common Sense for Common Areas. You can listen to the show on our podcast website, hoainsights.org, or subscribe on any of the most popular podcast platforms. You can also watch the show on our YouTube channel. Check the show notes for helpful links. If you liked the show, and want to support the work we do, you can do so in a number of ways. The most important thing you can do is to engage in the conversation, email your questions or voice memos to podcast@reserve study.com Or leave us a voicemail at 805-203-3130. If you gain any insights from the show, please do us a HUGE favor by sharing the show with other board members you know, you can also support us by supporting the brands that sponsor this program. Please remember that the views and opinions expressed by the podcast do not constitute legal advice. You'll want to consult your own legal counsel before making any important decisions. Finally, this podcast was expertly mixed and mastered by Stoke Light Video and Marketing. With Stoke Light on your team, you'll reach more customers with marketing expertise that inspires action. See the show notes to connect with Stoke Light.

Intro to Being on the HOA Board
About Tom Connelly
Dealing with a Divided HOA Board
Reasons for Joining HOA Boards
What New Board Members Should Know
Understanding HOA Responsibilities
Community Financials Ad Break
Making HOA Decisions for the Greater Good
Using The Business Judgment Rule
Board Member Roles: You Need True Experts
The Deferred Maintenance Problem
The Rights of the HOA
What Isn’t Your Role as a Board Member