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This question is for Law Pro. This is another Homeowner Association.

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This question is for Law Pro. This is another Homeowner Association. I have a backlog of them so I hope you don't mind.

Two years, our association attorney offered to draft a "Code of Ethics" for Board members. The basis her document may have been a CAI template:
http://www.caionline.org/info/help/associations/Documents/boardmemberethics.pdf
but she made some "improvements".

At the January 19th 2012 board meeting, she proposed not only her code of ethics but also had drafted a resolution for the Board and recommended approving it. The resolution made it mandatory that all future candidates for the Board sign her code of ethics document before they are allowed to run for the Board.

The resolution and Ethics document are at the end of this document.

Here are the questions:

Has she put constraints on who can run for the Board position by making this document mandatory?

Is there any basis for not allowing expression of one's perspective on issues to general members, even if the majority of the Board disagree? "..it becomes the policy of the Board and is not to be criticized outside of the Board setting"

How can one research a past bad decision if "Moreover, I will not use Association resources to perpetuate matters already decided". All records are kept at a management company office, it is impossible to research anything without using "Association resources"

What does this mean: "a violation of any of the standards below shall constitute sufficient reason for my resignation." ? Is this "Code of Ethics" a contract?

The last question is probably the one that I most interested in being answered. At the Election meeting (other HOA board meetings are closed in Pennsylvania), a homeowner cited several examples of board members violating the governing documents and asked if these Board members could be removed on the basis of this code of ethics.

The attorney who sits with the Board at these meeting answered no. She stated her code of ethics is not a contractual agreement; the only way to remove board members is by a vote of all of the members.

From my layman's perspective, it looks like a contract, not a simple code of ethics agreement. Your view?

==========================================

RESOLUTION

At a meeting of the Board of Directors of Noname Association on January 19, 2012, after a Motion and second, the Board of Directors shall require the attached Code of Ethics be signed and submitted by every homeowner wishing to be considered for a position on the Board of Directors. Further, the current elected Board is strongly encouraged but not required to sign the Code of Ethics at this time.

By a majority vote of the Board of Directors, the above Motion is RESOLVED.

NONAME HOMEOWNERS ASSOCIATION
NONAME HOMEOWNERS ASSOCIATION BOARD MEMBER CODE OF ETHICS

WHEREAS, Article III, Section 3. of the first Amended Declaration of Restrictions, Covenants, and Easements for NoName Association, a community association commonly known as “NoName” and Section 5302 Pennsylvania Uniform Planned Community Act governing NoName provide for an Executive Board charged with the management, operation and affairs of the Community; and

WHEREAS, the Executive Board stands in a fiduciary relationship to its members, requiring each to act with integrity, good faith and fairness; and

WHEREAS, the Executive Board has determined that it is prudent to specify standards to be imposed regarding the duties of the Executive Board; and IT IS HEREBY RESOLVED that the following Resolution containing the accepted Code of Ethics is hereby adopted:

NONAME HOMEOWNERS ASSOCIATION
Board Member Code of Ethics

Effective January 20, 2012, Executive Board Members serving Noname Association shall be required to abide by the following Code of Ethics. A copy of this Code of Ethics will be provided to and must be signed by each potential future candidate in order to run for or serve on the Executive Board.

In order to most effectively serve the interests of this Association, I agree to meet the following Code of Ethics and further acknowledge a violation of any of the standards below shall constitute sufficient reason for my resignation.

1. I will abide by all Association rules, regulations, policies, and pay all association fees or other association charges on time.

2. I will use my best efforts to support Association operations that protect the safety of the residents and enhance the value of the property.

3. My decisions will be made based upon what I believe to be best for the entire Association regardless of how it might affect me or my interests.

4. I will not use my Board or leadership position to obtain less expensive services (other than what a neighbor would pay for the same service) for myself from any contractor, vendor, or professional connected with the Association or to obtain preferential treatment for my home from the Association.
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  Law Pro replied 1 year ago.
Hi! Thanks for asking for me.

I'm going to copy that dialog and paste it into my wordprocessor and review and get back to you if that's ok.
Customer: replied 1 year ago.

That sounds like a plan. I lost some of the formating cutting and pasting it into JustAnswers text box.


 


I could send you a MS Word document or PDF if there is some way to attach it.

Expert:  Law Pro replied 1 year ago.
I believe that they support the pasting of a pdf or word document.

You can paste it again as to anything you think didn't post correctly.
Customer: replied 1 year ago.
Expert:  Law Pro replied 1 year ago.
Got it!!

Thanks!!

I'll review and get back to you.
Customer: replied 1 year ago.

Here's one of the items puzzling to me.


The association attorney offers to write up a special code of ethics for our association. She not only writes up a code of ethics, she writes her own resolution and comes to the closed board meeting unannounced to present her resolution and recommend approval. It passes with a majority vote.


Two years later, at the yearly open election meeting, a homeowner who has proof that the board members have violated the code of ethics that was passed asks if the signed agreement can be used to remove these board members. The very same attorney says it has no contractual standing and cannot be used to remove board members.


What was the point of the whole exercise and money spent?

Expert:  Law Pro replied 1 year ago.

I understand your frustration - that should be enough for the board not to retain that attorney's services in the future. If they make that kind of effort and blunder - who should/would want them.

 

However, I would demand my money back because they basically were "churning" and advising knowingly that their advice was meaningless and unenforceable.

 

That's actually a violation of the Rules of Professional Conduct in PA - I'd have to see exactly what rule though. You could file a complaint with the PA Disciplinary Board against the attorney for such.

I'm sorry. I got preoccupied with my daughter's return from college - I had to go get her and bring her back from Penn State.

I will try to have an answer for you shortly on your question.

Customer: replied 1 year ago.

It's certainly not a problem; family certainly comes first. Penn State is in a beautiful part of Pennsylvania and it looks like you had wonderful weather for the trip.


These issues that I have asked about are rather trivial in the bigger picture, I suppose I'm hoping to get some sort of closure on issues that have been going on for years.


Is the attorney's ethic's statement really "meaningless and unenforceable"?


Not sure I want to take on any attorneys. Here's what could happen:


http://caselaw.findlaw.com/pa-commonwealth-court/1414651.html


The current Board appears satisfied with her services; I know of other communities that have dropped her but she is one of the recommended attorneys of the management company which is how she came to our community.


 

Expert:  Law Pro replied 1 year ago.
In that case - the member stopped paying their association dues. That was wrong and the problem for that member.

However, if the attorney spent time and expenses performing a legal service which they themself stated is "meaningless and unenforceable" that's a violation of the PA Rules of Professional Conduct.

That is charging a fee for nothing. That's a violation of rule 1.5 and 1.1 at a minimum. I'm sure the Disciplinary Board would have further ideas on the subject too.

To charge a fee for legal services which are "meaningless and unenforceable" is unethical.
Customer: replied 1 year ago.

To get back to my original questions just to make sure I understand your answer:


Has she put constraints on who can run for the Board position by making this signing this document mandatory?
Is there any basis for not allowing expression of one's perspective on issues to general members, even if the majority of the Board disagree? "..it becomes the policy of the Board and is not to be criticized outside of the Board setting"
How can one research a past bad decision if "Moreover, I will not use Association resources to perpetuate matters already decided". All records are kept at a management company office, it is impossible to research anything without using "Association resources"
What does this mean: "a violation of any of the standards below shall constitute sufficient reason for my resignation." ? Is this "Code of Ethics" a contract?


Lastly, a new question based upon your response: if a complaint is filed against the attorney and it is found to be not valid, could the individuals who filed the complaint be at risk for the attorney's defense fees?

Expert:  Law Pro replied 1 year ago.
Going back to your original questions:

Has she put constraints on who can run for the Board position by making this document mandatory?

Yes.

The declaration, certificate of incorporation, and by-laws.
Copies of these document should be available from the board of directors or developer; a copy of the declaration and by-laws is in your offering plan.
These documents should include information on:
. what the HOA is responsible for
. how the declaration can be amended (including percentage required)
. how members of the board of directors are elected
. how members of the board can be removed
. the powers and duties of the board of directors
. how annual owner meetings are called
. how special meetings are called
. what remedies exist when a homeowner defaults on his or her obligations including maintenance charges.



That pursuant to those aforementioned documents - she is attempting to wrongfully amend such without the requisite membership quorum. As such, that resolution is/was worthless. That brings me back to my previous statement that the attorney knew that when attempting to enact the resolution and yet charged the association for her legal services.


Is there any basis for not allowing expression of one's perspective on issues to general members, even if the majority of the Board disagree? "..it becomes the policy of the Board and is not to be criticized outside of the Board setting"d

No. Is the USA citizens have First Amendment right to freedom of speach. That there recognized time, place, and statement restrictions to a person's freedom of speach (ie. Incitement, False statements of fact, Obscenity, Child pornography, Fighting words and offensive speech, Threats, Speech owned by others, Commercial speech) the board can't restrict a member's speach except at a meeting when it's not properly brought forth (however, if properly brought they can't restrict the member's statements).

How can one research a past bad decision if "Moreover, I will not use Association resources to perpetuate matters already decided". All records are kept at a management company office, it is impossible to research anything without using "Association resources"

First, matters "already decided" can be changed. That's erroneous that the board won't allow the matter to be brought up again. As to the financial and other records - a member is entitled to such information.

What does this mean: "a violation of any of the standards below shall constitute sufficient reason for my resignation." ? Is this "Code of Ethics" a contract?

As stated before - the declaration, certificate of incorporation, and by-laws how members of the board can be removed. The resolution is nothing - the board member , unless the consentually resign, can only be removed pursuant to the procedures stated therein.







The last question is probably the one that I most interested in being answered. At the Election meeting (other HOA board meetings are closed in Pennsylvania), a homeowner cited several examples of board members violating the governing documents and asked if these Board members could be removed on the basis of this code of ethics.

Yes, a board member can be removed for such - that would be a blatant violation of the governing documents, a violation of the business judgment rule, a conflict of interest, etc..

The attorney who sits with the Board at these meeting answered no. She stated her code of ethics is not a contractual agreement; the only way to remove board members is by a vote of all of the members.

That is correct - this code of ethics the attorney promulgated isn't worth the paper it's written on - the association has a stated procedure how a board member can and must be removed.

From my layman's perspective, it looks like a contract, not a simple code of ethics agreement. Your view?





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Customer: replied 1 year ago.

Thank you for your answers. There is more to this story; the association was also missing money from one of its accounts in the tens of thousands of dollars. The auditor wrote a warning letter that for whatever reason the money was missing, it needed to be paid back.


The lawyer wrote a resolution around the same time, part of which reads:


"...The Board of Directors is not desirous of assessing owners with a special assessment, which would be the required action to abide by the governing documents to refund the sums immediately. Rather, will prefers to resolve to repay the sums in a term not greater than the same rate the same were used by the Association for legitimate purposes. The Board recognizes if any challenge to this resolution is made, a special assessment will likely result and the Board prefers to avoid that in light of the challenging economic circumstances, a review of the upcoming reserve needs and in the interest of the owners."


It has never been proven what the money was spent upon.


The resolution passed by a majority as the same board members who were in office when the money went missing were the same ones who approved the resolution.


The lawyer then implied that the new mandatory code of ethics would preclude any other Board member from researching past decisions; if they did, it would be grounds for their resignation. Another tactic the management company has implemented is to put the records in remote storage and then charge regular members and Board members attempting to research past history to pay for the retrieval costs of boxes. You don't pay up front, you don't get to inspect the documents.


 


The Board of Directors is not desirous of assessing owners with a special assessment, which would be the required action to abide by the governing documents to refund the sums immediately. Rather, will prefers to resolve to repay the sums in a term not greater than the same rate the same were used by the Association for legitimate purposes. The Board recognizes if any challenge to this resolution is made, a special assessment will likely result and the Board prefers to avoid that in light of the challenging economic circumstances, a review of the upcoming reserve needs and in the interest of the owners.

Expert:  Law Pro replied 1 year ago.
Do you have a copy of the auditor's letter about such?
Customer: replied 1 year ago.

Here's the text of part of the letter. What is mis-leading is that the budgeting reports received by the Board members by the management company had any mention of a deficit or "loans" redacted from the worksheets. How the money was transferred has never been identified in the General Ledger; the management company has simply refused to provide any verifiable information.


 


==========


Due to the Accumulated Operating Fund Deficit, the Operating Fund has been required to borrow funds from the Replacement Fund in order to meet daily obligations. The Board of Directors should note that the Bylaws require, in Article XX, Section 3, Budget and Reserves Procedures, part c:
"Loans from the reserve funds to the operating fund may be made from time-to- time, as authorized by vote of a majority of the Board, but such loans must be repaid to the reserve fund in full within six (6) months, or by the end of the next fiscal year of the Association after the fiscal year in which the loan is taken, whichever shall be the first to occur."
We have found no documentation that the Board of Directors actually had a vote on this issue and it is clear the loans were not repaid within six months. This clause in the By-Laws was likely inserted to discourage the Board of Directors from approving a budget that incurred a deficit and to require future Budgets to remediate any deficit that occurred.
We have taken the position in the financial statements that the Board of Directors inherently approved the loans by approving a budget that did not remediate the prior deficits nor prevent future deficits from occurring. However, this does not address the technical violation of having a vote on the matter of Interfund Loans and it does not address the requirement to repay any loans within six months.
The Board of Directors needs to consider this issue and take steps to get the governance of the Association into compliance with the By-Laws.


==========


 


If you would like to review the entire letter, I can provide you a link.

Expert:  Law Pro replied 1 year ago.
So it's not that they personally took the monies - they took from one account/budget or reserve and moved that to another account.

I thought from your original statement that the monies couldn't be accounted for.

What I perceive from that letter from the auditor - was that the board didn't formally vote on the issues and the monies weren't We have found no documentation that the Board of Directors actually had a vote on this issue and it is clear the loans were not repaid within six months.

"Loans from the reserve funds to the operating fund may be made from time-to- time, as authorized by vote of a majority of the Board, but such loans must be repaid to the reserve fund in full within six (6) months . . . ."


So what I get from that is that the board didn't formally memorialize a vote on the issue nor reimbursed the account.

I didn't get that they thought monies were "missing" and could not be accounted for completely.

Correct me if I'm wrong on that but that's how I read it.


Customer: replied 1 year ago.

I read the auditor's letter the same way. What the board has refused to reveal is how the money was transfered in terms of identifying the transactions. In other words, money was either taken out of or never put in the Reserve Account and is in the Operating fund.


In other words, there are no "loan" transactions.


At one point, the management company CEO claimed it was due to special assessments for repairs. Her explanation was as follows:


Repairs were made to a homeowners' homes by the Association. The vendor was paid in full from the Reserve fund. The Board then assessed the homeowners for part of the repairs. The money the homeowners paid was to go back into the reserve fund but instead stayed in the operating fund. A number of homeowners over the years were assessed for repairs and the reserve fund deficit increased.


You can listen to the explanation here:


http://bit.ly/136LirO


Sounds reasonable until you examine the annual reports to see that the money paid by the homeowners as repair special assessments are not recorded as revenue during any of the years.


Another more minor problem with the CEO's comment that it was a choice of telling people there was no money or making repairs to their homes. The budget shortfalls were for legal expenses due to lawsuits, not repairs. Whatever the cause, the obvious action would have been to notify the Board and take appropriate actions (a loan, deferred payments to vendors, etc.) and document the action in the minutes.


But the question is, what happened to the special assessment money received by the association?


A complaint was filed with the State Attorney General. The lawyer for the association had the issue dismissed by stating in a letter:


"I was present at the Public Meeting when the explanation was provided to the ownership that the report received by the Auditor was not accurate. Mr. X's recitation of what was told him is not accurate. There were no special assessments involved but rather an issue of categorizing expenses made from the reserve account which required review of work orders, work performed and the like. This explanation was provided fully to Mr. X and all other members of the Community. It resulted in the audit being available in final form in November, 2012."
Something is rather odd about this conduct, why not simply show the transactions that resulted in the "loan" from the Reserve Account general ledger over the five years and move on? Perhaps harder to explain is why the special assessments are not reported as income (the special assessments were paid to the association, not directly to the contractors) and whether these issues are related.


 


 


 

Expert:  Law Pro replied 1 year ago.
OK. As I stated, I thought maybe they had "embezzled" monies or something.

However, they are not adhering to the requirements of the association governing documents.

As such, they can and should be removed.

What you are entitled to is the financial records of the association and if they don't add up demand an accounting. If they won't provide such - then this is an easily handled matter to pursue in court who will then order them to give an accounting.

Moreover, they will be responsible for your attorney's fees.

Then, I would think that the membership would oust the board in it's entirety and replace them others desiring to serve. At that time I would also seek new legal representation for the association because that attorney clearly is in breach of the obligation and has a conflict of interest. They in reality represent the association AND NOT the board members themselves. The attorney is in breach of the legal ethics here in this situation.

Law Pro, Lawyer
Category: Real Estate Law
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Customer: replied 1 year ago.

Apologies for taking so long to rate your answer. You provided a lot of useful information.


The issue behind the unauthorized "loans" may not so much be the loans but why the special assessments that were made against homeowners to repay for repairs and paid to the association are not reported as revenue in the financial statements.


Without knowing the reason, I am hesitant to use words such as embezzlement; perhaps it is sloppy accounting. But whatever the reason, an explanation should be provided.

Expert:  Law Pro replied 1 year ago.
There's been some website problems so I've worked on other "things" instead. Sorry if my response is late.

Absolutely, I completely agree with you.

Although maybe there wasn't illegal activity that occurred - the board does have an affirmative obligation and duty to give an "accounting" of their activites. Moreover, failure to follow procedures as outlined in the association documents is more than reason that a board member should be removed.

Not only is it a problem "accounting" but the problem causes more problems as time goes on - the history of what the association's expenses, being able to account for where expenses were incurred, to give an idea for future boards and members of expenses, etc., etc., etc.

The board has a duty to vote on the issue and memorialize the vote - it's in the association's governing docs. Failure to do that as required then gives the board the wrong impression that they don't have to follow the governing docs on other matters either.

Association members are also entitled to know who voted for such and who didn't (if anyone didn't - or if no one voted against such).

The board it would appear is acting as they please and not adhering to the governing docs - is a dictatorship.

dictatorship
, form of government in which one person or a small group possesses absolute power without effective governing limitations.

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