Ask The HOA Expert: What Is The Difference Between The CC&R’s And The Rules And Regulations?

Question: What is the difference between the CC&R’s and the rules and regulations? Even if the rules and regulations were never filed on the public record, would they hold up in a court of law?

Answer: CC&Rs stands for “Covenants, Conditions & Restrictions.” CC&Rs include the Declaration, Bylaws, Rules, Regulations, Policies and Resolutions.

As far as standing up in court, no one can predict the outcome of a judge or jury decision. But the HOA has a responsibility to make sure all rules, regulations and policies are in writing, distributed to all owners and residents and easily accessible when needed (website recommended for 24/7 access). If the HOA’s rules are fair and uniformly enforced, most judges will rule for the Board.

Question: I am an HOA Treasurer and have been attempting to implement spending controls. We have two Board members who regularly purchase items for the HOA and want to be reimbursed. My concern is that expenditures are unpredictable and hard to track. What do you think is a reasonable policy?

Answer: Your HOA sounds like it has had a long history of directors spending money as they saw fit. The first question that comes to mind is: Has the old routine caused budget overruns? If yes, you have a sound basis for your controls. If no, you may be making much ado about nothing.

That said, it is not common for random directors to routinely spend the HOA’s money. In self managed HOAs, the President and Treasurer generally handle payments, occasionally reimbursing a director for an HOA expense that can’t wait for the normal payment process. Ideally, if you have a hired manager, all expenditures should be routed through the manager. It is much easier to hold an employee or contract manager accountable than a fellow director.

Your biggest obstacle doesn’t seem to be opposition to good financial management practices, but perception that such is not needed. Getting a barge to change course takes time. Continue to press for change. The Board has a fiduciary duty to run HOA business in a business-like way.

Question: I recently took over professional management of an HOA which, I just discovered, has over $70,000 of unpaid water bills. The water department has threatened to shut off service within 48 hours. The Board directed me to impose a special assessment of $1000 per unit without a meeting or member vote. Can an emergency special assessment be imposed without member approval?

Answer: You need to read the governing documents to see what authority the Board has to raise special assessments. Even if the Board has authority to do so, proper and reasonable notice must be given to the members and time to raise the cash.

If a special assessment requires approval of the members, a member meeting needs to be called with advanced written notice. The meeting must have a legal quorum and a legal majority vote as defined by the governing documents. You may be able to pull this off by mail in ballot if your governing documents allow it. But none of this could possibly take place within 48 hours.

The Board needs to make immediate and adequate payment arrangements for the water bill, perhaps by getting a short term loan from the bank (and quick). Or, you might be able to get the water department to leave the water on if money is on the way (special assessment or loan). But they will, no doubt, want to see the written evidence (letter from bank, copy of special assessment notice, etc.).

The bigger question is, if this HOA has allowed things to get so bad that basic utilities can’t get paid, what other fires are you going to find that they want you to put out? This crisis didn’t happen overnight and the Board likely has others waiting in the wings. Unless you are getting paid extra to deal with these special circumstances, you need to seriously evaluate whether this is an account worth your time.

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