Reader Questions - Suspended Corporation, Quorum

Dear Kelly,

I was elected HOA President shortly after we bought a unit in the complex. I was told that the HOA was an unincorporated association. After some digging, I discovered the HOA was a corporation not in good standing and had not filed tax returns in past recent years!

I received approval to move forward, hired an accountant and filed years of back taxes. After some months, the HOA was returned to good standing. At the last HOA meeting, I was accused of wasting HOA funds on accountants and lawyers.

I need some clarification from you on this issue, as it is my belief that the HOA needs to be in good standing and needs to file its annual federal and state tax returns.

Sincerely,

E.S., Encinitas

Dear E.S.,

Not all common interest developments (aka “homeowners associations”) are incorporated, but most are. Usually the first page of the bylaws will state whether an association is incorporated or unincorporated. If incorporated, the Articles of Incorporation should be kept with the other governing documents, and copies can be retrieved from the state.

Incorporated associations must periodically file two forms, the “SI-100” and “SI-CID” forms, with the Secretary of State. The forms can be found on line at www.sos.ca.gov. If the association does not file the forms and its tax returns on a timely basis, the state can declare the association “suspended”. A suspended corporation is not recognized by the state as a valid corporation and cannot sue or defend itself in court. Worse still, the corporation’s name is up for grabs, and can be reserved by someone else while the corporation is suspended.

Check your HOA’s corporate status at www.kepler.sos.ca.gov.

Best,
Kelly

Dear Kelly,

I live in a Planned Development. They are updating the CC&Rs and ballots were mailed out for a yes or no vote.

They are looking for quorum of [one less than half of the membership] for votes to be counted. Can they do that and not get votes from the other [majority of] homeowners. Can we demand we wait and get votes from all members? What can we do because half the condo owners voted and not the other half and it doesn’t seem right.

B.K., Sun City

Dear B. K.,

Normally, quorum is defined in the bylaws. The most commonly encountered definition is a majority of the voting power (the members entitled to vote) – if for some reason your HOA has suspended somebody’s voting rights, that could reduce the quorum below a majority of all members. If the documents do not define quorum, Corporations Code 7512 states that one third of the voting power is a quorum.

On important votes such as amending CC&Rs, hopefully the members who vote are normally very much in agreement. However, the most common problem is that most neighbors will not take the time to read the document, and so they do not vote on the proposed amendments. Since most CC&Rs require a supermajority (67% or even more) to approve, it can be even harder to pass the amendments. However, Civil Code 4275 provides that, if more than 50% of the entire membership votes to approve the CC&R amendment, a court may order the amendment deemed approved, even though it did not receive the supermajority.

Thanks,
Kelly

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.