A bill

 

TO AMEND THE SOUTH CAROLINA CODE OF LAWS BY AMENDING SECTION 27-30-120, RELATING TO HOMEOWNERS ASSOCIATION DEFINITIONS, SO AS TO PROVIDE ADDITIONAL DEFINITIONS; AND BY ADDING ARTICLE 5 TO CHAPTER 27, TITLE 30 SO AS TO PROVIDE FOR ADDITIONAL REGULATIONS AND OVERSIGHT OF HOMEOWNERS ASSOCIATIONS TO PROTECT AND BENEFIT HOMEOWNERS.

 

Be it enacted by the General Assembly of the State of South Carolina:

 

SECTION 1.  Article 5, Chapter 30, Title 27 supersedes where these laws conflict with the general nonprofit laws South Carolina Nonprofit Corporation Act (S.C. Code Ann. Section 33-31-101, et seq.) as well as the South Carolina Horizontal Property Act (S.C. Code Ann. Section 27-31-10, et seq.)

 

SECTION 2.  Section 27-30-120 of the S.C. Code is amended to read:

 

    Section 27-30-120. As used in this article chapter:

    (1) "Board" means the representative body, regardless of name, designated in the governing documents to act on behalf of a homeowners association and govern the association.

    (2) "Capital upgrade" means the optional addition of a permanent structural change or the improvement of some aspect of a property that will either enhance the property's overall value, prolong its useful life, or adapt it to new uses. Capital upgrades include optional projects such as remodeling a lobby, adding a tennis court, or expanding a clubhouse. Capital upgrades do not include repairs such as replacing roofs or repaving streets or parking lots.

    (3) "Covenants" or "CC&Rs" means a set of restrictions, legally binding written agreements, and fines which govern the privately owned properties in an HOA and are attached to the deed, so that when the property is sold, all subsequent owners are required to abide by the covenants.

    (2)(4)(a) "Declarant" means a person or group of persons acting in concert who:

       (a) as part of a common promotional plan, subdivide and offer to dispose of an interest the person or group has in a unit in real property; or.

       (b) reserve or succeed to a special declarant right, which means a right created under the declaration or bylaws for the person or group to retain or exercise authority in addition to regular declarant rights in a unit of real propertyFines for the covenants must be written in the covenants.

    (3)(5) "Declaration" means the recorded instruments, however denominated, that create a homeowners association, including amendments to those instruments. instrument that creates a common interest community, including any amendments to the instrument. A declaration must be registered with the county. It is to define the land included in the HOA including, but not limited to, plat maps defining the private and common interest parcels and allocated interests, the master deed, amenities, organizational documents, governing documents, the covenants, conditions, restrictions, and the rules and fines. The declaration stands as a contract between the HOA members and the declarant, and both are required to follow the terms of the contract. The declaration or any part of the declaration cannot be changed without a vote of the members. Nothing in the declaration shall impose on or supersede the member's right to free speech, other constitutional rights, or rights granted in city or county ordinances, state or federal law.

    (4)(6) "Governing documents" means declaration, master deeds, or bylaws, or any amendments to the declaration, master deeds, or bylaws. the organizational documents, bylaws, covenants, and rules by which the association exercises its powers and manages its property.

    (5)(7) "Homeowner" means a declarant or other person who owns a unit in a homeowners association, but does not include a person having an interest in such a unit solely as security for an obligation.

    (6)(8) "Homeowners association," "HOA," or "association" means an entity developed to manage and maintain a planned community or horizontal property regime for which there is a declaration requiring a person, by virtue of his ownership of a separate property within the planned community or horizontal property regime, to pay assessments for a share of real estate taxes, insurance premiums, maintenance, or improvement of, or services or other expenses related to, common elements and other real estate described in that declaration. A "homeowners association" or "association" does not include a vacation time sharing plan organized and subject to the provisions of Chapter 32.

    (7)(9) "Homeowners association management company" means a corporation, limited liability company, partnership, trust, association, sole proprietorship, or other similar organization engaging in the business of managing homeowners associations.

    (10) "HOA Seller Certification" means a document that must be given by the HOA to members upon request to certify that the member's property meets all covenants, has paid all applicable dues and assessments.

    (11) "HOA Seller Packet" means a comprehensive set of documents provided to the potential buyer of a property by the HOA to give to any prospective buyer disclosure information including, but not limited to, the governing documents, articles of incorporation, bylaws, covenants and rules, latest HOA seller certification of each unit, percentage of properties rented versus owner-occupied, financial statements for the last seven years, the reserve study, and the current amount in the reserve account as well as disclosure about any existing physical damage, and any health or safety issues such as mold, leaks, radon, lead, asbestos, that exist in the HOA or existed in the HOA over the last three years. The document also must reveal any known upcoming assessments. This information is required to be maintained on a website for easy access to potential buyers at no charge.

    (12) "Member" means a corporation or individual owning property that is subject to an association. The interest of a member is equal to that of any other and no member can acquire any interest which entitles him to a greater voice, vote, authority, or interest in the corporation than any other member. A member, person, or corporation may not create another membership by owning another corporation, in whole or in part, that also owns property in the association.

    (13) "Organizational documents" means the instruments filed with the Secretary of State to create an entity and the instruments governing the internal affairs of the entity including, but not limited to, articles of incorporation, limited liability company or partnership agreement, certificate of formation, and bylaws.

    (14) "Rule" means a policy or procedure that governs the use or appearance of common property or conduct of persons while using common property but not including the private property. Rules might include requirements such as procedures for submitting and handling complaints or maintenance requests, quiet hours, or swimming pool policies.

    (8)(15) "Unit" means an apartment in a horizontal property regime, or a lot in a subdivision.

 

SECTION 3.  Chapter 30, Title 27 of the S.C. Code is amended by adding:

 

Article 5

 

Homeowners Associations

 

    Section 27-30-510. (A) The Department of Consumer Affairs (department) is authorized to enforce the provisions of this article. The department may fine and levy other penalties against individual board members and property managers that knowingly violate the federal, state, and homeowners association laws or the governing documents of the association. This article supersedes where these laws conflict with the general nonprofit laws South Carolina Nonprofit Corporation Act (S.C. Code Ann. Section 33-31-101, et seq.) as well as the South Carolina Horizontal Property Act (S.C. Code Ann. Section 27-31-10, et seq.)

    (B) An association must:

       (1) be incorporated and registered in this State; and

       (2) carry directors and officers insurance for its board members.

    (C)(1) The department shall receive a fee from each HOA equal to three dollars for each association unit in the HOA. Fees must be paid annually when each association renews its license.

       (2) The collected fees must be put in an account exclusively for the use of the department in handling association law enforcement and compliance. The amount of the fees must be adjusted annually.

 

    Section 27-30-520. (A)(1) In the event that a member writes a complaint to the board which includes quoted law or governing documents that the board members are violating, including false covenants, conditions, and restrictions accusations, the board is required to arrange a member appeal at the next board meeting, and the board must vote on further action. The vote of each board member must be recorded and a copy given to the member at the appeal. The meeting must be held within thirty days of receiving the complaint.

       (2) Ten days after the board meeting, if the board does not respond or refuses to change its position, the member may file a complaint with a summary of issues, the laws or governing documents violated, the evidence of the violation, the correspondence sent to and from the association regarding the issue, and quoted law and governing documents to the department.

       (3) The department shall investigate the claim, and if:

           (a) it finds for the association, it shall send an email response to the member and copy the board, explaining its decision and the reasoning, quoting the specific law or governing documents the member is violating and how to correct the issue. The member has five days to respond in writing or by email that he will rectify the problem and must do so in a reasonable time as determined by the department; or

           (b) it finds for the member, the department shall send a cease-and-desist letter to the board and copy the member. The board has five days to respond in writing or by email that it will rectify the problem and must do so in a reasonable time as determined by the department.

       (4)(a) If the State HOA Office determines the board has violated the laws or the governing documents, the State HOA Office will send an email to the offending board members and copy the other board members and the homeowner identifying what laws or governing documents were broken, ordering the board to fix the issue within five days and explaining specifically how to fix the problem.  The offending board members are the board members that voted to violate the laws or governing documents.

           (b) By definition, if the offending board member(s), once receiving the email from the State HOA Office, continue to violate the law or governing documents, or it is determined by the State HOA Office, that they did know or should have known that they were violating the law before it was brought to the State HOA Office, they knowingly violated the law.

           (c) Should the offending board members not agree in writing or email to rectify the problem within five days, or do not rectify the problem in a reasonable time as decided by the State HOA Office, the State HOA Office will order the offending board members removed from the board enjoining them from serving on any HOA board for a certain period of time or in perpetuity; a record of these removals will be kept on the State HOA Office website and the length and end date of the suspension.

           (d) Another election will then be held to replace the removed board members. The State HOA Office will help the members to create and run the election if needed. The State HOA Office can also choose volunteer members as temporary board members until the new election is complete. The State HOA Office can also appoint a receiver(s) to run the HOA until the election if necessary.

           (e) If the State HOA Office determines that crimes were committed, they or the Attorney General's office will investigate and prosecute.

    (B)(1) The offending board members are those that voted not to follow the law or governing documents in the homeowners appeal to the board. If the offending board members refuse to follow the conditions of the letter from the State HOA Office, the offending board members will be by definition considered to have knowingly violated the laws and/or governing documents.

       (2) If the homeowner has suffered financial damages, the State HOA Office will determine if the offending board members had knowingly violated the HOA laws or governing documents or should have known they were violating the law or governing documents.  If so, the State HOA Office shall fine the offending board members the cost of the damages, splitting the cost equally amongst the offending board members.  If not, the State HOA Office will fine the HOA Corporation to recover the homeowners damages.

       (3) In either case, the homeowner may notify the State HOA Office that the homeowner chooses to sue the HOA or the board members themselves under the Consumer Protection Act instead of the State HOA Office fining them.

       (4) If it is determined that the property management company took action not authorized by the board, the property management company will pay the fines.  If the property management company profited from illegal or unethical actions, the property management company could have their license suspended and/or be investigated and prosecuted

       (5) Either party may appeal the decision and the Attorney General's office shall defend the department.

 

    Section 27-30-530. (A) An association's board must provide a free mandatory association member list including the association's physical address, mailing address, and email addresses of members.

    (B) A member may choose to also have all communications sent through USPS mail.

    (C) All association members with access to the list must sign an agreement not to share the email addresses or phone numbers with anyone outside the association and not to use the email or phone numbers for commercial purposes. All phone numbers are to be included unless specified to be unlisted by the property owner.

 

    Section 27-30-540. (A) Association dues should be required to be paid from a member's escrow account. If the member does not have a mortgage, then the member should have a choice to pay all dues up front or pay quarterly or monthly with no interest.

    (B)(1) Thirty days' written notice is required for all fines and debts and thirty days must be given for members to file a dispute.

       (2) If no complaint is filed by the homeowner with the department, all debts under ten thousand dollars must be handled through small claims court with no attorneys allowed to present.

       (3) Fines, late fees, and interest stop once a dispute is filed in writing with the association until it is resolved in small claims court or with the department, except that interest at an annual interest rate of the current Consumer Price Index plus one percent may be charged for the original assessment amount, not including fines, fees, or any other charges.

       (4) Fines, fees, or attorneys' fees are not allowed before going through small claims court or the department.

       (5) Attorneys' fees in excess of ten percent of the original amount owed, not including any fees or interest, may not be charged to the member. These fees cannot be charged to the member until the case is decided through small claims court.

       (6) Attorneys' fees specifically for the foreclosure process cannot exceed those allowed by the Federal Housing Administration (FHA).

    (C) The minimum debt to allow foreclosure is ten thousand dollars or one thousand dollars per the number of units in the association, whichever is less. This minimum will not include anything but the original assessment or dues amount, no late fees, interests, attorney's fees, or other. Associations should create a reserve account category for bad debt and have insurance to cover amounts larger than the reserve fund.

    (D) All efforts should be taken to minimize damage to the member and minimize the property owner's legal costs.

    (E)(1) Ninety days' notice is required before a foreclosure, and the notice must include the amount required to stop the foreclosure and the contact information for all state free or low-cost foreclosure counselors.

       (2) Mediation must start at least thirty days before the foreclosure date.

    (F)(1) Nonjudicial foreclosures are allowed only if agreed upon by both parties.

       (2) Homeowners of a foreclosed home must move out of the property within thirty days of the foreclosure.

    (G) After deducting debts attached to the property and the cost of the sale of the property, the member must receive the balance of equity. Properties sold in foreclosure to be sold through a realtor chosen by the seller at market value in the current real estate market, not at Sheriff's sales.

    (H) Board members or property managers who knowingly violate the provisions of this section are considered to have violated the Consumer Protection Act and victims are entitled to treble damages and attorneys' fees.

    (I) Properties sold in foreclosure must be sold through a realtor chosen by the seller at the market value in the current real estate market, not at a foreclosure sale.

 

    Section 27-30-550. (A)(1) The association shall provide reasonable and consistent time periods to fix violations before fining is allowed and must be documented and readily available to the members.

       (2) A written notice must be given for all fines, and the association must allow thirty days for a member to file a dispute.

    (B) Should a homeowner request an appeal to the board, the board is required to arrange a member's appeal at the next board meeting where the board shall vote on further action. The board must arrange the appeal at a public board meeting within thirty days of the request for an appeal.  These appeals must take place at the beginning of the board meeting. The vote of each board member must be recorded in the minutes with a summary of the issue, and a copy given immediately after the vote to the homeowner.  (C)(1) For contested issues fines, fees, or attorneys' fees are allowed before going through either small claims court or the department with no attorneys allowed to be involved except for appeals against the small claims or the department decision.

       (2) Attorneys' fees in excess of ten percent of the original amount owed, not including any fees or interest, cannot be charged to the member. And the ten percent cannot be charged to the member until the case is decided through small claims court or the department and all appeals are concluded.

    (D) All association records and arguments to be presented in court or to the department and notice must be given to the member at least thirty days before the court or hearing date.

    (E) All records of violations and fines must be accessible by all members including the name of the person filing the complaint and the document on which the complaint was filed and all communications between the accuser, the board, and employees of the association.

 

    Section 27-30-560. (A) All voting at an association meeting must be conducted by an independent election company. The election company must change every three years, and an election company used, cannot be used again for at least six years. The election company cannot be indemnified by the HOA  (B) Each member receives one vote.

    (C) A convicted felon may not serve as a board member. A board member convicted of embezzlement or receiving kickbacks must be immediately removed from the board and cannot run again or participate in any committee. The spouse or anyone living with the convicted felon in his home is also ineligible to be a board member.

    (D)(1) There must be at least three people on an independent election committee, not under the control of the board, elected by the membership, who organize and schedule elections.

       (2) The association attorney, property management company, member of the current board, member running for the board, or their family members are prohibited from sitting on the election committee. The spouse or anyone living with the convicted felon in their home is also ineligible to be a board member.

    (E) Board members may not use association funds, resources, social media, mailing lists, or other communications belonging to the association that other members are not allowed to use for free to send out any communications regarding any of the candidates, members, policies, or to make any political commentary.

    (F) Elections may not be held on any holiday week and must be held on weekends.

    (G) All candidates' information must be mailed to every member at the same time and in the same manner at the expense of the association. Associations must include an elections fund provided for in their budgets.

    (H) A member must have at least thirty days to mail in or otherwise submit his ballot from the day the ballot is received. The envelopes for the ballots must have prepaid postage, the mailing address of the election company, and the member's return address.

    (I)(1) A ballot from a member may not be sent to the association. The ballots must be mailed directly to the election company. Board members, other members, staff, or employees may not have any access or participate in any way with the process of the elections. No proxies are allowed for elections.

       (2) Members must be allowed to vote electronically or by the choice of the member, by mail. The electronic voting system cannot be operated, licensed or in any way have any connection or affiliation with current board members, members of the HOA, property management company, HOA attorneys and or subsidiaries of any of the previous mentioned bodies.

    (J) Current board members may not change anything in the declaration, including bylaws, articles of incorporation, CCRs, rules, or fines. All changes must be accomplished by a majority vote of the members.

    (K) A quorum must be set in the declaration. A quorum must be no less than ten percent of the membership and not more than twenty percent. Any changes in meeting quorum must be accomplished by a vote of the membership and not the association board. A quorum is required for all meetings except elections.

    (L) Board members are limited to three years of consecutive service and then may not run again for another six years.

    (M) A board member who has tampered with the election process must be removed from the board and prohibited from running in future elections.

    (N) A member may email a motion to the board at least fourteen days before any meeting or make a request for a topic to be discussed. That motion or topic must be included in the agenda, and the agenda must be emailed to all members and mailed to members who requested mailed notifications, at least seven days before the meeting. The member suggesting the motion or topic must be allowed to make that motion or bring up that topic at the beginning of the new business portion of the meeting.

    (O) Retaliation by the board members against members who propose motions or topics, voice concerns, or disagree with the board's decisions at any meeting or in any other manner is strictly prohibited.

    (P) All board members must be elected by the membership by receiving the most votes, except in the event of a board member being removed or resigning. In that event the board may elect a replacement board member to serve until the next annual election. The members shall elect a president. All other executive positions must be elected by the board members. Board members, by vote, may remove any of the executive board members from their role, but not from the board itself, and members by vote can remove any board member or remove the president from his position.

    (Q) The choice of management companies must be made by a vote of the members.

 

    Section 27-30-570. (A) Board members, property managers, and attorneys are responsible to the members, both individually and as a whole, not to the board or the HOA organization. If a property manager or attorney is aware of any violations by a board member, it is the fiduciary and legal responsibility of the property manager or attorney to advise the board member of the laws, and if the situation is not immediately rectified, to report the violation to the department and provide written notice to the offended member.

    (B) All covenants must be fully and equally enforced on all members.

    (C) Individual waivers of any rules or bylaws are not allowed. The board cannot engage in selective enforcement or make waivers for one member but not others for similar issues.

    (D) Covenants must be as specific as possible and avoid general and subjective statements.

 

    Section 27-30-580. (A) An association can only enforce what is clearly stated in the covenants.

    (B) An association's authority is limited to the enforcement of covenants and may levy fines only as stated in the covenants and bylaws.

    (C) An association does not have authority to enforce laws or ordinances or usurp authority from governmental enforcement agencies.

    (D) General statements in the association's governing documents indicating that members must follow all applicable laws and ordinances do not give the association the authority to enforce laws or ordinances.

    (E) An association cannot enforce or fine for speed limits, building codes, zoning, other laws, or state or county ordinances that are enforced by other governmental agencies.

 

    Section 27-30-590. (A) The association's seller packet must be presented to a prospective property buyer before he makes an offer on the property.

    (B) A cover sheet listing all the components of the seller packet must be signed and dated by the prospective property buyer and included in the offer documentation when a prospective buyer is making an offer on a property that is in an association.

    (C) All fines for covenant violations must be written into the covenants. All rules of the association and all applicable fines must be in the covenants. Seller certifications that are fraudulent must be prosecuted as fraud.

    (D) The process to change the governing documents must be written in the bylaws and require more than sixty-seven percent of the votes to be in favor of the change.

    (E) The association is responsible for delivering the seller certification and all governing documents to the seller within fifteen days of the seller's request.

    (F) A seller certification fee must be the actual cost with a detailed receipt of how the cost was calculated, not to exceed two hundred dollars, and fees may not be added by any other vendor for these documents.

    (G) All documents must be written in plain English and in sixth grade language.

 

    Section 27-30-600. (A) Once the first home in an association is sold, no additional covenants may be added.

    (B) Covenants may be removed or made less restrictive at any time by a membership vote. Bylaws may be amended by a majority vote of the total membership at any time. Rules for common areas may be adopted, amended, or repealed by a majority vote of the total membership at any time.

    (C) Members may propose a bylaw, covenant repeal, partial repeal, amendment, or rule change by obtaining petition signatures from two percent of the members or fifty members, whichever is less. The petition must include the exact wording of the current bylaw, covenant, or rule and the exact changes desired.

    (D) The board must provide members with:

       (1) a copy of the petition for the change in the covenants, rules, or fines;

       (2) a date by which the members must vote on the change; and

       (3) electronic or paper ballots to vote.

    (E) Voting must be by paper or electronic means through an impartial third-party voting company.

    (F) Voting must be completed within sixty days of the submission of the petition and voting ballots must be sent to the members at least thirty days before the end of the voting period.

    (G) Every covenant must be reasonable, apply, and be enforced equally to all members. Question of reasonableness must be determined by the department.

    (H) Following a change to the bylaws, covenants, or rules, the board must give notice to the members of its action and provide a copy of all the changes made and the total document in updated form.

 

    Section 27-30-610. (A) When damage occurs to common property, insurance payments must be allocated to making repairs and members must approve of how the insurance payments are allocated. Repairs must leave the damaged building in as good or better condition than before the damage occurred.

    (B) Members must be mutual beneficiaries of homeowners association insurance.

    (C) An association may not make a profit from members through any individual common property.

    (D) An association may not charge members for use of common areas including a clubhouse. They may charge nonmembers.

    (E) An association may charge for damage caused by a member and the actual cleanup costs.

    (F) A board member, family member of a board member, or property manager is not allowed to purchase a home, unit, or property being foreclosed on in the community his board manages.

    (G) A board member, employees, or vendor may not use association resources or funds for personal use.

 

    Section 27-30-620. (A) All homeowners associations must be updated to match current state law.

    (B) All laws relating to fair housing, fair collections, fair lending, and consumer protection should apply to all members and boards of homeowners associations.

 

    Section 27-30-630. (A) All association meetings require fourteen days' advanced notice by email and if requested by any member, by mail.

    (B) All association meetings must be open meetings, and all members and others specifically invited by any member are allowed to attend. All meetings must be offered virtually for those who cannot attend physically. A member may choose a proxy to attend and represent him at any meeting but must send an email or certified letter stating who that proxy is to the board at least one day before the meeting. All meetings can be recorded by any member, proxy, or guest of a member.

    (C) All records required to be retained by an association must be made available for examination and copying by all unit owners, holders of mortgages on the units, and their respective authorized agents, on a website, and at the offices of the association or its managing agent during reasonable business hours or at a mutually convenient time and location within thirty miles of the association property.

    (D) An association must retain the following in permanent electronic record available on a website or equivalent, at no individual cost to the members to download, with only the exceptions specified in this section:

       (1) complete current and original forms of the declaration and amendments, governing documents, organizational documents, rules, all financial records, contracts, blueprints, pipe schematics, and maps of stormwater conveyance systems depicting underground pipes, and electric and other utilities installed by the association;

       (2) financial records for the last seven years in Excel or equivalent format, in a manner that allows members to download and manipulate or organize the data including, but not limited to, income statements, balance sheets, check registers, current budget with monthly variation, detailed records of receipts and expenditures affecting the operation and administration of the association, actual receipts kept in month and date order, reserve account details, tax returns, and other appropriate accounting records in accrual format for the last seven years;

       (3) minutes of all meetings;

       (4) general descriptions of all lawsuits or potential lawsuits related to the association;

       (5) a complete and accurate list of current members, including the names of current members, telephone numbers, unless member opts out, addresses in the association, mailing addresses, email addresses, and the number of votes allocated to each unit;

       (6) a list of the names and addresses of past and present board members and officers and the dates they served since the start of the association. The name mailing address, email address, and phone number of the property management company and the individual property manager assigned to the HOA;

       (7) the most recent annual report delivered to the applicable government agency, if any;

       (8) copies of contracts less than seven years old;

       (9) a permanent record of materials relied upon by the board or any committee to approve or deny any requests for design or architectural approval, the reasons for approval or denial, and copies of those approvals and denials;

       (10) a permanent record of materials relied upon by the board or any committee concerning a decision to enforce the governing documents including the reason for the enforcement and related fines;

       (11) insurance policies to be held seven years after the end of the insurance contract;

       (12) warranties to be held for seven years after the warranty expires;

       (13) copies of all notices provided to unit owners or the association in accordance with this article or the governing documents;

       (14) ballots, proxies, absentee ballots, and other records related to voting by unit owners for seven years after the election, action, or vote to which they relate; and

       (15) a record of all covenant violations, related documentation, fines, and results.

    (E) An association only may charge its actual cost for producing and providing copies of any records under this section and for supervising the unit owner's inspection and may not charge for access to or downloading of electronic records stored on a website. For the labor of supervising the inspection and copying of physical records, only the actual time of the supervising employee may be charged at a maximum fee of minimum wage in that area plus ten percent and only while the member is actually physically viewing or copying the documents.

    (F) A right to copy records under this section includes the right to receive copies by photocopying or other means. The association may not charge for records that are transmitted electronically.

    (G) An association must keep the records in a reasonably organized manner but is not obligated to compile or synthesize information other than the member list.

    (H) Information provided pursuant to this section may not be used for commercial purposes other than to sell or purchase the properties in the association.

    (I) A member may not be asked to sign any nondisclosure or confidentiality agreement regarding any information related to the association.

    (J) An association's managing agent must deliver all of the association's original books and records to the association immediately upon termination of its management relationship with the association or upon such other demand as is made by the board. An association managing agent may keep copies of the association records at its own expense.

    (K) Records retained by an association may be withheld from inspection and copying to the extent that they concern:

       (1) personnel and medical records relating to specific individuals;

       (2) contracts, leases, and other commercial transactions to purchase or provide goods or services currently being negotiated;

       (3) attorney-client privileged details of current or potential litigation or mediation, arbitration, or administrative proceedings;

       (4) attorney-client privileged details of current or potential matters involving federal, state, or local administrative or other formal proceedings before a governmental tribunal for enforcement of the governing documents;

       (5) legal advice or communications pertaining to current or potential matters that are otherwise protected by the attorney-client privilege or the attorney work product doctrine, including communications with the managing agent or other agents of the association;

       (6) information the disclosure of which would violate a court order or law;

       (7) records of an executive session of the board;

       (8) personal phone number of a member if requested to be held confidential by the member; or

       (9) security access information provided to the association for emergency purposes.

    (L) Board members must have free access to all records.

 

    Section 27-30-640. (A) A new homeowners association must have reserve studies completed at least every three years and maintain a one hundred percent-funded reserve account.

    (B) An association that exists on January 1, 2027, must have a fully funded reserve account by January 1, 2037.

    (C) Reserve funds only may be spent on reserve items.

    (D) All association damages and repairs must be listed and briefly described in a report each month, along with the cost associated with the repair.

    (E) The president, vice president, treasurer, and secretary must sign checks that remove money from the reserve account. A monthly report must be posted with financial statements showing how reserve funds were spent.

    (F) All new HOAs should be required to have reserve studies at least every three years and maintain a one hundred percent funded reserve account. This means that there is money in the reserve for all common assets equaling the current percent of the straight-line depreciation of each asset times the current replacement cost. As an example, if a roof has a projected thirty-year life, at year fifteen, half of the current cost of replacement should be in the reserve.

    (G)(1) All existing HOAs must move to fully funded reserve accounts over a ten-year period increasing by ten percent per year until fully funded.

       (2) Reserve funds can only be spent on reserve items.

       (3) The president, vice president, treasurer, and secretary, at least four board members must sign checks that remove money from the reserve account. A monthly report must be posted with the financial statements showing where the reserve funds were spent.

       (4) All HOA damage and repairs should be required to be listed and briefly described in a report each month, along with the cost associated with the repair.

 

    Section 27-30-650. (A) In order to adopt a budget, more than fifty percent of the votes cast is required. If the budget is rejected, or the required notice is not given, the periodic budget last ratified by the members continues until the members ratify or approve a subsequent budget proposed by the board.

    (B) Individual line items may be voted in or out by the members through the motion process.

    (C) Within thirty days after adoption of any proposed budget for the association by the board, the board must provide a copy of the budget to all members and set a date for a meeting of the members to consider ratification of the budget no less than fourteen days nor more than fifty days after providing the budget.

    (D) A member may assign his vote through a proxy form which must be supplied by the association to the members with the notification of the meeting.

    (E)(1) A budget meeting is a member meeting not a board member meeting.

       (2) The first action of the meeting is to vote on a president by the membership present at the meeting.

       (3) The board must supply the chair a recommended agenda.

       (4) The second action in the meeting must be for the treasurer to explain the proposed budget and answer questions.

       (5) The chair must make the meeting as efficient and fair as possible.

       (6) All motions to the budget must be addressed at the budget meeting.

       (7) Budgets are required to meet fully funded reserve accounts as well as maintenance of all common assets and all other legal requirements and cannot be voted out of the budget.

    (F) The budget must include:

       (1) the projected income to the association by category;

       (2) the projected common expenses and those specially allocated expenses that are subject to being budgeted, both by category;

       (3) the amount of the assessments per unit, the amount those assessments have increased or decreased expressed on a percentage basis from the most recently ratified budget, and the date the assessments are due;

        (4) the current amount of regular assessments budgeted for contribution to the reserve account;

        (5) a statement of whether the association has a reserve study that meets the requirements of the State and, if so, the extent to which the budget meets or deviates from the recommendations of that reserve study; and

        (6) the current deficiency or surplus in reserve funding expressed in total and on a per unit basis.

    (G)(1) The board, at any time, may propose a special assessment only if necessary. The assessment is effective only if the board follows the procedures for ratification of a budget described in this section, the purpose of the special assessment is clearly stated in the notice required by this section, and the majority of a quorum of members at a meeting called for that purpose approve the assessment.

       (2) Special assessment meetings must follow the same requirements as budget meetings.

       (3) The special assessment must include:

           (a) the projected income to the association by purpose; and

           (b) the amount of the assessments in total and per unit and the date the assessments are due.

       (4) The board may provide that the special assessment may be due and payable in installments over any period it determines, for a justifiable reason, but may not provide a discount for early payment. Finance or late fees may not be charged but interest of the current T-Bill rate plus one percent may be charged to the member if his payment is late. Members must be allowed to pay the entire balance of their assessment at any time in advance.

    (H) The association may spend funds paid on the special assessment only in accordance with the purpose stated in the notice of the assessment ratification meeting.  Reconciliation of specially assessed funds must occur no later than sixty days following the expenditure satisfying such purpose.  Surplus funds, if any, remaining after such purpose has been fulfilled must be credited to the members in proportion to their allocated interests.

    (I) If the purpose of a budget item or special assessment is to make one or more capital upgrades, there must be a separate motion to pass the capital expense budget item or special assessment.

    (J) If the capital upgrade portions of the budget and the special assessment combined are equal to or less than five percent of the budgeted gross expenses for that fiscal year, the motion requires a majority of votes of all members in the association to pass:

       (1) For combined capital upgrades that exceed five percent but are equal to or less than ten percent of the budgeted gross expenses of the association for that fiscal year, the approval of the members to which sixty-seven percent of the votes in the association are allocated.

       (2) For combined capital upgrades that exceed ten percent of the budgeted gross expenses of the association for that fiscal year, the approval of the members to which ninety percent of the votes in the association are allocated.

    (K) Contracts that are not in the budget or that exceed the budget may not be signed by the board. A specific item may be added, removed, or modified by a majority vote of the members at a special member meeting at any time. All changes must be approved by the majority of votes cast at that meeting.

    (L) All contract terms may not exceed one year and must automatically renew on a month-to-month basis after its term but include a cancellation clause allowing the association to cancel the contract with a sixty-day notice without reason or cause after the term.

 

    Section 27-30-660. (A) An association attorney shall represent the membership as a whole, not the board, in all issues.

    (B) An association attorney is a mandatory reporter of illegal or unethical actions of the board and the property managers. The attorney shall attempt to explain the correct actions to the board. If the board does not correct its actions within five days, the attorney shall report its actions to the membership and the department.

    (C) Members must be co-beneficiaries on all association vendor contracts.

 

    Section 27-30-670. Every three years, the members must vote to determine if the association should be dissolved. In order to dissolve an association, a sixty-five percent majority is required.

 

    Section 27-30-680. An association must maintain its FHA, VA, and government subsidized loan certifications. A thirty-five percent rental cap is required.

 

    Section 27-30-690. (A) Insurance or a bond must be supplied by the developer before the first home is sold or rented with the members listed as beneficiaries.

    (B) In cases where the developer is unable to deliver as promised, the developer must inform current owners, and if more than sixty-five percent of the current owners who vote decide to disband the association, the association must be dissolved.

    (C) The association must have its own board from the point at which all the units are sold or rented or there are ten units sold or rented, whichever is less.

    (D) The board members and the declarant must abide by the declaration and may not change the declaration until all the units are sold or rented for the first time or three years have expired since the sale or rental of the first home. After that, changes may not be made without a vote of the members. At that time total control of that section of the association is turned over to the members. The three-year period then begins in the next section after the first home is sold or rented in that section.

    (E) Board members and members must be unit owners. There must be at least three board members.

    (F) The declarant is a unit owner until the last unit is sold or rented for the first time. The declarant holds one seat on the board until the last unit is sold or rented for the first time.

 

    Section 27-30-700. An incorporated municipality, county, or special purpose district may not require the creation of any association as a condition for approving a development, getting a building permit, or obtaining services. States, counties, and municipalities may not allow more than thirty percent of total units in their jurisdiction to be under any form of HOA. They may also not allow more than thirty percent of all dwellings in any financial segment in one hundred-thousand-dollar segments, based on the average tax appraisals of the units in their jurisdiction, to be under any form of HOA. Financial segments meaning zero dollars to one hundred thousand dollars, more than one hundred thousand dollars to two hundred thousand dollars, etc.

 

SECTION 4.  This act takes effect upon approval by the Governor.

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