2008 Annual Meeting Information

April 2, 2008

RE: Responses to Questions and Issues Raised

The HOA Board has received a number of questions, comments and statements from HOA members regarding the upcoming HOA annual meeting, the proposed By-laws amendment and other related issues. The Board is providing the following responses in an effort to provide HOA members with additional information regarding the issues and questions raised.

The Board is rushing the By-laws amendment through.

• The idea of requiring the use of a HOA-approved property management company (PMC) is not new. The By-law is, for all intents, the same as the administrative rule that has been discussed at several HOA and Board of Directors meetings over the past 18 months, including the 2007 HOA annual meeting and the Fall 2006 HOA general meeting which was held specifically to discuss the proposed rules.
• The administrative rule has been discussed and published in several HOA newsletters (Summer 2006, September 2006, January 2007, and April 2007) and on the HOA website. The only substantive change that has been made during that time is the removal of two PMC requirements and the clarification of two others.
• The 2008 annual meeting ballot packet was sent out as close to the 50-day limit as we could get it. The HOA By-laws require that the mailing be sent no more than 50 days before the meeting.

The Board is trying to impose its will on everyone.

• The Board has actively pursued HOA member feedback and input on the rules. The vote on the proposed By-law is the latest example.
• The rules process has been open to all HOA members over the past 18 months. Examples:
  • May/June 2006 rules survey sent to all HOA members
  • Multiple requests for comments on proposed rules in HOA newsletter
  • Fall 2006 general meeting specifically to get feedback on the proposed rules
  • Adjustments made to rules as the Board has received feedback from HOA members
• If the Board wanted to implement this requirement without regard to HOA members’ opinions and feedback, it could have been done without a HOA-wide vote.
• The recommendation from the Board on the ballot items is just that, a recommendation. It is common practice for a ballot or supporting materials to contain a recommendation, from the Board, for or against ballot items. This is true for HOAs (Oregon examples: Cedar Hills, Mountain Park, Forest Hills, etc.), mutual funds, public companies, limited partnerships, etc.
• The basis for your decision on this issue should be: is the proposed By-law in the best interest of the entire HOA community? The Board believes it is, but it will be up to all HOA members to decide.

The Board wants to limit number of PMCs and choices for owners.

• The Board has stated from the very beginning that it hopes that all PMCs operating in Bella Beach will apply and be approved.
• The By-law wording specifically prohibits restricting or capping the number of PMCs that can be approved. In other words, any PMC that applies and meets the requirements must be approved.
• The Board has no desire to influence which PMC a member selects from the list of approved PMCs.
• The Board has no dog in this fight beyond the good of the community as a whole. No current Board members are owners, employees or investors in a PMC. The same is true for the directors on the 2006 and 2007 Boards.

Why require approved PMCs and not other service providers?

• The concept of requiring service providers to be approved by the HOA is not new or limited to PMCs. The HOA CC&Rs (Section 6.14) require that the HOA Architectural Review Committee approve general and sub-contractors for all initial construction and subsequent changes and additions.
• The purpose of the proposed By-law is to ensure that PMC’s meet a set of common minimum standards and provide a consistent level of information and service to renters and owners of rental properties at Bella Beach. This helps assure that the renters we welcome into our community are informed of the rules and expectations of our community and aids significantly in avoiding problems.

The proposed By-law creates liability for the HOA since it is approving the PMCs.

• The only way HOA approval of a PMC would create liability for the HOA is if the requirements imposed by the HOA caused or required the PMCs to operate in a negligent manner. Since the HOA requirements consist of prudent business practices and documentation requests, no liability is created.

PMCs don’t want this. HOA members don’t want this.

• Three of the five PMCs operating in Bella Beach have applied and been approved under the administrative rule. These PMCs represent approximately 45 rental units within Bella Beach. The other two PMCs, representing approximately 13 units, have not applied and have tried in various ways, including legal threats, to keep the HOA from implementing the administrative rule and proposed By-law.
• The mailed-in ballots show that HOA members support the proposed By-law by a wide margin (more than 4 to 1)

Why a By-laws amendment if it’s already a rule? Why a By-law and not in the CC&Rs?

• As the result of various issues raised by an HOA member and the importance of this issue, the Board has decided to ask the HOA to vote on incorporating the rule requiring the use of an HOA-approved property management company or rental agency into the HOA By-laws.
• As enforcement of this rule has been contentious, the Board decided that all HOA members should consider this matter and vote on its incorporation into the By-laws.
• The By-laws are the most appropriate place for this requirement as they deal primarily with the operational aspects of the HOA (meetings, committees, officers, responsibilities, etc.). The CC&Rs deal more with the formation and foundation of the community. The Board followed the advice of HOA counsel on the appropriate section and wording of the proposed By-law.

What about the threat of legal action?

• An HOA member, who is also the owner of a PMC, has threatened legal action over the enforcement of the administrative rule requiring approved PMCs. Information about this has been published in two HOA newsletters (April 2007, Nov. 2007). All legal correspondence between the member’s attorney and the HOA attorney were made available on the HOA website and referenced in the HOA newsletters.
• The Board, with the support of the HOA attorney, believes that the legal augments made by the HOA member have no merit.
• Should legal action result, the Board and the HOA attorney are confident that the HOA would prevail and would take appropriate actions to recover the associated legal costs.

The Board can’t make administrative rules or impose fines.

• The HOA By-laws (6.8), CC&Rs (1.1.8, 4.23) and Oregon law (Oregon Revised Statute Section 94.630) all allow, and in some cases require, the HOA Board to create administrative rules, so long as those rules do not conflict with the By-laws, CC&Rs or Oregon law.
• Section 10.5.2 of the CC&Rs gives the HOA the right to collect assessments and fines for violations of the By-laws, CC&R or other administrative rules.

The fines that are part of the administrative rules are too high and out of line with other vacation communities.

• At the time the administrative rules were drafted, the rules committee surveyed several coastal and mountain vacation communities in Oregon and Washington. The fines established in the rules are below average for the communities surveyed.
• The rules and fines are meant to help set expectations for owners and renters. 95% of problems are avoided entirely by having the rules and fines in-place. The remainder can almost always be handled with a simple reminder about the rules. We are pleased to say that the HOA has not yet needed levy any fines.

What about legal costs?

• Legal costs in 2007 were higher than the Board would have liked. Several factors contributed:
  • Investigation of, and responses to, legal threats from an HOA member
  • A property line/fence dispute with Sea and Sands
  • The need to research and place a lien on delinquent property
  • Transitioning to a new HOA attorney
  • Also, 2007 was the first time in 3 years that the Board did not have a member who was also an attorney. In previous years, many legal issues and questions could be handled without outside counsel.
• So far in 2008, legal costs are substantially below 2007 levels and well below the already reduced 2008 budget line item. At the end of 2008, we hope to have a large surplus from the legal budget item, which can be applied to more productive projects.