"Buyer beware" - Nevada’s Attorney General’s office argues the earth is flat, at least when it involves HOA laws.

Why bother with CC&Rs?*

In a recent Nevada Supreme Court review, the Nevada Attorneys General's office on behalf of the Nevada Real Estate Division (NRED), filed a bizarre argument rivaling that of the flat-earth theory of the Medieval period. And it worked.

After years at odds with my community leaders on Who’s running my HOA, I filed a

complaint with NRED alleging my Southern Highlands community was not being governed

by a properly elected board. I alleged the Southern Highlands’ Community Association

(SHCA) board failed to act to end Garry Goett’s, owner of Olympia Companies and developer

of SHCA, over two-decade declarant control. (You can read more on this here.)

To my surprise, no investigation followed.

Our country is a Constitutional Republic working through a representative government that

is based upon a constitution and a rule of law. HOAs are governed, in theory, similarly.

There is a set of Covenants, Conditions, and Restrictions (CC&R’s), a set of bylaws and a few other documents – collectively called the “governing documents”. There is a body of law (the corporations code, the civil code, and a bunch of case law) that should act to uphold the sanctity of those governing documents that bind all owners, just like complying with the nation’s laws based on the constitution are binding on citizenship.

While not perfect, it could a good system in theory-- provided owners (not developers) elect the Board of Directors charged with carrying out the governance of the association. One of the primary justifications for permitting the creation of HOAs that subject property owners to extensive powers affecting their property values and quality of life is that the owners have the power through political process to control actions of the association. But now over twenty-two years into its existence, this has not been the case for SHCA owners.

The governing documents, just like the constitution, cannot be changed (at least in theory) except by the owners via an intentionally difficult process that must comply with the law- at least in theory.

The HOA industry and home builder trade groups claim that developer control is necessary until most of a community's lots or units in a HOA are sold to non-developer owners. Arguably, undertaking the financial risks of pulling together an HOA without being ensured of control would be too great. However, dangers exist today in the rights currently granted to community developers by legislators and/or embodied in the unfettered ability of developers to author declarations (CC&Rs). HOA CC&Rs are contracts that have the effect of law when executed. They guide the action of mini-governments regulating many aspects of the daily lives of owners. But they are constructed by developers for developers, with only marginal regulatory criteria, absolutely no regulatory review, no representation by those the declaration affects, and are not negotiable.

Too often homeowners assume that the developer or sponsor of their community is compelled to keep them happy, in order to continue to sell homes. But the truth is, real estate development is big business. And, all too often, a developer’s business decisions are out of synch with homeowner expectations. So, “buyer beware”.

One protection (among many) granted developers in Nevada is an ability of a developer to appoint the majority of an association’s board for an extended period of time. Developers need hold only a nominal number of units (even zero) in the association. The board appointment period can be unlimited. During this control period a developer can remove any board member without cause (even those elected by the owners?), and can apparently do so without notifying owners - at least that is what NRED’s argument would ask the Nevada Supreme Court to believe. And it apparently did??

Prior to terminating the declarant (developer) control period, the principles of good HOA governance are suspended. The dirty little secret long known by insiders and regulators, is this suspension could be for an unlimited period. Consumers will not find this disclosed in any of the hundreds of contractual pages they execute when purchasing a home in an HOA.

A key metric triggering an end to a developer's control (in theory, a violation of HOA laws if not acted upon in 60 days) is founded on a number derived via a convoluted statutory phrase, “units created to units’ owners other than the declarant” (NRS 116.31032). Amazingly, under Nevada law, release of this number to owners by a developer or other sources is not required. It is not reported to NRED, is not provided in the SHCA budget (or in any HOA budget to my knowledge). More amazingly, NRED does not insist developers report that number for its own use in tracking possible violations. Prior to the 2019 revision to NRED's mandated Annual Association Registration, HOA's did not even report the current number of annexed units.

According to Monique Williams, at the Department of Business and Industry, the parent agency of NRED, “NRED does not monitor (developer-control) threshold percentages. Pursuant to NRS 116.625, we educate the public (about what the law says and work complaints filed timely). (We, NRED) do not preemptively seek out associations who may be reaching the threshold for transition....The expectation is that these elected unit owners, who do not represent the declarant, keep track of transition dates and requirements. This would coincide with their fiduciary duty to the community.”

What if a board, where the majority is appointed and may even be employed by the developer, fails to live up to NRED’s “expectations” they follow the law? Is not enforcement of the law what Nevada regulators are tasked to do? Apparently not.

Assuming an owner is aware of this obscure piece of HOA law dealing with how a developer's control is terminated, has a belief its HOA may be in violations of the law, seeks the information necessary, and the HOA board fails to be transparent, what can you do? If an owner is willing to endure the potential ire of groups such as its HOA board, its association management, and/or the developer, would a complaint filed with NRED even be sufficient to initiate an investigation?

After an extensive search and the SHCA’s board continued refusal to be transparent, i n the face of what I would come to recognize was a grossly underestimate of the personal risks, I filed that administrative complaint with NRED in 2016.

At the core of my complaint was a 2005 Third Amendment to SHCA's CC&Rs. This "Declarant Amendment" changed the association's govern documents extending Olympia's developer-control period. My question- was the amendment properly "adopted" by the association?

I further noted in my complaint that even if the Third Amendment was valid, the unit count in 2005 and then again in 2015 found in the association's budgets appeared sufficient to end developer control. What I could not find nor was it provided by SHCA, was the number of units still “created to the declarant”. I hoped a NRED investigation would add to my research, fill in my information gaps, and provide the transparency my board had not provided. This did not happen.

One of my research efforts found R. Brett Goett, legal counsel for Olympia Companies and son of Gary Goett, unilaterally authored and recorded in late 2005 the Third Amendment. A provision in the amendment appeared to me, a non-lawyer, a potential violation of Nevada HOA law (NRS 116.2122). It certainly seemed counter to obtaining the good HOA governance system intended.

In 2005, the entire three member SHCA board was appointed and employed by Goett. SHCA’s legal counsel was Angela Rock, an attorney and partner in Santoro, Driggs, Walch, Kearney, Johnson & Thompson. She also worked “as general counsel for a number of Olympia projects” per her biography on the Olympia web site. She would leave private practice the following year (2006) and become President of Goett’s newly formed and wholly owned Olympia Management Services (OMS). OMS would subsequently become SHCA’s contracted community manager.

You may be wondering, as I did, does this close relationship between Olympia, the board, counsel, and the management company violate Nevada law? It does not. But is it a good HOA governance system? I do not think so.

The SCHA board, community manager, and Ms. Rock, all SHCA fiduciaries, were aware of the Third Amendment shortly after it was recorded. I can find no documentation any party exercised any fiduciary duty to challenge the amendment’s applicability or even raise concerns it may violate Nevada law.

A count of permitted residential units in Southern Highlands I obtained from Clark County officials, gives me good reason to believe, as early as 2004, the threshold mandating termination of Olympia’s control of SHCA was exceeded. Had the threshold been acknowledged, owners would for the first time elect all board members. A good governance system would have been in place.

An explanation why no election was held has not been provided.

My complaint, despite receiving the required review and clearance of the Ombudsman’s office, was immediately closed by NRED investigators. NRED asserted inexplicably, it had no jurisdiction over the matter. Obviously in error, I filled an identical second complaint a few months later. After getting the same required Ombudsman review and nearly a year delay, NRED's Administrator closed my second complaint. This time the Division asserted my complaint was again not timely- but for a different reason.

Division Administrator Sharath Chandra, wrote to inform me a one-year statute of limitation barred all challenges to the Third Amendment. A second statute was asserted as precluding the Division from investigating my claims related to the 2015 budget numbers.

If an owner does not file a formal complaint within “one year after the alleged violation should have reasonably been discovered” the Division refuses to investigate, according to Ms. Williams. Apparently, the potential ongoing nature of my allegations affecting over 8,000 owners, was of no relevance. NRED asserted I “knew or should have known of the violations” based on the SHCA 2015 annual budget’s unit count sent to all owners more than a year before I filed the complaint. However, recall my earlier discussion, neither the budget nor other sources, provide the necessary pieces of information to make this assertion. Ms. Williams representing NRED, seems to agree. A Catch Twenty Two? I knew despite the fact I could not have known? Bottom-line- no investigation.

Left with no recourse, I engaged legal counsel who would file an action asking the court direct NRED investigate my complaint- as we argued the law required. A district court upheld NRED's "discretion" not to investigate. It was also found neither the courts or the Division could challenge the Third Amendment. My argument the action by Olympia and the SHCA board was void on its face as a matter of law (NRS 116.1206) fell on deaf ears. I appealed.

At the core of my appeal was a Nevada’s HOA law specifically precluded “in any case” a developer from changing the maximum units “beyond the number in the original declaration” (NRS 116.2122). Additionally, Nevada law prohibits an executive board from acting to amend a declaration (NRS 116.3103(2)) which the Third Amendment clearly did. Thus, as I read Nevada law (NRS 116.2117), only if the Third Amendment was adopted by a majority vote or agreement by SHCA owners, itself an extraordinary undertaking, could the offending section 2.32 provision, increasing the maximum units, avoid being void on its face.

The key question then - was the Third Amendment properly adopted by the association?

My legal fight culminated with the Nevada Supreme Court directing NRED respond to my request for its review- specifically, my allegations related to the Third Amendment’s adoption. Below is what the Attorneys General argued - and it worked. The Nevada Supreme Court refused my review petition.

NRED theorized in its Supreme Court answer, R. Brett Goett, son of Gary Goett, could have been appointed by Gary to act on behalf of the SHCA board under developer special declarant right. The theory was advanced without supporting documentation. My extensive research found nothing indicating R. Brett Goett ever served as a SHCA director.

Even if you accept NRED’s distortion of the statutes and its unsubstantiated theory on Goett’s appointment of his son, the law clearly prohibited a board from acting to amend CC&Rs (NRS 116.3103(2)). The law requires an agreement or majority vote of owners to become an “adopted amendment" (with specific authentications on the document). This has never been shown by SHCA (and the document lacks the required authentications). It is not noted in board minutes nor was any agreement/vote found in my investigations. An association board lacks the powers to adopt an amendment on behalf of owners without a vote or agreement- or so my attorneys unsuccessfully argued.

Here is where SHCA owners and all HOA owners still under declarant control, should be outraged by the position taken by NRED and upheld by our courts.

In court filings NRED noted a Nevada HOA law (NRS 116.2117(2)) that precludes it or anyone, from challenging an amendment after one year. NRED wrote, “(the law) cannot be superseded by Mr. Kosor’s factual challenges to the validity of the 2005 Third Amendment because Mr. Kosor’s challenges require a reviewing court to make factual findings regarding the adoption process… necessitate(ing) this Court ignore the presumption created by (the law) that R. Brett Goett was validly appointed to execute the 2005 Third Amendment on behalf of the association during the period of declarant’s control.”

The Division’s position ignores the plain language pre-condition to enforcing a prohibition in challenging an amendment- “adopted by the association” and a law prohibiting a board from acting to amend a declaration. Lacking a demonstration of the amendment’s adoption pre-condition, the one-year prohibition does not apply- or so was argued to no avail.

Even more egregious, NRED knew as it made its arguments to the Courts there was no issue of factual challenges. In an October 2017 letter to one of its investigator the developer asserted the amendment effort was a scrivener’s error (merely a simple correcting of a clerical mistake made in constructing the original declaration). No adoption was needed or executed. It claimed it was permitted to increase the maximum units and retain control of SHCA’s governance. I do not find the scrivener error claim credible. It changed an important term of the declaration—the maximum units—more than five years after it was established, after approximately 7,000 units had been annexed, nearly simultaneously with the developer obtaining a major change to its development agreement with Clark County increasing the maximum units it could build in Southern Highlands, and followed six prior amendments and/or supplemental changes.

My assessment remains the Division simply turned a blind eye to this provision of Nevada law and a prohibition on an executive board amending a declaration. NRED’s argument was circular at best- and arguably worse. NRED needed a “hail marry” defense of its inaction given my challenge in court. NRED knew this was not an issue of factual finding regarding adoption- they had the facts showing there was no adoption. There was never any presumption the son of the developer and attorney for Olympia was ever appointed to execute the amendment. And even if he had been so appointed, he would have lacked the authority to do so. The law makes clear a board can not act to amend the CC&Rs- even a board of one. NRED, it would appear, hoped the confidential letter sent to its investigator would not become public. NRED's court argument seems blatantly transparent. But apparently not to the Nevada court who in August, denied my review.

NRED would have us believe our legislators intended to preclude all challenges, to include any effort to determine whether an amendment was properly adopted. If that was the intent, then why the “adopted” pre-conditional language? This court ruling has potentially very damaging ramification beyond the impact on SHCA owners.

Some in the development community become vested in retaining control of HOAs as long as possible, much as many in the elite of Medieval times were vested in the flat-earth theory, enforcing laws we see today as bizarre. Similarly, the good HOA governance system I described in opening this article never gets implemented.

Hugh Jackson opined in his introduction to Dana Gentry's HOA article, “the default response from Nevada elected officials at all levels of government, when instructed to jump (by the development industry) is “how high?”” I would include Nevada Courts in Jackson’s list of Nevada institutions jumping on behalf of developers.

Today, Nevada HOA owners cannot be assured key terms of their CC&Rs, even those establishing when and who serves to govern their communities, will remain as they originally purchased during a period the developer retains special control rights. During the developer holding period owners are not assured their CC&Rs will not change and good governance principles are sidelined under this horrid precedent.

So “why bother ensuring owners have CC&Rs” during this period, asked a retired realtor friend, when they can be altered and done so without owner concurrence as SHCA has demonstrated? Do CC&Rs even constitute a viable contract when only one side, the developer or the Nevada legislature (as arguably it did with AB-192, 2015), can change them? Contrary to the plain reading of Nevada law, prevailing precedent now permits during the declarant-control period, a developer to make changes to CC&Rs, a “contract” and HOA “constitution.”

Why not just be upfront with HOA home buyers, our community governance will be dictated by the developer until it relinquishes control. Then and only then will good governance principles apply.

For owners living in a developer controlled HOA it truly seems our laws are more akin to Medieval times than today’s arguably more informed jurisprudence.

* This is an op-ed. I am not an attorney. My comments and those made by others in the links provided in this writing or on this web site should not be considered legal advice. All court filings appearing on this website are intended to make it easy for readers to obtain legitimate information. The above are my opinions or opinion of the authors noted, developed from researching and fighting for SHCA owners and Nevada HOA owner rights for years.