in 2 years, 10 months, 20 days, 23 hours, 11 minutes
Beginning in 1970, the Diamondhead subdivision was developed incrementally, based on an original plan divided into three primary “Phases.” Each Phase was divided into two or more “Units,” with each Unit consisting of the individual residential lots. Each Unit is governed by a separate Declaration of covenants created at the time the Unit was developed. There are more than 30 different sets of covenants, with one applying to each different Unit in Diamondhead. Most, but not all, of the different covenants, incorporate the terms of the Declaration for Phase I, Unit 1, which are sometimes referred to as the “Master Covenants.” The covenants give two important rights to the Diamondhead POA: (1) the right to architectural control over the residential lots and (2) the right to assess dues and other payments from POA members as needed to maintain the common amenities.
Each set of covenants includes a different expiration date, the earliest being June 17, 2020, the expiration date for the Master Covenants.
COVENANT RENEWAL EFFORT
A Five Part History
by Margaret Dutton
THE 2008 BEGINNING
Understanding how we got to the covenants renewal mess of today first takes traveling back to see Diamondhead as it was in 2008. When that year began, city incorporation was still just on the horizon. Begun primarily as an effort by POA President Lloyd Ramirez during his 2004 – 2006 term, its supporters were close but had not yet reached the required number of signatures, and its opponents were hard at work against it.
Aside from the county, the POA was still the sole source of governance and funding for the community. Just three years on from Katrina, it was coping with devastated neighborhoods including a wiped-out south side, repairing or rebuilding hard-hit facilities and amenities, and dealing with the blow to its finances.
A proposed plan had been drawn up by Ramirez for a gradual transfer of all amenities to the city if successfully incorporated, and it included a tentative turnover schedule meant to end in 2020 with the POA’s going out of existence. Though the written plan wasn’t publicized, apparently enough talk about it made the rounds that many residents came to believe incorporation meant the eventual end of the POA. The plan, however, fell through when representatives of the POA, Purcell, and the Incorporation Committee  met and failed to agree about any transfer other than streets and drainage. 
The summer of 2008 proved eventful. Sometime before June 30, Jacobs Entertainment, Inc., acquired part of its Diamondhead properties according to filings with the SEC. Meanwhile, Ramirez was asked by the board to look into the covenants as he was leaving his past-president term on the POA board. “We had this vague notion that the covenants in 2020 were maybe going to go away,” he recently told the current board, and “we had to save [them].” 
In early July he was deputized an “agent of the corporation” to investigate and report on options regarding problems of expiration. In their investigation, he and board attorney Paul Newton “to their surprise” found 27 separate sets for different parts of Diamondhead with different expiration dates from 2020 to 2029, or with no expiration date though most expire in 2020. 
By July 28, with enough signatures attained, the petition for incorporation as a city was filed in court.  Meanwhile in July and August, Jacobs completed its acquisition of Diamondhead property in preparation for proposing a casino on the south side near property where the Harbor House Condos were before Katrina. News of their plans went public on September 19. 
Though it was 12 years before expiration, it’s easy to see why the board back then grew alarmed enough to start investigating renewal. Under those unsettled 2008 circumstances, with change coming at them from all sides, the safe harbor of renewed covenants with their guaranteed income source and zoning-like architectural controls must have looked like the only chance for maintaining Diamondhead’s quality of life.
2009: THE RAMIREZ REPORT
In August 2009, Lloyd Ramirez detailed his and Newton’s findings on covenants expiration in a report called “Recommendations to Prepare for the Long Term Issues Associated with Possible Expiry of the Covenants.” Often shortened to “the Ramirez Report,” it summarized issues connected with expiration and options for renewing them by means that would bypass the covenants’ own requirements in order to “achieve continued beneficial zoning.” Though owners asked to see it, they were refused until a copy surfaced surreptitiously last year and was published on Diamondhead News Online.
The report assumed that dues collection and architectural control were necessary for “maintaining living conditions and home values” in Diamondhead over the long term, and therefore covenants renewal was essential. It detailed the problems involved, concluding that there was a poor chance of renewing them by meeting their specified requirements. Voting, the report said, would fail to achieve renewal since there’s normally a low turnout at regular elections, and it was unlikely to get 85% to vote (75% or 67% in some phases) at all much less to get them to vote “one way.” It pointed out that even with a year and a half of work on the incorporation petition, supporters only achieved around 70% agreement.
Another problem, it said, was the chance that only some areas would successfully renew their covenants. Since there are different covenants for different areas of Diamondhead, you could wind up with a “checkerboard” of properties, some with and some without covenants, so the legal and administrative difficulty of trying to enforce architectural control would be extremely difficult. (In a footnote, the board attorney pointed out that this would be mitigated by zoning regulations if Diamondhead became a city.)
The report ended with the recommendation that bylaws changes be adopted to incorporate the covenants into the bylaws. The POA had authority to do this, the report claimed, based upon a 1986 Mississippi Supreme Court case (Perry v. Bridgetown Community Ass’n, 486 So. 2d), the statutory powers granted to it, and the POA’s purpose as stated in the bylaws.
As we’ve seen in an earlier post, the unsettled circumstances at this time in Diamondhead were obviously of concern, and the board’s desire to take action that provided more stability was perfectly understandable. What is not understandable is the vast difference between the two efforts that were going on almost simultaneously in 2008-9 under the guidance of some of the same movers and shakers — incorporation and covenants renewal.
The incorporation effort, as the Ramirez Report points out, involved some 140 people going door to door in a year-and-a-half-long effort to gain the required consent so that the petition to incorporate could be filed for the hoped-for court approval. It was an uphill battle since incorporation had failed once before back in the 90’s, it had unknown and hotly contested consequences for the community, and it was an effort initially led by a small group of supporters rather than one that arose out of an obvious community need. Yet despite those difficulties, they actually achieved close to 73% consent in a year and a half.
The covenants, on the other hand, still had eleven years to go before they would begin to expire; meanwhile, they were as effective as ever. There was loads of time to achieve the required consent that would have made renewal a stone-cold certainty. The incorporation effort had just shown that you could get 73% approval in a fairly short time when you consider how controversial the issue was.
By contrast, covenant renewal should have been a piece of cake. Yes, it would have taken organization and a campaign to get each area (phase or unit) involved, but there was no controversy about or opposition to covenants in 2008-9, with no city zoning as a backstop and few doubts in the community about the wisdom of continuing it. Holding a vote was obviously the least likely way to achieve renewal for all the low-turnout reasons the report names, so why set that up as the only way when the example of the incorporation effort was there, right before your eyes?
It’s a mystery to me. With eleven years to go before expiration and a commonly held belief that the covenants were essential for maintaining Diamondhead’s quality of life, no one thought it was worthwhile to reach out and involve the community in a campaign to get the required consent that would renew them to a certainty. Instead, they decided to sidestep the covenants, reveal almost nothing to the owners, and rely instead on a legally questionable but “relatively simple” way, at least temporarily, to keep the covenants going forever by the vote of a small minority of owners.
HOW HARD WAS IT TO RENEW THE COVENANTS IN 2010?
Somewhere along the line in 2009-10, the board accepted the Ramirez Report’s view that getting consent of the required percentage of owners in each phase or unit was unlikely to succeed, although seeking consent by means of a vote (rather than a more intensive process) was the only thing considered. By March, 2010, they had hired two more lawyers to double check the legalities of incorporating the covenants into the bylaws.
The new team, Rick Tubertini and John Gutierrez, agreed with Newton’s opinion that the board had authority to do this under the Perry case, but they tread more cautiously, warning that Perry “is subject to contrary interpretations, and the relevant holding has not been tested, to our knowledge, since the opinion was handed down in 1986. Therefore, there is some degree of risk that bylaws incorporating and extending the restrictive covenants may be subject to challenge.” In plain English, that means a judge may not see this case the same way we do, and it’s the only case that says what we hope it says about your following this course of action, and oh yeah, you could lose if it winds up in court.
The new lawyers also assumed that consent to amend under the covenants was too hard. To Ramirez and Newton, it had been “most unlikely” that the required percentage could be obtained. Tubertini and Gutierrez upped that assumption to being a “practical impossibility,” and by 2013 the board declared that it was “impossible.” Yesterday the 2016 version arrived on the front page of the POA’s corporate newletter, the Diamondhead News: it “cannot not [sic] be reasonably met.”
Interestingly, the only person who has refused to make such an unfounded assumption about actually renewing the covenants is a Purcell officer, Carl Joffe. When told that you can’t get 85% approval, he replied, “Well, that’s hypothetical. We got two-thirds in Lake Arrowhead, GA when our covenants could only extend for twenty years. Our covenants didn’t call for 85%, it was 66 2/3, so I’m not saying it’s impossible.”
My own speculation about why the board saw renewal as so difficult back then is that despite their real concern about extending the covenants there were still ten years to run before they actually expired, the recommended alternative was easy in the face of so many other immediate problems needing attention, and it’s very possible that casino and city incorporation issues were sucking all the air out of any other considerations at the time.
Whatever their reasons, they opted for an annual meeting vote on adopting covenants into the bylaws minus their expiration dates. It was certainly riskier than the sure-fire method of amending the covenants, but in the event that it worked, it would maintain the board’s powers to collect dues and exert architectural control. All the covenants’ provisions would continue to exist in the bylaws while the covenants themselves could go ahead and expire on schedule.
2010: THE VOTE TO INCLUDE COVENANTS IN BYLAWS
Incorporating Diamondhead as a city involved a very strong push that included five explanatory articles in the Diamondhead News, a survey of residents, contacts and meetings with numerous professionals, 24 informational presentations at town hall meetings, and 140 people going door to door to get consent.
No such record exists in the effort to extend the covenant provisions. Presumably, an article appeared in the Diamondhead News, and in May 2010, the ballot package containing the proposals was sent to the membership with a letter from board president Mario Feola explaining the proposed bylaws amendments to be voted on.
The letter told owners that covenants expiration was a major concern since they protect your investment, provide for amenities, make this a superior community, and satisfy mortgage companies that property values will hold up long term. It noted that achieving covenant renewal by 85% consent was highly unlikely through voting, so the board hired attorneys to search for “alternate means for Covenant renewal.”
That “method of renewal,” according to the letter, was to incorporate the covenants into the bylaws without the expiration language, which, if approved, would provide members with “a simple, inexpensive way to insure your Covenants continue as long as your POA is in existence.”
In question-answer form, the letter also said that this wouldn’t cost members anything, would take effect immediately with covenants continuing till 2020 and bylaws taking over afterwards, wouldn’t change the covenants except to remove expiration, would subject future buyers to the bylaws after covenant expiration, and that [county] zoning would remain in place.
That was the entire informational effort, as far as I’ve found.  It was not explained to members that this method was of questionable legality or effectiveness that would require going to court if it was ever challenged. It was not explained that the only guaranteed method of renewal was by amending the covenants, and that this was a gamble, relying on a single court case from 1986 that does not at all clearly or unambiguously support this amend-the-bylaws-instead-of-the-covenants attempt.
Nor was it explained to members that, if a court actually upheld this method, it would insure that a dues-free Purcell could continue meddling and voting in POA matters forevermore, and that it would guarantee the difficulty of ever modifying or amending anything that’s in the existing covenants. As amended, the bylaws prevent any change to the incorporated provisions even after they expire without 85% approval of the total membership plus the approval of the board.
At the annual meeting there were 2,147 votes favoring the amendments (800 of them cast by Purcell) and 449 against. Those are not the numbers of owners who voted, they are the numbers of lots that were voted because on POA matters other than board elections owners get one vote per lot owned on which they pay dues. There are 7,747 platted lots in Diamondhead.  Consequently, the so-called alternate method of renewal got consent of owners of just 27% of lots.
This proposed enormous change to the extent of POA powers and control in Diamondhead – from a contractually limited 50 years to an unconstrained forever after – got the consent of owners of just 1/4 of its lots.
2010-12: RECESSION, CASINO, AND CITY WOES
After the 2010 vote, the covenants expiration issue vanished from view for awhile. Owners were told this was an effective way to continue the covenants, and everyone’s attention turned to more pressing affairs.
Already weakening by 2009, property values here and across the country plummeted in 2010, reaching their lowest point in 2012 as full effects of the Great Recession took hold. Between foreclosures and second-home owners trying to cut expenses, numerous Diamondhead properties were dumped on the market resulting in severe loss of value.
In 2011, the Jacobs casino issue became a hot topic again when supporters approached the POA board asking for support. A number of the properties on which Jacobs hoped to locate its proposed casino (west of what’s now Harbor House) were residential under county zoning ordinances as well as Diamondhead covenants. Two years earlier, Jacobs had tried unsuccessfully to get them rezoned as casino resort by the county, and the POA board in office then had passed a resolution opposing rezoning of any residential lots. 
In May of 2011, pro-casino pressures had grown, and POA minutes reported that “numerous people” were asking the board to reverse that resolution and support the casino. Then-President Marshall Kyger offered what he called a “neutral” resolution stating that the POA doesn’t oppose gaming in Diamondhead but would judge each proposal on its merits. The board adopted that resolution.  That fall, Jacobs announced another application for rezoning.
At that same May 2011 meeting, the board hired Haslam Management Services, a golf management business that was also involved in Purcell’s Lake Arrowhead, GA development. No search or bidding process was used despite the contract costing well over the amount that requires competitive bidding under POA policy.
In January, 2012, the incorporation court battles ended and the city became a reality, taking over streets and drainage from the POA, and adopting essential ordinances and resolutions, including the comprehensive plan and zoning ordinances, by that summer. In March the POA board announced the 5-year renovation plan for golf courses, a new ship’s store, and a potential new sports complex, and that *dues would be reduced to reflect the streets transfer. 
In September, the city adopted an order setting the millage at 34.25 mils, in stark contrast to numerous claims repeated since 2006 that the initial city levy would be just 8 mils.  City founders excused the discrepancy by blaming it on the unexpected transfer of streets and drainage, but the record shows the transfer was already agreed to in April of 2008.
All of these events together raised a cloud of suspicion and speculation that still hangs over Diamondhead. To ease its site approval process, the casino needed to comply with local zoning and to be accessed by a public road, neither of which existed without incorporation plus street transfer to the city and zoning changes. Land owners of the properties on which the casino would be located stood to make money from them if the casino was approved.
Home owners who had rebuilt on the south side stood to lose from the expected influx of customers, lights, traffic, etc. affecting their homes, surroundings, and way of life. Business and property owners on the north side would benefit from sales including real estate, without the kind of sacrifice being asked (demanded, in some cases) of the southsiders.
The POA could transfer most of its functions to a city financed handsomely by a casino, or perhaps make a deal with the casino over the most expensive amenities, golf courses and country club. There was no mainstream press that might have been able to pursue and expose some of the background stories about what was transpiring, but anyone with a clue about how politics worked began to see that the much-vaunted protective value of the covenants and POA were, in reality, a thin veneer over the powerful interests that can come into play and change everyone’s expectations when money is at stake.
Past Court Cases
Smith Builders vs Diamondhead CC & POA
Fairway Drive vs Diamondhead CC & POA
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