The Ramirez Report

Editor’s note:

By Memorandums dated July 9 and July 11,2008, Mr. Lloyd Ramirez was appointed an “agent of the corporation” under Bylaw Article VII, Section 7.1 to investigate and report on options which might be taken to mitigate the problems expected with the possible expiry of the Diamondhead Restrictive Covenants. This report is the result.

Lloyd Ramirez, Diamondhead Resident – POA Director, 2002-2004
– POA President, 2004-2006
– POA Past President and Director, 2006-2008

Paul M. Newton, Jr., Legal Council
-Attorney at Law, Newton and RoffL.L.P.

1. Introduction page 1

A. Chart of Covenants and Covenant Comparison Paul M. Newton, Jr. -Attorney at Law

B. Legal Council Discussion of Issues

Letter to Lloyd Ramirez from Paul M. Newton – Attorney at Law

The Diamondhead Covenants begin expiring in June 2020. Since dues collection and architectural control are center pieces to maintaining living conditions and home values in the Diamondhead development over the long term, this report investigates options available and recommends a plan to handle the eventual Covenants’ expiry issue.

The following describes the legal and governing instruments that impact the Diamondhead Community and therefore, the issues being considered:

A. The Covenants – As the Developer initiated the Diamondhead Development, Restrictive Covenants were recorded and placed on the residential property. The Covenants impose upon each property provisions and restrictions for the mutual benefit of all property owners the purpose of which is to protect and to enhance the value of the property. The Covenants provide that property owners must pay dues and adhere to architectural controls. Appendix A presents a chart and a matrix comparing the features of each Covenant.

Some of the relevant Covenants facts are:

1.27 separate Covenants cover about 8,000 parcels of land.

2.19 Covenants expire within the nine year period – 2020 to 2029. 3. 1 of the Covenants does not expire and is in perpetuity.

4.7 of the Covenants have no expiration date stated.

5. Each Covenant applies to one portion of Diamondhead’s residential area.

6. Most of the Covenants’ provisions are common; a few provisions are unique.

7. 25 of the Covenants can be amended (and presumably extended) by securing of 85% of the property owners consent.

8.2 require 75% and 66 2/3 respectively for consent.

9. 1 requires 75% of the Board of Directors and 75% of Members of the Association to consent.

Note: It is important to understand that the 27 Covenants cannot be amended collectively by a single 85% (or 75% or 66 2/3%) vote of all the property owners. Each Covenant must be amended individually. Thus, any effort to extend the Covenants could result in all Covenants being extended, none of the Covenants being extended, or some of the Covenants being extended. See Appendix B-1, IT for a discussion these issues.

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B. Charter of Incorporation – The Charter establishes the Diamondhead Country Club and Property Owners Association, Inc. (PDA) as a legal, nonprofit Corporation under Mississippi Law. The Charter defines the Corporation’s purpose as “a civic improvement organization devoted to the improvement of the Diamondhead development” and to operate its common facilities. The Charter defines membership of the Corporation as the owners and purchasers of lots in the Diamondhead Development. The Corporation is governed by the provisions of “The Mississippi Non-Profit Corporation Act, Sections 79-11-101 et seq.”

Note: Purchasing a residential lot in Diamondhead automatically makes the owner subject to the provisions, terms, and authority of the Corporation, including the Corporation’s powers to levy dues and exercise architectural control. (Mississippi Non-Profit Corp. Act, Section 79-11-151 General Corporate Powers, see Appendix B-llI-B).

C. The Purcell Al!reements – A set of agreements between Purcell, Inc. (the Developer) and the POA. These agreements transferred ownership, control and operation of all the amenities to the POA. Under the agreements, Architectural Control/Covenant Enforcement of most of the residential area was also transferred to the POA.

D. The Diamondhead POA Bylaws – Commensurate with State Law, a set of Bylaws which further defines the authorities and limitations of the POA Board was adopted by the Corporation. Bylaws may be amended by vote of the membership and, for most issues, a vote of the POA Board.

Note: The Bylaws are allowed to contain the similar provisions as the Covenants provided the Bylaws meet the Mississippi Code requirement to not be in conflict with the Covenants. See Appendix B-llI-A.

E. Rules and Regulations – These are established by the POA Board of Directors to meet its fiduciary responsibility to consistently and reasonably enforce rules governing the operation of the Diamondhead Community. This is in compliance with the Bylaw requirement that the Board “is specifically charged with enforcing the Association Rules and Bylaws to include enacting penalties ” Rules and Regulation changes require majority Board consent.

Note: By a June 19, 2003 letter to Mrs. Lisa Cowand, County Supervisor, the Hancock County attorney has affirmed that the restrictive covenants and the POA rules and regulations should be complied with and are “legally enforceable by the Diamondhead POA”.

CONCLUSIONS:

A. EVEN IF THE COVENANTS EXPIRE, THE POA POSSESSES SUFFICIENT AUTHORITY TO MAINTAIN DUES COLLECTIONS AND TO ENFORCE ARCHITECTURAL CONTROL.

This is based on existing Mississippi Statutes and Case Law, the existing POA Charter, POA Bylaws, and POA Rules & Regulations.

B. SOME MODIFICATION TO THE BYLAWS AND TO THE RULES AND REGULATIONS ARE RECOMMENDED TO CLARIFY THE POA AUTHORITY.

The changes recommended herein should be done in the near future.

C. THE CHANCE OF SUCCESSFULLY EXTENDING ALL OF THE EXISTING COVENANTS IS CONSIDERED POOR.

D. DEFER ANY DECISION TO ATTEMPT TO EXTEND THE COVENANTS.

In about 6 years (about 4 years prior to the first Covenant expiry) revisit this report and its conclusions to assure that changes to the Mississippi Statutes and Case Law have not compromised the ability of the POA to enforce dues collection and architectural control through its Charter, Bylaws and Rules and Regulations.

First, in the near term, incorporate two amendments to the Bylaws through normal voting procedures:

a. Add to Section 4.7 – Additional Powers and Duties – the following:

The management and operation of the Architectural Committee shall be discharged by the Association by and through its President, Vice-President, and the Secretary.

Note: This language is almost identical to the language in the Purcell Agreement currently in force. The addition is important because the language would clearly establish, within the Bylaws, that Architectural Rules Enforcement is a POA responsibility. This will be particularly significant if/when the Purcell Agreements were to cease.

The Board shall establish a Uniform Architectural Control Document (UACD). The UACD shall meet the requirements of existing Mississippi Statutes governing Covenants, Bylaws and Mississippi Non Profit Corporations. The UACD will be made a permanent section within the Rules and Regulations.

Note: This addition to the Bylaws will explicitly authorize the Board to establish Architectural Control rules (the UACD described later) as a part of the Rules and Regulations. These rules would be limited to those provisions already contained in the existing Covenants. The current Mississippi Law allows Covenant provisions to be included in the Bylaws PROVIDED that none of the provisions exceed those of the Covenants.

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Second, it is recommended to develop a single Uniform Architectural Control Document (UACD). This can be done by consolidating all of the provisions of the existing Covenants into a single document. Because about 80% of the Covenants’ provisions are the same, such a document would be much smaller and easier to administer than the 27 existing Covenant documents. No expiry date would be included. By Board vote, the UACD would become a section of the Rules and Regulations. This is important because the UACD becomes the primary architectural control if/when Covenants expire in the future.

Note: Care would be needed to assure that no provision of the UACD is in conflict with any Covenants provision in order to meet current legal requirements.

Third, in the 2016 time frame, have legal council obtain a thorough and complete review of the applicable Mississippi Laws. If the laws have not changed, simply allow the Covenants to expire over the next 13 or so years.

an the other hand, if the laws have changed to prohibit dues collection and/or architectural control under the Bylaws of the Corporation, then proceed with trying to obtain approval of residents to amend the Covenants by extending them using the amending provision as outlined in the following:.

Action

– Before each expiry, hold elections where each community of the property owners is asked for consent to extend the life of the Covenants covering his/her Diamondhead property.

Potential Problems

– Requires up to 85% approval by the property owners of EACH of the 27 separate Covenants over a nine year time span.

– Would anticipate a very low chance of success. Consider:

– only about 30% of owners generally vote in POA elections.

– getting 85% to vote, much less vote one way, appears most unlikely.

– the incorporation effort obtained about 70% consent only after an

effort by 140 people over a 1.5 year intensive sign up period.

– Lack of 100% success would likely result in a legal and administrative mess. See Appendix B-I!.

6. -Trying to enforce architectural control over a “checkerboard” mix of properties, some with and some without Covenants would be extremely difficult to do reasonably and consistently.

Fourth, if resident consent fails, attempt to extend all the existing Covenants by Judicial Amendment.

Note: A few years ago, a Pass Christian PDA was reported to have convinced a judge to revise their Covenants which had a high quorum requirement that was not allowing any action in the development.

Action

– Attempt to obtain a judge’s ruling to administratively extend the expiry date on all of the Covenants set to expire.

Problems

– Would involve a longer time to accomplish as a judge would probably first require an attempt to amend as outlined by “3” (above) prior to any administrative action.

– Probably of success is relatively low, particularly if the attempt were challenged. See Appendix B-IV -A.

These near term recommended actions, namely to add two amendments to the Bylaws and to add Covenant provisions (UACD) to the Rules and Regulations, combine a relatively simple approach with a reasonably high probability of success to be able to retain, over the long term, dues collection and architectural control authority in the absence of any Covenants.

The recommended approach provides home lenders, residents, and the POA Board with knowledge that Diamondhead will have the necessary tools (architectural control and dues collection ability) to maintain and operate the Diamondhead Residential Community for the long term regardless of what happens to the Covenants.

This approach provides a single document (UACD) from which to enforce architectural rules rather than the cumbersome rules contained in 27 separate documents composed of thousands of pages.

This approach provides beneficial architectural control regardless of any of the following:

… a future annexation by another city whose architectural control may be weak.

” . establishment of a City of Diamondhead whose architectural control is currently unknown and subject to change through the political process .

. . . dependence on the Hancock County’s weak architectural control if/when Diamondhead’s Covenants were to expire.