Debt to Developer at time of transition

Started by JoeS17 • 6 replies • 1428 views

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JoeS17 (Michigan)
Posts: 2

Posted:

Our HOA is about reach our developer to co-owner transition point where we‘ll have control over the HOA. Due to poor sales over the past 54 months there are 23 of 44 homes sold. We can finally support our annual budget with dues from the homeowners, but owe the developer $20,000 from prior years.
1) Can the developer charge a special assessment to the current home owners prior to the transition?
2) Can the developer charge the current owners the full $20k versus 52% (23/44) of the $20K and collect the rest from future owners?

There are no provision in our bylaws.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Here you can find links to your state statutes: http://www.associationtimes.com/stateInformation.htm#M

In CO the developer is fully responsible for all fees prior to the transition. You stated there is no provision in your By-Laws; however, you should also have other documents such as a Declaration of CCR's? Read all documents for your association, not just the by-laws. Then check the state statutes ... you should know these documents anyway for the future of your HOA, so do some research.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Joe,

Do you know what the $20,000 owed to the developer is for? While the developer is in control of the HOA normally it is his resp. to make up any shortfalls in the HOAs operating account and he does not get reimbursed for this. Also, in many states the developer is resp. for building any amenities at his expense. Sometimes these things are addressed in state law or in the CCRs but not always. In AZ a developer must issue a public report which will outline all the amenties the builder will build and if any are to paid for by the HOA. The developer is required to provide a copy of the public report to all buyers.

If you cannot find anything in your gov docs or state law addressing these issues I would suggest contacting the state dept resp. for overseeing these developments. In AZ it is the real estate dept. If you cannot figure out what department would be resp. you may be able to find out by calling the info office for state govt.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Are you saying that the developer lent the HOA $20K and now it is a liability for the new HOA - and he wants it paid in full now?

If not, he occured the debt and it's his. He eats it.

JoeS17 (Michigan)
Posts: 2

Posted:

Thank you for your responses

To be more clear . . . We are a 44 unit single family home subdivision started in 2006. Today we are 23 units and are about to hit our transition clause of 54 months after 1st home sold. Our annual expenses for upkeep (grass cutting, snow removal, insurance, etc) of our common areas (entrance and small grass covered park) have been more than our annually collected dues. Example in 2006 our expenses were $10,000 vs 4 homes with annual dues of $450 ($1800) thus a shortfall of $8,200 carried over to 2007. These annual shortfall continued to build to our current shortfall of $20,000.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Hi Joe:

Have been looking, but find your state's statutes bounce around a bit. However, the bold in the section below makes me think that the costs over the period of time should have been divided by 44 and the developer would have been responsible for the lots/units he owned.

Section 559.152

(3) Notwithstanding the formula provided in subsection (2), 54 months after the first conveyance of legal or equitable title to a nondeveloper co-owner of a unit in the project, if title to not less than 75% of the units that may be created has not been conveyed, the nondeveloper co-owners have the right to elect, as provided in the condominium documents, a number of members of the board of directors of the association of co-owners equal to the percentage of units they hold and the developer has the right to elect, as provided in the condominium documents, a number of members of the board equal to the percentage of units which are owned by the developer and for which all assessments are payable by the developer. This election may increase, but does not reduce, the minimum election and designation rights otherwise established in subsection (2). Application of this subsection does not require a change in the size of the board as determined in the condominium documents.

You may want to check with a local attorney.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Joe,

The statute Janet posted is for condos and doesn't apply to your problem anyway. There are no MI statutes for single family homes.

As I suggested earlier you should contact the state agency that oversees developers. You need to know if the developer is required to make up these shortfalls or if he is w/i his legal rights to bill the assn. If worse comes to worse, it may be prudent for the BOD to contact an HOA attorney. Bottom line: I wouldn't just fork over $20,000 to the developer w/o knowing that he is legally owed the money.

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