Sequence of ownership

Started by GaryM • 13 replies • 1769 views

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GaryM (Illinois)
Posts: 9

Posted:

Can anyone out there give me the sequence of ownership in the life of a devlopment in going from a plat of land owned by a developer to Association owned?
Specifically, can a clubhouse be a common element and still be owned by the developer. Also, if the association is created with Phase I and Phase II sections and then the developer sells the part that was to be Phase II, is that his money or the association?

We are still developer run and he has never given any financial accounting.

JanaC (Tennessee)
Posts: 31

Posted:

Are you saying the Association is the developer? If so...be vary...that is what has happened with us. The developer..ie being a corporation, owning the land, can form a non-profit organization, called a HOA.....with him calling himself a Class B member still having full ownership of property, even common from what I have learned. Still holding the title persay..and stating that when he turns it over Class B member cease to exist, only leaving Class A members, who then in turn take FULL Responsibilies, where we like it or not.

Otherwords our builder/developer a company of the state, sold it to himself as a non profit organization, the HOA here for the sum of only $10.00 and turning it over to all Class A members to clean up the mess.

Do I make any sense here? If not let me know and I will try to clarify myself.

smiles to you,
JanaC.

GaryM (Illinois)
Posts: 9

Posted:

So if the developer owns all the common elememts why should we pay for their maintenance?

JanaC (Tennessee)
Posts: 31

Posted:

Well if the Declarations say so then that is why. I'm still wondering why a developer is even allow to write the Declarations...or even allow to apply that in them.. Don't feel bad, we have a common lot with a GAS Pipe running right through it. Can't build a thing on it. Just a huge empty lot in our neighborhood. We pay to maintain it, but he the builder/developer get to hold the title! Shoot and to top it off everyone in the Hood here uses it to dump their leaves, dead plants, yard clippings, limbs, and even trees! Declaration says we can't, city law says we can't, but our Board of Directors put out a flyer saying we can! In my state, it's a $500.00 fine. So you can see what typical yahooo I'm dealing with. Who gets that fine or yet has to pay for it?

JanaC.

RogerB (Colorado)
Posts: 5,067

Posted:

I think clarification is needed here. A developer is a person or entity which owns land which they wish to subdivide and build units to sell. For a planned unit development they must get proper approval which includes submitting detailed development plans to a planning commission. Once all the requirements of the planning commission are met they prepare and file a Declaration of CC&Rs with the counties involved. When the Declaration is filed the association is born, the developer is a class B member and still own all or most of the units. (All units already sold must also approve the Declaration).

The developer appoints the members of the BOD, writes the By-laws, and submits Articles of Incorporation to the secretary of state if they want to qualify as a non-profit. Laws related to a corporation would apply to the association, including holding annual meetings, notifications to all members, etc.

As each unit is sold the buyer receives a deed with restrictions; and they become a class A member of the association. When the developer has sold all or most of the units, control of the Board is transitioned to the homeowners. This is a critical time in the life of the association.

GaryM (Illinois)
Posts: 9

Posted:

Thanks for the replies.
I guess I'm trying to split the hair of ownership and control. It seems to me that when the declaration says the clubhouse is common ground then it belongs to the Association (ownership), but is "controlled" by the developer as he is the board. At turnover the what changes is control, yes/no.

At question are the realestate taxes on the clubhouse. In Illinois common ground is assessed at $1.00 and the rest is shared by each owner in their tax bill. The developer has got some owners scared that when we take over we are going to suddenly get nailed with the realestate taxes. If it is a common element then aren't we already paying the tax. If he still retains ownership then we should not be paying the tax.

The developer is also builder, the board, the one who does all the maintainance. Our assessment check is made to the developers business. He has never given notice of any meeting nor given any finacial account.
His decs say turnover is at 75% but Illinois law says "or 3 years whichever comes first". We want to assume control but fear he holds the trump card.

RogerB (Colorado)
Posts: 5,067

Posted:

If he clubhouse is part of the HOA (controlled but not owned by the developer) then the HOA is paying the taxes. Your assessment should be paid to the HOA in care of the MC or HOA Treasurer, not to the developer. If the HOA does not own the clubhouse then the developer should be paying for the taxes and maintenance.

State law trumps the Declaration so turnover can occur after 3 years. However, the developer may still own enough units to control the voting and elect their choice of Board members. In which cas they could still be in control after turnover. If incorporated, demand the developer comply with the state corporation laws on holding meetings and access to files or else you will file a complaint with the Illinois attorney general.

DonnaA1 (New York)
Posts: 2

Posted:

We are having a problem with the builder/developer giving up control of the Board. He's in litigation with the Village in which our new HOA exists and the Village is withholding two COs such that only 20 of the 22 homes in our community have been sold and have residents. Still, should he still controlling the Board? Is there some regulation which requires him to relinquish another seat on our three-person Board (right now he controls two seats) so we, the homeowners, gain control? Our community is in the state of New York. Anyone have any answers? Thank you.

RogerB (Colorado)
Posts: 5,067

Posted:

Donna, read your Declaration of CC&Rs to determine if you can achieve more homeowner control on the Board. If you can then the By-laws should define the process to follow to try to achieve your goal.

DavidW5 (North Carolina)
Posts: 565

Posted:

We face a similar situation:

The developer is still in control of our Association. The clubhouse has been made available to the homeowners for use even though title is still held by the developer. Our governing documents say that the association is responsible for the maintenance of the clubhouse. There are liens filed with the county on the clubhouse because the contractor hired by the developer to build the clubhouse declared bankruptcy and did not pay his subcontractors. The developer failed to disclose these liens to home purchasers. The developer states that the liens will be cleared before transition of the HOA to homeowner control. In the meantime our monthly dues are being used to pay for expensive repairs to clubhouse equipment that likely was deficiently designed and improperly installed. We have been carefully documenting all of these issues for possible legal action once we have an elected board and can use association funds for legal support.

Dave

LanceT (Alabama)
Posts: 121

Posted:

David, I am not really seeing anything "illegal" going on but normal real estate transitioning. These "liens" the developer has on the clubhouse has NOTHING to do with the future HOA. It has EVERYTHING to do with the developer and his subcontractors. These liens MUST be closed prior to the developer legally being able to relinquish control. Can't sell property with outstanding liens. However, even if the developer did turn over this property with the liens still attached (as feared). That just means that is ADDITIONAL money coming to the HOA. The lien here is a "mechanical lien". That means the subcontractor was paid by the developer and the subcontractor did NOT honor/finish the contractual duties. Hence, the developer placed a "mechanical lien" the contractor has to pay in some cases to keep their license or other serious consequences.
The money you are paying the developer is just like the money you will be using when it's turned over to the homeowner's. (HOA). It's just that the developer is acting much like a Management company and applying the money to finish up and provide the amenities promised when the property was purchased.
Example: The contractor advertised a "Pool", you bought the property before ALL the properties were sold. During this time there was NO pool. However, when the last 5 properties are left to sell, the developer may start work on the pool. The developer most likely is going to use the dues money collected to build the pool. Your dues money was used to provide the amenity. Once the last of the property is sold, the developer MUST have this amenity completed. It will then turn over to the HOA the maintainence costs and responsibilities when the developer gets out. It's not much unlike when you bought your own home and gave the contractor or previous owner a "Punch list". They must complete it before the home can transfer ownership.
Believe me, Developers want to get in and get out of properties involving forming a HOA ASAP. Their money is made from the initial investment of the property purchasers. It doesn't come from running a HOA. That's because non-profit corporations MUST spend out as much as they receive in on maintaining the property plus a reserve fund. Where's the money made in that? It's all in taxes. Something a developer wants to avoid.
When the time comes, your developers will pick up and leave. Make sure the owners provide a relevant "punch list" before they go and request if they can change the by-laws/CC&R's to delete references to them when they get out would be a head ache saver! Two things I wish our HOA had done before our developer left.

Recovering Ex-President of a HOA

RogerB (Colorado)
Posts: 5,067

Posted:

David, I suggest the main issue to determine is whether or not the HOA Board had insurance required by the Declaration. If so does it cover any of the mechanics lien?

Every HOA should consider having contracts which protect against a mechanics lien. Also, have a stamped statement on the back of each payment check with wording (agreement) protecting against a mechanics lien upon cashing the check.

DonnaA1 (New York)
Posts: 2

Posted:

Thanks to all for your sharing your insights. We are really starting to pull our hair out over here after almost three years of nonsense with both the Village and the builder stemming from a mistake (?) the builder made in our original offering plans (he included the wrong set of restrictive covenants). Now, relinquishing some control to the homeowners, he's back at it again. There is also a question as to whether he's been manipulating funds to serve his financial interests and not those of the community. I would have thought there was a law that protects against this kind of behavior.

DavidW5 (North Carolina)
Posts: 565

Posted:

Posted By LanceT on 02/03/2007 9:37 AM

The lien here is a "mechanical lien". That means the subcontractor was paid by the developer and the subcontractor did NOT honor/finish the contractual duties. Hence, the developer placed a "mechanical lien" the contractor has to pay in some cases to keep their license or other serious consequences.
The money you are paying the developer is just like the money you will be using when it's turned over to the homeowner's. (HOA). It's just that the developer is acting much like a Management company and applying the money to finish up and provide the amenities promised when the property was purchased.
left.

Lance,

I think you misunderstood the situation. The Clubhouse was completed. The "prime" contractor hired by the developer to oversee the construction did not pay his subcontractors for some of the work they completed. Those subcontractors filed the liens. The prime contractor declared bankruptcy and went out of business. My question is, is the HOA legally obliged to pay for the ongoing maintenance and repair of the Clubhouse facilities when the HOA does not hold title to the Clubhouse and the county has not release the performance bonds it holds?

Dave

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