Lender/Owner Problems

Our HOA is made up of 130 total units, still in middle of development. The developer has left and deeded the bank his lots, so they now have 68 out of 130 votes and our newly formed HOA have held elections, prepared budgets and our first fees are due on January 10, 2007.

The local lender is refusing to pay and wants a discount, our board has met with the lender and tried to work things out, however they are being unreasonable and have threatened to remove the board and replace our current seven person board with their votes. It would take 2/3 of the 130 votes and our board really doesn't think they can get the extra votes but regardless, our only action after the 25th if they don't pay is to put liens on their lots.

Our development also calls for the developer to give us the clubhouse, pool, exercise room, tennis court, and roads. The lender let the developer give us the tennis court and roads and common areas but not the clubhouse, pool and exercise room. We have retained an attorney however it will be a long an drawn out process and we are just looking for ideas to arrive at a better, quicker decision. The lender has agreed to sell the HOA all the property for what they took the property for, however our HOA is not ready or willing to become the developer and assume all the debt.

Any ideas or thoughts would be appreciated.

Thanks

Joe, I would study the Declaration and the approved planning commission documents carefully and hire a very experienced good HOA attorney. Appears this will be a long drawn out process to resolve.

Joe:

I would have to agree with the opinions on here. Find a good attorney, study your documents and prepare for a good battle. My question would be since the bank basically repoed the property are they considered regular property owners or do they get the perks that a developer has? A good attorney can sort through all that.

The other thing you need to do is inform your homeowners about what is going on, keep them abreast and involved. Good luck.

If the lender had of foreclosed it would be much easier, but they took deed to all the lots which in turn makes them owners, if they assume the declarants role they wouldn't let the developer turn over part of the promises that he made, ie the tennis courts and roads but not the clubhouse, pool and exercise room. They simply don't want to be an owner, and I don't blame them yet they don't want to assume the declarants role that they basically took over.

The owners all have been kept up with what is going on however our meetings have become intense due to the fact that the lender always attends and voices their opinions on the matter in what usually is a stretch of the truth to say the least. Our board has been in this battle since last May and was not officially elected until September, so to say the least we have all become a little tired of the battle yet we will not stop until someone delivers what has been promised for over four years to which the lender has been involved the entire time.

Thanks for the comments so far they all help.

Negotiate with the bank, tell them if they give you 3% interest on all your mortgages then they win!

in all seriousness, stick to your guns, eventually it will work out.

the bank can't fire anyone. Boards can and must be elected. Bottom line, count up how many lots the bank owns, multiply that times the number of votes per lot, and then compare that to how many owners you can get to any meeting, and see... can they take control?

This is where it is VERY important to know what class membership the bank actually has: Class A (1 vote per lot) or Class B (multiple votes per lot). If they are class A, good for you. If they are class B, they will likely win.

Even if the bank is Class A and wins, remember that the "BANK" cannot be the entire board, nor can they "appoint" people, unless they are legally a declarant (class A is not a declarant)... Officers must be owners (or declarant appointed), so the best the bank can do is elect 1 member to a board, unless they sell the lots to individual bank employees. and if they do that, then you win, because it puts the lots in individual owners hands, and you can charge them the back dues, fees, fines, and assessments.

They have enough to vote in people for any open spots and for anything that requires a simple majority to do but not enough to amend the CC&R's. Do your documents require that a Board member live in your community or simply be the owner or agent of an owner.

Joe:

Sounds like your documents are the key to victory, since there is only one class of membership. Since it was still in development stage I doubt there is a requirement that says a board member must live there. However, I would be the farm that it requires members to be in good standing to be board members and to vote.

In the meantime I would continue to send to them a notice of dues and follow your collection procedures should they not pay them. Really from viewpoint the bank sounds like it is just trying to strongarm you and thinks you will just fold. You would think they would be smart enough to know that they don't have a leg to stand on.

I agree that they can't replace the entire board and have spoken to their attorney who is also a owner of two townhomes, he asked if I had seen some type of letter that was suppose to get to the board members that has never arrived for a meeting one day before the dues are to be paid. I informed him of the bylaw wording on how special meetings are to be called and delayed the whole process, however I'll have to check the bylaws to see if after they don't pay if they can use their votes. Thanks for all the input, I'll keep you informed.

Thanks again, all input really does help.

Joe:

What does it say about being delinquent on dues? Again, if they haven't paid in most associations your vote doesn't count and you can't be a board member.

Joe:

You really need a good attorney. It is easy for me and all of us to say this is how it should be. The bank will stop screwing around once you have a good attorney on hand that can argue for you.

There may be a couple of more cards to play. Even if they were to take control of the board, they would still be responsible for paying the full assessment on the lots owned. If they failed to, and as board members they failed to take actions to protect the association, they could face a "breach of fiduciary responsibility" lawsuit; if they cut themselves a special deal, they could face "conflict of interest" charges. If they fail in any way to maintain the common areas, they will have more problems. If they deposit the asociation funds in their bank, it's a conflict of interest. They would be opening a huge can of worms by taking control of the association board.

Do they really want this, with all of the attendant publicity, that the owners would surely create? There would be no way the bank would come out of this looking anything other than a bully.

Any owner can sue to force the board the enforce the documents, or for breaching corporate laws.

A few owners and your attorney might just want to mention this to them in passing.

Good luck

Joe