HOA Mismanagment Lawsuit

Is anyone aware or been involved in a lawsuit which alleges mismanagement of the HOA? Our HOA's Board of Directors is still controlled by a developer who is currently in severe financial difficulty. Payments are late, late fees are being paid to vendors, special assessments are not being collected, the HOA is in financial arrears, rules are not being enforced, budgets are inaccurate, financial statements are questionable, long term accruals are nonexistent, there’s no contingency budgeting, etc. The lack of rules enforcement is at least partially due to the management company not being paid promptly.

The development is approximately 45% completed and the Developer selected homebuilder has effectively abandoned the development due to poor home sales. The Developer has not properly maintained the development and thus home sales were negatively impacted. The development began with a national homebuilder who left due to a dispute over infrastructure work that was not completed by the Developer.

I have discussed the possibility with several other homeowners of a lawsuit in an attempt to gain control (or seek representation) on the HOA board. The unusual situation is the BOD is not elected and is totally controlled by the Developer. The CC&R is written to give the Declarant 9 votes to every 1 vote per each homeowner thus we presently have no control over our affairs. The Development is slightly over four years old and home sales have for all practical purposes ceased.

Can anyone comment, provide an opinion, or help shed some light on this situation?

Since there has been no turnover, the best you can do is get together with other homeowners and sue your developer for not fulfilling his contractual obligations to you, as a purchaer of a home.

The HOA has nothing to do with this, since it is under his control. You homeowners have no real power thru the HOA, it's a puppet regime. You must deal with this guy as a person you entered into a contract with.

The threat of a lawsuit MAY push him to turnover the HOA to the members only and get lost. But don't count on it.

Thanks to all who have taken the time to comment and add their thoughts.

Some further clarifications and additional information:

The HOA is a stand alone organization which collects quarterly dues ($225 per quarter) to pay for contracts and services for the development. The major items are TV Cable, trash pickup, a landscaping contract for the common areas, and property management. Many of these invoices are being paid late or not being paid at all. Our previous landscaping company recently filed a Mechanics Lien on the Developer for non payment. The HOA cash flows cannot cover making payments on time in the third month of the quarter and it appears we are getting further behind each quarter. The Developer once covered shortfalls and attempted to maintain the appearance of the development but that has stopped. He contributes nothing now and recently levied a special assessment in an attempt to pay old invoices.

The problem is the BOD (actually the Developer) has total control with his 9 votes per lot versus the 1 for each homeowner. He refuses to share information regarding financial statements, expenses, budgets, contracts, board meetings, etc. which I believe is illegal.
We also believe the Developer is in financial difficulty with the bank that has the note on the development. He has only sold 9 lots in two years; not enough to cover interest payments on the note.

Concerning discussions he refuses to acknowledge letters, phone calls, questions, or any action with the homeowners. The 2010 Annual Meeting was “free for all” with little or no business discussed as homeowners attacked the Developer regarding the lies (documented in the meeting minutes) he told in the previous meetings. He, on the advice of his attorney, recently cancelled the 2011 Annual Meeting.

Again, we don’t believe we can gain financially with any action, we are only trying to secure representation and gain access to what is going on with our dues; contracts with cronies, under the table deals, questions concerning invoices and payments, etc. are concerns.

This can't be legal???

Too late for the selling out option, the property values are down about 30% in our neighborhood and homes are not selling. Several have gone into foreclosure as the homeowners were forced to move due to job transfers, family reasons, and other reasons and could not sell.

It's quite a dilemma.

Susan,

Thanks for you comment. I agree 100% and I am attempting to find out if anyone else out there knew of a similar situation and could comment on their experiences or the laws in their states. I would imagine this is a rare situation and thus very little case law to help us going forward.
The Developer and the BOD are one in the same at this point.

I have several other homeowners who agree but many feel like we are “fighting City Hall” in going after the Develop who has written himself a real sweetheart deal (Covenants).

They want some reassurance we have a chance if we challenge this situation in court. I fully understand when you go to court there are no guarantees on anything.