Declarant Run HOA - Never had a meeting

Our HOA's articles were filed in July 2007. (Virginia)

The HOA was turned over to the owners in Feb 2012. There is no mention of Declarant control in the Declaration, Articles of Incorportation, or By-Laws. He did have Class D shares (3 votes per lot) for 3 years under the Articles of Incorporation after which all lots had class A shares (1 vote per lot).

Between those two dates NO meetings were ever held... No BOD meetings, No Annual Meetings, No Budgets, No Finanacial end of year Statements (we do have bank statements).

Basically the Declarant simply ignored us until he was no longer intersted in "running" the HOA... He sold his last lot in July 2011.

After turn over what we found was:

The Declarant's Limited Liabilty Company (LLC) filed a lawsuit against the only other builder in the community for non-compliance of the Declarations in Aug 2011.

He used HOA funds to pay the legal costs while at the same time specifically had the lawyer exclude the HOA from the court filing. The letter of Retainer was with the LLC not the HOA.

Has anyone run across this before?

Check the definition of Class D member as it probably mentions developer, builder or Declarant there.


I am of the expectation that when you post Articles you refer to the Articles of Incorporation and not the CC&Rs.
With this expectation, board meetings and membership meetings should have been held, as a minimum, once each year.
If you intended to say CC&Rs were filed in 2007 than only Board meetings would have had to been held once each year and general membership meetings needed to be held once the Association was incorporated OR what is identified in your documents.

All that said, the time to have complained about this issue was prior to the turnover. Had the membership complained, a court would have ordered the Declarant to hold the meetings (as this would have been the remedy to the complaint). In reality, it's impossible to hold a 2008 meeting in 2012. Therefore, all you can do is move forward now and comply with the applicable laws from this point on.


I have not ran into this. The Association may or may not have an action against the builder to recoup the funds. If the LLC was running the Association, it may or may not have been proper to use HOA funds. To determine if the Association incurred damages and can recover those damages, the Association needs to seek out a local attorney and provide the attorney with all the specifics and copies of the documentation.

Hope this helps,

Tim

Something's not right here. If he paid legal fees using HOA money, then he was in custody of the "purse strings."

Where was the Board that was supposed to be established at the "turnover"?

Was a treasurer elected?

(He could argue that the lawsuit was to protect the HOA.)

Someone was asleep at the wheel for those years . . .

Anyway, since you now have a homeowner run HOA, don't look back.

The HOA has been dismissed from the lawsuit so that is not something the Board needs to deal with and you won't be funding any future costs, so it's really a non-issue.

Yours is not the first time a declarent screwed over the HOA before the takeover.

Move on, wiser now.

Hi Paul:

Funny … The fox thought he was going to maybe out smart the system and now has possibly ended up in a hole.

Potential Scenario:

Declarant had LLC file lawsuit and excluded the HOA … this was probably because if HOA was involved in a lawsuit then Declarant would have difficulty selling homes. The lawsuit would be required to be disclosed to prospective buyers if the HOA was involved.

Now after selling his homes he wants to remove the LLC and put the burden on the HOA after he made the choice to circumvent for his personal gain. LOL … I would refuse also … he had ultimate control of the association; he made his choice to circumvent for his own personal gain, now he can reap the reward. I would definately at least consult and have a good attorney ready just in case needed.

If you are looking for an attorney one suggestion would be to check with any local or state property right organizations. The attorney’s they may recommend should be familiar with contracts / real estate / eminent domain. You most likely would want an attorney who specializes in these areas more so than HOA statutes. Your state HOA statutes are not as long and complex as some other states.

Many attorneys will offer a “free” short consultation 20-30 minutes. I would check with 2-3 to at least have an idea who would be the brightest crayon in the box of attorneys to choose from in your area.

Questions to ask is: Could the developer use the HOA money in the LLC (potential personal) lawsuit and if not what is the statute of limitations for filing against the developer regarding the HOA money he used?

Depending on the time frame for the statute of limitations then you may want to sit back and see first what happens with the current on-going lawsuit, but keeping in mind any time frame the HOA may have for filing a complaint against the developer. I am not an attorney but if it was me, if possible, I would want to avoid somehow being forced into the current lawsuit. I recommend you make sure that filing against the developer now for HOA money he used in the past, does not get the HOA somehow added as a Plaintiff.

John,

Sorry... don't know how to break this up using the quotes yet... but:

1. You say the developer is suing another developer but how does this have anything to do with your HOA? Are either of them still associated or part of your HOA?

A - The Developer/Declarant is suing another builder in our community. Before turnover he had control of the HOA's checkbook and paid for the legal fees for the lawyers ($6000)... he also billed the HOA for his 'management' of the lawsuit ($8000) and paid it before turnover.

2. If the developer is gone and the homeowners are in charge and free of him then why not say good riddance to him and move on?

A - The lawsuit is still ongoing and he wants to remove his company's LLC from the lawsuit and have us add the HOA to the lawsuit instead... The other builder is counter suing so the lawsuit can't just be 'dropped'

3. If the HOA never received a budget from the developer then what money would you expect from the developer?

A - We never received a budget... that doesn't mean we didn't pay dues or have expenses... he spent about $14K of the HOA's money for the lawsuit between the LLC and the other builder.

4. Do your documents call for their not being (or for there to be) owner meetings while under declarant control?

A - It doesn't even mention declarant control or transition... it just says that starting in May 2008 annual meetings would start being held and that elections would be held... The only thing it talks about is that the Declarant and any builders get 3 votes per lot until owner votes (1 per lot) match or exceed builder votes and then all votes convert to Class A votes (owner) at 1 per lot

But thats all water under the bridge really... just irritating

Our main concern is not having ADDITIONAL legal costs from the lawsuit he initated and recovering the money he spent if we can (we are a small HOA.. and he basically spent a years worth of dues on this)

We've actually asked that he send us a letter that he no longer has anything to do with the HOA's operation...

Paul

That's just it...we haven't been 'dismissed' from the case - the developer removed us before filing the initial complaint...

What we need to make sure he didn't do something just before he turned it over to us to entangle us in this... Like sign a letter of retainer with the new lawyer he hired as the HOA (the first lawyer he hired the letter was as the LLC... we don't know what he did for the second letter)...

So IF he did do the letter of retainer as the HOA... we hope we can simple have the lawyer contact the LLC and say that since the HOA is not part of the lawsuit as filed the HOA has directed the lawyer to stop all work on the case... If the letter of retainer is with the LLC... then we simply tell the lawyer GOOD LUCK... make sure you send the LLC the bills...

But we DO want our money back for the previous lawyer as we don't believe he should have used HOA funds for the lawsuit... since the letter of retainer was not with the LLC.

See my meaning?

Paul

I agree.

Remember in most cases there are two lawyers in the room. One saying yea....the other saying nay.

Many of them are sumbags. Often the only difference is one of them is my scumbag, not yours.

Paul,

I have never heard of a party to a lawsuit getting paid to "manage" a lawsuit. That is the attorney's job. In my state that might be considered an unauthorized practice of law. (I saw "might" because I have never heard of such an idea.) Check with your state bar to see whether a non-lawyer can collect a fee for filing a lawsuit.

Now for a reality check. Your developer wasted $14,000 of your money suing another developer. If you sue your developer to try to recover it, you will have to put up even more money with no guarantee that you will win and/or collect. Depending on a lot of variables, a lawsuit could easily take from one to five years to get a final judgment. I fully understand the principles involved here and would gladly break the developer's legs for you, but as a practical matter would it kill you to just move on?

I agree about the throwing good money after bad...

But I think we should at least try to get the money back...

I believe its the general attitude of just letting it slide is what makes developers feel they can get away with anything...

I agree. There was no we.

He would not be the first declarant to take all the money when he turned control over to the homwowners. We can all see what has happened in the real estste market. Many that made their living in such have suffered financial disater. You cannot get blood out of a stone.

SusanW1 you are correct. There was no WE but only the developer. So the money that he used of the HOA's was technically his to spend NOT the members. They were just the contributors to that fund while under declarant control. I don't think they could get this money back as even though they contributed they weren't in control of the funds. It's a loss of the HOA due to bad spending of the LLC in control. If they did win, the money would just go back to the HOA's general fund and not back to anyone's individual pockets. Sorry no refunds...

It's just a bad taste left in the HOA's mouth but one that can be remedy by some wash...

Excellent idea about booking some time with the local prosecutor.

The developer ought to have some sort of licenses, such as real estate or general contractor. Each license comes from an administrative agency that normally has the means to enforce its regulations. You might be better off pursuing some administrative remedy rather than filing a lawsuit.

And just out of spite, your HOA should issue a 1099 to him personally for that $8,000 he took. If he fails to report that income to the IRS he can expect a visit from the feds. It won't put the money back in your pockets but you can fall asleep at night with a grin on your face.

Not good ... the problem is it potentially would make the taking legal as they then are then stating it was OK, you were paid, and here is your 1099.

Because a HOA is incorporated it does require an attorney to represent them in court. However IF the HOA does have a competent board member willing take on the responsibilty they could do it. However, how many people would trust someone who is NOT a licensed lawyer to represent them in court? A serious consideration when deciding the route to take.

All

In SC, no lawyer is needed to file a claim (must be less then $10.000.00) in Magistrates Court (Small Claims Court). One can use a lawyer, but not required.

If one receives a judgement (as in pay me) in Magistrates Court and the other party does not pay, then an automatic Judgement Lien is filed with the Clerk of Courts thus no lawyer is needeed to obtain a lien.

Laws can vary quite widely from state to state but most do have Small Claims Court and depending on the amount of money it can be one way for an HOA to proceed on non-dues paying homewoners.

That said. Liens do not, do not, do not, assure payment. Did I say do not????