transfer of commons without control

Bob, the homeowners do have the option of banning together and hiring their own attorney to protect their rights. True you have to pay for it out of your own pocket but if enough chip in, the cost goes down. I personally would start at your local city / county Zoning Board, before he turned a shovelful of dirt, the developer had to have his plans approved and more than likely post performance bonds to assure that the work was completed properly and to code. If he is not following the plan, show up en mass at the next ZB meeting and demand they take action. I also would get as many H/O's as possible to contact their city council or county commissioners, politicians thrive on donations from builders but fear ticking off the people who elect them more. Or more correctly I guess, fear ticking off the people who normally don't vote but if angry enough will turn out to vote against them.

Glen makes a lot of sense, Bob. But even if the work was completed to code, there still may be construction defects, which we found here.

We, too, had an HOA attorney who was hired early on by the developer. Even when our HOA got control, the HOA attorney continued to side with the developer and early Boards believed both the attorney & the developer's excuses or denial about certain things not being constructed to industry standards. Others of us got elected to the Board, fired the attorney and ultimately won a good settlement from the developer.

So, again in agreement with Glen, a bunch of you need to band together and consult with an attorney. You first want to know, I should think, whether your state statutes permit the developer to keep control till 2030! Exactly what are your rights as members of this HOA??

Is the Board of Directors still only comprised of the developer's "people"? How many units are in your HOA?

Carol:
Agree about defects even if approved and passed. This is our case as well. The dam does not meet the dam safety requirements but it is approved by state law if certain compensatory actions are taken such as extra monitoring, mandatory insurance for downstream damage in our case $45 million, etc. Also, core samples of one small section of road taken as part of an effort to fix a drainage issue revealed no sub base in some areas and other infrastructure original build issues.

Virginia sets no limit on developer control period so 2030 is legal. Our declaration states control will be passed when 90% of lots sold or 40 years whichever is first. There are about 440 lots left out of about 1400 total and lots are selling at about 1 - 3 lots/yr over the last 5 years or so due to the bad economy. Our HOA BOD has 7 members, 4 selected by the developer and 3 voted by residents. However, the resident directors always rubber stamp the developer's vote with no discussion about the issues since all that takes place ahead of time in email meetings. The HOA attorney advises them in a way that they have little choice but to vote with the developer since then the developer can claim that the residents support its actions. If the resident directors have reservations about rubber stamping the developer then those email discussions reveal that ahead of time and it never gets to a vote. The transfer of the commons was one of those situations where resident BOD members had concerns so the HOA attorney argued that no vote was needed and the developer could act unilaterally. The deed states the HOA desires to take possession of the commons even though there was no vote by the HOA which is a nonstock corporation and only the BOD makes those decisions.

Larry:

Here is the link to that law: http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+55-510 55-510. Access to association records; association meetings; notice. ,....
C. Books and records kept by or on behalf of an association may be withheld from inspection and copying to the extent that they concern:
,... 3. Pending or probable litigation. Probable litigation means those instances where there has been a specific threat of litigation from a party or the legal counsel of a party;

Bob,

I am also in Virginia. While we were under developer control we had many issues with the way the HOA was operating. Our only viable option was to publicize these issues to the members, the board of county supervisors and ultimately the press. A few of us consulted an attorney. His advice was to form a nonstock corporation and to send all communications out on the corporate letterhead. This was to prevent the developer from slapping the individuals involved with law suits. Even though such suits would not be winnable, we would have had to hire an attorney to defend ourselves. Since the corporation had no assets, there would be no need to defend a suit filed against the corporation.

It cost approx. $400 to have the attorney do the paperwork to set up the corporation. We each chipped in an equal amount. We then began to issue monthly "Dear Neighbor" emails to all members of the association (on corp. letterhead) outlining a single issue. We provided copies of those to our county supervisor. Since the developer hoped to get county approval for future developments, he began to, grudingly, make changes.

One of our specific issues was that there was a lien filed by one of the contractors who built the clubhouse. The HOA was operating the clubhouse and paying for all operations and maintenance costs although the builder still held title to the clubhouse. With the housing crisis causing the developer severe financial difficulties, we were concerned that the clubhouse title would get tied up in bankruptcy proceedings. We also worried that, if the clubhouse burned down, the insurance money would go to the developer, not the HOA. The developer ultimately satisfied the lien and transferred title to the association.

It is very frustrating that in Virginia the laws give the developer such complete control. Our approach is worth considering.

I think you have misunderstood the passage you quoted.

It does not mean that you cannot obtain any records if you have threatened to sue; it means that you have no right to view the association's records related to any pending litigation. You can still look at the books but you cannot read the correspondence between the association and its lawyer.

BTW, Larry, I think your interpretation is correct - I never read it carefully after the lawyer made those comments.

Bob:

The Virginia statute is not very well written so its intent is not as clear as it ought to be. To be honest, when I first read it I came to the same conclusion as you and your attorney. Upon re-reading it, I arrived at the conclusion that the association can only withhold those records that are directly related to pending litigation, such as correspondence with its attorneys or emails between board members.

I must confess, however, that my second conclusion is based as much on similar laws in other states as it is on the Virginia statute. Of the other state statutes I have read that require the association to allow members to view records there is usually an exception for attorney-client records relating to pending or active lawsuits. I do not recall any other state's statute that allows an association to lock the file cabinets because someone has threatened a lawsuit.

If the statute were to be applied as your attorney advised you, the association could deny everyone access to all records by merely asserting that someone threatened a lawsuit. And because the records are closed, you would just have to take their word that there was a threat of a lawsuit. In fact, the association could refuse to allow access to its records even if it was not a party to the threatened lawsuit. I find it hard to believe that that is what the legislature intended.

I don't know what your governing docs specify but ours said that during the declarant control period, any deficit in the HOA operating budget would have to be made up for by the declarant. If dam repairs cause a deficit, then the developer would have to pay (if your docs are like ours).

Is is possible that the dam is still on bond with the county? In our case there is still common area that has not been released from bond by the county two years after developer relinquished control. Bonds will not be released until developer meets the county requirements. If the developer fails to complete the work, the funds from the bonds will be used to do it.

David, we did have a similar provision but the developer added an update that removed it just before our HOA became a property owner. However, the suggestions by you and others to examine all the bonds covering the property our HOA now owns will be researched. I doubt that the developer didn't address that and another member here has been investigating that.

Larry, I was referring to the rights of the HOA corporation and not the individual rights of the members.

As for any individuals rights, any HOA member or a group of them can hire an attorney to advise and protect their rights due to breach of the declaration contract, illegal provisions in the declarations they all signed, developer violations of the law and so on.

But in this posting, I'm focusing on the HOA corporation's rights because of its widespread applicability perhaps across many states. It revolves around two key facts that are not disputed: declarant is in control of the HOA's resources and attorney, and declarant unilaterally transferred the commons to the HOA thus denying its constitutional rights to due process and equal access to the benefits of the rule of law as a property owner. By creating a territory within the USA which is now exempt from the benefits of the rule of law and due process for the HOA as a property owner that now can't defend its property rights under the law, it becomes a potential embarrassment to our nation in its efforts championing the rule of law and due process abroad. As for the dam, its transfer to the HOA without control of its resources and attorney creates a pubic hazard to the property and lives of others who have nothing to do with the HOA so is a harm to the broader community as a consequence.

Larry, if the developer is in a legal dispute with the HOA, and the developer still controls the HOA's resources then the HOA does not have the ability to defend its rights in a court of law. Thus the developer can transfer defective and incomplete infrastructure to the HOA which then can't protect itself under the rule of law. I haven't seen any evidence yet that this is normal or legal - but that is the question in this post - has any other HOA seen this before?

Larry, perhaps you are aware of one in this country. If so then how did the HOA protect its rights?

The articles of incorporation of the HOA corporation limit its powers only to the land or territory within the boundaries of the subdivision as specified by the deed. So when the HOA is denied its rights to the benefits of the rule of law then any purchaser in that territory would be caught by surprise since there is nothing in the association documents stating that exemption from the rule of law.

It also creates a public hazard to those outside the territory when a high risk dam is involved and there is no way for the HOA to fix it. Normally a dam owner has legal control of its operations so can he held accountable in a court of law. In our case, the developer did but the new dam owner, our HOA, now does not. This mismatch of capability to accountability when property (both public and private) and lives are threatened, creates a dangerous incentive for not fixing the dam. The HOA at risk can't do anything to reduce the risk if the developer doesn't want it to and the developer doesn't perceive the risk as his so will spend his and HOA resources for other "higher" priorities.

Virginia requires the owners of dams not meeting all their safety requirements to post the emergency plans for dam failure on a publicly accessible web site which has been done here. We have notified the state, the county and our representatives in both houses of this risk and are working for legislative changes to correct this problem.

Larry, you are probably writing many replies to help others in this educational forum so don't have time to reread what I have already written. But the distinction between the HOA and the HOA members is critical as you point out and well understood by me as is clear when you read what I have written. And therein lies the answer to your question about how the HOA's rights are being denied. You suggest that they aren't being denied since any HOA member "whose rights are infringed have access to the courts to correct the problem."

In other words, the HOA rights are the same as the HOA members' rights and there is where we disagree. As I said earlier and I quote: "The rights of the individual HOA members are not the equivalent or substitute for the rights of the HOA. The fact that any group of members can sue the developer doesn't address this issue."

The rest of your questions continue to substitute HOA member rights for HOA rights.

The whole point of this thread was that the HOA's rights as a corporation distinct from the HOA members - the corporations rights are being denied. The very first post of this thread states: "It seems there should a constitutional right for any corporation to have equal access to the law and due process for protecting its rights." I said corporation not HOA member.

Larry, I disagree that just because HOA members signed the declaration contract it is all legal with respect to either the HOA's rights or the HOA members' rights. A developer can write anything he wants into the declaration. There is no legal system of checks and balances to limit what is done to the HOA corporation's rights though there is a protection system for individuals.

Individual rights were violated in the past when the declarations excluded minorities which of course was unconstitutional, and now illegal and non-binding even though signed. The legal system worked and those rights are now protected. But what is the mechanism to protect the corporation's constitutional rights when individuals have no standing in a court of law to defend corporation's rights?

Contracts necessarily require a functioning rule of law as they are meaningless if there is no mechanism to enforce their terms and seek restitution for violation of terms or the laws that protect the parties' interests. Our HOA corporation is injured through compulsory and harmful contracts with the opposing party while it is under the control of that opposing contractual party who prevents the use of the HOA's resources to protect itself under the rule of the law.

Of course, it is illegal when the HOA is harmed by violations of existing laws such as its fiduciary responsibilities under the Virginia nonstock corporation laws to act in the best interests of its members.

But it is unconstitutional, when the HOA corporation is forced into harmful contracts with the developer while it is still under the control of the developer and is incapable of defending itself under the rule of law. The developer signs both sides of the contract: the developer or seller side where it gets the millions and the HOA side where it gives up the millions.

Over the last couple of years there have been two of these harmful contracts that the HOA could not fend off. In 2010, it was forced to buy the money losing golf country club with a $3 million mortgage that will cost the HOA about $6 million with interest. The deal included provisions that in effect forced the HOA to sell it back to the developer for about a $1 at any time the HOA and/or golf members couldn't handle the losses. Our HOA is still stuck with the mortgage for decades which was secured by the pledges of the members. So in effect, the developer who could not get more loans backed by the security of the lots he owned, turned to the assets of the HOA members' properties by exploiting a weakness in the current laws for HOAs.

That pattern followed again, two months ago when the developer dumped the multi-million dollar liabilities of the roads and dam onto the community with the transfer of the defective and/or incomplete development of those commons. Ultimately, those costs are recovered through assessments which in turn are secured by the HOA members' homes and could amount to many, many millions.

As you pointed out, law suits are expensive and uncertain so YOUR HOA which is in control decided not to take action. But at least your HOA has the benefits of the rule of law and can defend itself under the rule of law. Ours cannot since still under the control of the developer for many more years.

Our HOA couldn't resist the contracts that it was forced into nor can it get itself out of the harm it is in now - kind of the definition of the law of the jungle - brute force as opposed to the rule of law where parties are willing and can seek restitutions when contracts and laws are violated. Therefore, we are investigating the constitutionality of harming a corporation while depriving it of its ability to defend itself from that harm under the rule of law.

I'm not a lawyer much less a constitutional lawyer but it seems that the federal government must have a mechanism across the states that even when the states fail to pass proper legislation as appears to be our case due to the lobbying power of the interested parties (developer and HOA attorney industries), it, the federal government, can step in and force the rule of law in its territory nationwide. If such a mechanism exists, then that will probably be more effective than expensive and time consuming HOA member law suits. Besides, HOA members have no standing in a court of law to defend the HOA's constitutional right to the benefits of the rule of law which is really the root of the problem of our HOA's multi-million dollar losses.