Can of Worms Half of Community is not Legally Part of the HOA

Lately I have been the bearer of bad news and have needed help for some real bad happenings. I again bring despair to the ranks here and ask for help.

I recently posted Former Board Members being investigated by Sheriff and FBI here is the link... http://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/144992/view/topic/Default.aspx

With all this going on I was presented with documents showing the second section of the subdivision is not legally part of the HOA. Our community was built in two phases by two different developers. After being presented with this info and being touted as the whistle-blower and known for being honest and fair I was forced to look into this.

After doing extensive research I found that our community and HOA are legally bound by covenants to our Phase I section only. Apparently the second developer who built the Phase II 6 years after the first Phase failed to have the land surveyed and recorded as an amendment to our covenant. Since 1994 those owners in Phase II have been paying dues, being liened, and governed illegally. After learning of this I was forced to notify the community about it and have to start releasing liens and stop all collections to Phase II owners.

After getting legal advice from an HOA law firm I have opt in docs that any owner in Phase II wanting to be part of the HOA has to fill out and file.

In the midst of all the other problems I now have to take this on. January is our month where dues are to be paid, we are broke from the recent theft of all our funds and now we can't collect dues form half of the community. Most refuse to opt in because of dues owed, and many our just fed up because of all the board issues just happening.

Our Phase I has the most liened homes with the largest back dues. The majority have not paid in years and will not pay. Most have state tax liens, medical liens and are under water with their mortgages so we will never see any money.

There are 72 homes in Phase I with 40% rentals. Our dues are $170 a year which most can't afford to pay and many do not. Most all the homes are under water so liens are worthless. Phase II has carried the HOA for years with the most paying owners. Now we do not have them.

Ok my question... If we can no longer collect enough dues to cover our expenses what do we do? My thought is we will have to disband the HOA and if that happens what do we do with the HOA property. We have swimming pool, tennis court, lake and large open areas.

Any help on any of this would be appreciated. We have no by-laws, and the covenant does not address any of this.

You close the pool (Don't drain the water). Lock it up and no longer use it. After that you close another amenity like the Tennis courts. Lock them up. If your streets are private see about making them Public. Start dropping off what drains the HOA. The HOA stops supplying the things people think they are supposed to have, they get a bit disturbed.

Now this is a hard pill to swallow and yes it is extreme. However, by starting out by closing the pool (Get a professional opinion on how to do this properly) you get reaction. People will want to know why they can't have something anymore. Simply explain that the HOA is ONLY funded by the owners FOR the owners. The amenities are NOT free and if you all want them, you have to kick in to pay for them. Otherwise, they have to go away. Explain also that the cost is split EQUALLY amongst ALL the owners so that the entire bill is a bit better to swallow.

I would have HOA classes/workshops for people to educate themselves on the HOA. Education goes a long way. Just take a section at a time to discuss. Don't tackle it all at once. Like tonight's topic is restrictions on paint colors etc.

Can phase 2 be separated from Phase 1? Let them make their own HOA or phase 1 be the master HOA with them as a subset. I would either add them or separate them. Depending on the situation. Which you know best.

Get the concept of what you think a HOA is. It is NOT a "property value" enhancer. It's purpose is to keep the properties in good consistent shape to ATTRACT owners to want to purchase in the area. You attract buyers, the more likelyhood you can sale the property over another house with no regulations.

It's time to move away from the legal situations and concentrate on getting things in working order. The past is the past. The ship has sailed. Time to pick up the pieces and improve what you got. If your going to run things to the rules then start doing that. Things will start shaking out once you do.

Thanks for the suggestions Melissa. The tennis court is closed due to the need of resurfacing. Because of lack of funds it has not been done and closed for several years. The pool is 23 years old and has needed a resurface for 6 years. It is close to being refused by the county inspector due to roughness of the surface. We were told it could open this year but that would be it.
Our HOA is very small and really do not have anything else to cut. We have insurance and utils really. The pool cost $4k a year just for open time maintenance. We really have not offered anything other than the pool for some time. In 2009 our subdivision was severely flooded hitting 30+ homes. Most have been repaired but there are still several that still need to be demolished. This community has never recovered. The flood, the financial crisis, we have dozens of foreclosures and empty homes.
Most homes are valued at less than $40k when they were $150k before the crisis. The rentals are 50%+ when they were supposed to be halted at 10%. The HOA went to sleep after the flood and since it awoke it has created nothing but problems in the last 1 1/2 years.
If we closed the pool the residents would use that as a reason not to pay. They have done that before.

Phase II is an add on. We were told they could opt in with a legal document that we have and then have it recorded in the county. Most will not because they are using this as a way to get of paying dues.

Tim
Yes, Phase II has access if they are paid current on dues and then they get keys to the pool. It is clear they are not nor have they ever been part of the Association. The streets are county streets.
As I stated to Melissa Phase II would have to opt in if they want to be part of the HOA. Most have not expressed interest in doing so.

I moved here in 2011, but in my investigation I found that this issue surfaced in 2008 and was swept under the rug and has not seen the light of day until it was dropped into my lap several weeks ago. I found documents from a prominent HOA law firm that looked into this and gave their legal opinion in 2008. I verified everything they stated and it is surprisingly easy to see the developer failed to have the second section added to the covenant. I would guess this was mothballed knowing we would be in the situation we are in now, had anyone looked into it. You know like the US deficit, keep ignoring it with hopes it goes away.
My issue with it is 68 homes were being charged dues, homes were liened when it was not legal. In all fairness to the homeowners they need to be told and given the choice to opt in.

The owners in Phase II have signed receipt of covenants. The problem is the covenant only secures Phase I.

It seems every day here adds another major issue and I for one am tired. The interim president resigned last week after claims of a defamation suit from the ousted members. The only officers left are the treasurer and myself. I have been doing everything for months and I have reached my limit. I am fighting on too many fronts and have been fielding criticism from owners because the authorities will not prosecute the thieves and I have been catching blame for everything that is happening. No one wants to be a board member.

I agree with Melissa about the value of an HOA and what it does for the homeowners but this community has become a rental community and the only buyers willing to buy a home here are investors. It seems we are a sinking ship and I can't bail water fast enough. No matter what we do will be wrong and there are always residents to complain and point fingers but will never help regardless.

Thanks for the suggestions. I am open to anyone with any ideas for us.

A further issue caused by this may be the need to refund assessments previously paid (or at least since 2008 when it was discovered).

Honestly, If the total amount is more than your deductible, you may want to submit a claim to your crime insurance for the missing money. Give them copies of the FBI and local police report and all the documentation. This will recoup some of the funds and the insurance company may bear the expense of going after the individuals in civil court to recoup their money.

As for the work load, you always have the option of seeking receivership from the courts. Of course this will increase assessments to pay for the receiver but may resolve the issues as the court ordered receiver will have more authority then your board.

As for expenses, you may want to donate the tennis courts and/or pool to the city or other organization (although in the condition you describe them in, that might not be possible).

I think it's time to start foreclosing the liens or garnishing wages/rents (which require a court order) to stop the bleeding. Then work on recovery.

Great suggestions. I am overwhelmed and I hope to be able to use some of these ideas and make it work for us.

I have a big question....Since we do not have by-laws and this has caused us so much grief I wonder if any of you guys know if an attorney is required to draw up by-laws or can I use by-laws from a nearby HOA as a template and tweak it for us and file it? We do not have the funds to have an attorney draw it up and if I can use these as a template it would greatly improve our position.

Can anyone comment on this.

I am in GA

Tim thanks for your help. Can the officers adopt it without a community vote? We normally can't get a quorum at most meetings and its a lot of work for nothing. Our covenant does not address it at all. I will check GA code to see if they have anything but if there is nothing I was hoping to implement them without a community meeting. There have been so many meetings called in the last 6 weeks and 10 people show if we are lucky. We did have the first quorum when we voted out the thieves but have not made a quorum since. We really need these because we lost the ability to prosecute the thieves for lack of by-laws.

Hi Tim

yep I verified there are no by-laws and there are no directors. There are Articles of Incorporation when the developer had it. When he turned it over there was never an official BOD so I guess it has never been legal.
All we have are 3-4 officers. That is all we ever had. According to how the law reads all corporations are required to have a BOD which this HOA has never had. I am now guessing that the Corp is not in compliance. What a mess.

The original developer was the only official registered agent. Since he turned it over the clubhouse address was always registered as the agent. What a mess

Larry thanks for the suggestions
At this point what needs to happen is this whole mess needs to either be fixed or busted. We are not in compliance as a corporation without BOD's, we cant write by-laws without a BOD, so we would have to change to a for profit entity and pay taxes on dues which I know will not be allowed here.

I am giving it my last effort but it looks like its all coming down to one thing, disband.
This community is over 60%+ rentals. We are a private home community not town homes or condos, and the only people that will buy these homes are investors for rentals. There are a dozen or more foreclosures coming and they will also sell to investors. It has become a rental community which scares away the potential resident owner. The condition of most homes are dismal. The owners either cant afford to fix them or they are rentals and will not fix them.

Maybe things do happen for a reason and this HOA time has come. I will keep at it until there is no longer anything that can be done.

I read the post about the court receiver but that will not work as most the homes in here are under water, including the homes with liens. The homes with liens (dozens of them) are so liened up with tax liens, medical liens, sheriff liens, we could never expect to get a penny from them. The homes without liens are so under water if sold the bank would be the only one collecting any money. It is a bleak picture that gets darker every day.

I am out of ideas.

I agree I am at wits end. I have scheduled a consultation next week. At least I knew enough for that.

My point on the liens, the owners owe so many people and that includes state tax liens that I do not understand how the HOA will get first priority when so many others are owed. I know the state always comes first. If they do not pay if directed the next action would be to foreclose and that goes back to my previous point. When all others are paid we will get $0 because the state, county and other court ordered judgements come before the HOA and then the HOA would have to pay to foreclose and get $0. This is my frustration.

The flood damaged homes that still stand a few are owned by the county. The county says they have no $$$$ to pull them down. Banks own the rest and say "sue us" which we do not have the money to do.

I do not see a county appointed receiver ordering the county to pull them down when the county says they cant.

I agree I have never worked with a receiver but I know you cant get blood from a stone and if the owners are under water, liens from state and county govt I do not see how the HOA can get a dime.

I may be guilty of what you mention, heck at this point I bet I am. Its tough fighting for a community that hides under the kitchen table and only comes out to complain. I am an army of 1 and this army is running out of ammo!

PH,

Build from the "ground up" before calling it quits.

1. Close the pool with full transparency of the motion and the fiscal problems.
2. Wipe Phase 2 property owners off your books w/ profuse thanks for their earlier commitment to the community.
3. Note all Phase 1 non-paying properties
4. Use any revenues coming from Phase 1 dues payers to keep the grounds mowed.
5. Lobby Phase 2 property owners to opt-in as their contributions should restore pool operations.
6. Explore locking out all non-payers from pool use (If the pool is really being used and enough cash flow can be restored)
7. Let the tennis court rot...for now.
8. Keep any residents who want to be engaged informed....they'll respect it even if they disagree w/ you.

If you keep the grass mowed in the common areas, that will be your biggest amenity. Your other amenities can be corrected w/ a bulldozer and pile of dirt....and don't be scared of such options. The developer may have have over-built for the type of community it constructed. $15/month for grounds, tennis and a pool in the Southeastern US, for the number of properties in your community, doesn't seem sustainable as is. You have identical amenities to my community. Large open space, tennis court (now converted into another use) and a 60,000 gallon pool....236 properties pay $40/month, which funds savings and other operations.

If your pool is popular, you'll get some response. If the pool is a take it or leave it w/ your community at large, then demolition. In your case, it will enhance property value for what it's worth given the hardships. Never accept dilapidation.

Wow! I thought I was the only one going through something like this. Our subdivision is under a Horizontal Property Regime (althought we have individual homes, the land is zero-lot). Recently I found documents that 60 homes out of the 396 were never submitted to HPR and by-laws. These 60 homeowners actually own their lots and were submitted to a CCRs. They were supposed to have their own HOA (called the XX Property Owners Association), which was started by the developer and disolved. Further, when the developer sold a home, he collected a year's worth of dues and gave them to our HOA which is called the XX HOA. We have collected dues, placed liens, taken care of common property within this area, and really didn't have the authority to do so. In fact, all 60 homes have titles showing they are under the HPR, but they are not because they were submitted to the CCR instead.

We are trying to get the 60 homes to agree to admend their CCR to allow us to continue to manage as we don't think the neighborhood needs two HOAs (difficult enough to find people to serve on one, costly to split the pool of funds, pull out the expenses related to those 60 homes, etc...). We will govern with their documents for those 60 homes, and the HPR for the others. Not ideal, but the best we could come up with. I need 90% of those 60 to agree in order to do this. We will have to go door to door for sure. It is going to be difficult. Althought, once I get their agreement,and file it with the register of deeds, a title search (when they go to sell their property) will show they actually own their lots which might be helpful and beneifical as a selling point.

To top it off, our subdivision was also flooded in 2010. I have people behind on their dues, high foreclosures, and bankruptcies. In the years prior to the flood, we were managed by a property management firm that sucked us dry, and did nothing--allowing collections to get to $50,000 (our dues were only $6 a month). For the past 1 1/2 years we have hammered at the past due amount. We worked out payment plans with people interested, the rest have liens and going to collections in order of how far they are behind (as we have the funds to pursue court costs, which we have to pay up front and takes a while for a judgement to trickle down to reimburse us). The past due amount now stands at about $28,000.

To get people involved and interested, we have held "clean up parties" two days a year where volunteers haul away junk left in driveways (stuff people can't take to the dump if they don't have a truck--our city will provide the dumpster for free), we have also cleaned common areas of trash from our flood (we allowed homeowners to work off their late fees at such events), hold quarterly board meetings at a church where all homeowners can come (haven't had that in years), organized community yard-sales, block parties, and delivered (by hand) a quarterly newsletter. We have also devloped a website. These things are mostly free, and since we haven't had funds to do a lot, it has helped to show that the HOA is trying to DO something. I tap boyscouts, churches, and schools for volunteers. Not above begging for the good of the community.

We also have erosion issues in the subdivision (and no funds to repair). We have walked these areas and mapped them. I am trying to get local engineering students to take us on as a project to come up with a way to halt, repair, and prevent the erosion with a long range plan we can put in place (in parts) as the funds are available.

I bug the city to death on property that has been abandoned since the flood. I even got the news to come and do a story. We also have a high number of renters now due to the flood, and we are looking for ways to make them feel like they are a part of the community so that they will have an interest in the neighborhood remaining nice (even if they don't own a part of it).

It is depressing sometimes, because after all this work, people still are mad at the developer, or the past management, or past boards. We had to go up on dues (not been raised in 20 years), and people are mad about that. However, we keep going. You need to win the minds of why it is important to keep the neighborhood looking good. Try to think of things you can do for the subdivision that make people think the HOA is valuable (like our clean-ups, or a neighborhood watch), that don't COST anything. There are things that can be done without a lot of funds that get people involved and let them see you are trying to work for the community. Don't let the rest of the city forget you are STILL recovering from a flood (it takes years).

Don't give up. I have been through a flood, put my house back together (and I am not a spring chicken), and we will see this neighborhood back to what it once was. We made it through a flood (and so have you). If you have done that, you can do anything. Remind your community of this. We are slowly fixing our mess while winning the hearts of our neighbors to get them involved, interested, and behind the HOA.

I wish you the best.

CC&R's typically take only a 90% vote to make changes and modifications to them. Those are the abosolute restrictions a HOA holds to. It's NOT that your making the other 10% do anything. It's usually that 10% of an HOA don't really care anyways. They are typically investors with rental property or non-participants who don't pay dues who don't have the right to vote. Your never going to get 100% in agreement in any situation in a HOA. That is why Majority rules. There has to be that determination of what counts as majority be it 51% or 90%.

I don't know about that. In the neighborhood I was in it was made up of 12 subdivisions each with their own C&Rs. When One subdivision tried annexing the other subdivisions with a majority approval, they argued to the judge that the covenants "urged" the homeowners to form an HOA so they didn't require 100% approval since they were an HOA fulfilling an option in the original C&Rs. The judge didn't entertain that notion.

IMO, if the covenants state that Association X is in charge and someone buys into a neighborhood understanding they are in Association X, I would still think 100% approval would be required to shift to Association Y, for that would essentially be a new neighborhood and a new set of covenants - not a simple amendment. I also see that it doesn't matter if the 10% are investors or apathetic non-participants. They are still owners and party to a contract.

Pam

A multi association, association is not uncommon.

I know of several large neighborhoods that have one master association that consists of several individual associations. As an example. On master association I know of runs from large private homes on deeded lots costing over $800K down to $80K condos.

Each association has its own Covenants, Bylaws, Rules and Regulations, dues, elected BOD, various contracts applicable to them like landscaping, elevator service, etc. Also each association President is on the overall Association BOD.

While they each have their own needs and issues, they do share overall amenities like pools, tennis club, parks, hiking trails, etc. Overall association membership is mandatory.

As I said, not uncommon.

Thanks for letting me know that this can work. What is so strange about the situation, is that there is no difference in the size of the homes in these sections, or bigger lots, or that they are grouped together! I hope things go well when we present to homeowners.