Can Developer Use Dues to Pay His Expenses?

I own a vacant lot in a subdivision in TN, and I have been under the impression that we had an HOA, but I recently discovered that the Secretary of State office indicates that the HOA has been inactive/dissolved since at least 2010. I also learned that the developer never held any meetings and officers were never elected. Instead, the developer unilaterally appointed himself "President" of the HOA and collects all the dues, fees, liens, etc in the name of the HOA. None of the common property has ever been transferred to the HOA, but the developer says that he is using our dues to pay for the taxes, insurance and maintenance of the common property, which is actually owned by the developer's for-profit company.

My questions are:

1. Can the developer conduct business as the HOA if one really doesn't exist?

2. Can the developer use dues collected in the name of the HOA to pay expenses for the land that he owns through his corporation?

Please help!

The first problem is that the HOA is inactive/dissolved, so he should not be conducting business as an inactive company. He hasn't filed the annual reports, held a meeting, or given the property owners financials since the development was started in 2007.

The second problem is the developer is using the HOA to pay the expenses of the property that his for-profit company owns. The developer may say that the dues are going to pay for the expenses related to the common property, but until he transfers it to the HOA, he can sell the property, including the clubhouse, which would leave the property owners with only their lots. I just don't think he should be able to own all the property but expect us to pay for the expenses. He's not going to give us the profits if he decides to sell all or part of the so-called "common" property in the future. If the property had been transferred to the HOA I wouldn't have a problem with our dues being used to pay for the taxes, insurance and maintenance expenses.

The C&R's do reference an HOA and it says that the HOA has the authority to fine and assess homeowners. I won't have a problem with the HOA fining and assessing homeowners, but I do not want the developer to unilatterly fine and assess homeowners, as well as place liens against homeowners. The developer signs letters and invoices as "President of HOA," but in reality there is no HOA in my opinion, as there have never been elections and it was dissolved with the state. I told him that I was going to withold my dues until the HOA was reinstated with the state. The developer won't provide us with financials to show where our dues are going, and I'm concerned that they are not being used for the HOA. I don't know what else to do.

I don't have a problem with the developer making a profit when he sales the lots that he owns, but he has a fiduciary duty to use our dues for the best interests of the HOA, not himself or the corporation. Right? Are you suggesting that the developer has the right to collect dues on behalf of a nonprofit HOA and transfer the excess to his for-profit corporation at the end of the year?

When I purchased my lot I was told that there was an active homeowners association. I was given covenants that said our dues and fees would be paid to the association. The association was active until 2010 at which point it was dissolved. I would have never purchased as lot if I had known that the developer would be able to unilaterly dissolve the HOA and begin collecting the dues personally. The covenants don't say that the developer can collect the dues if the HOA is dissolved, so how can he do this? Why doesn't he just reinstate the HOA with the state? At least at that point his fiduciary duty is more clear and it seems like it would make it easier for us to file a derivative action against the HOA to enforce the covenants. Under the current arrangement, the developer claims to have the authority of the HOA, but he doesn't want the accountability that comes with it. Can you take a look at my othe post and offer an opinion there too?

Thank you. I will try the complaint route first. Some of the other property owners understand the issues and they're on board.

It seems bogus to me that the developer is signing letters as the "HOA President" when there really is no HOA. It's just the developer himself collecting dues, fees and filing liens. I just think he should have told everyone on the front end that he let the HOA go inactive with the state, and he was going to continue conducting business in place of the HOA. Even to this day he is telling property owners that we do have an HOA, but it just doesn't have meetings, elect officers and he makes all the decisions. When we purchased our properties we thought there was a real member-elected and operated HOA.

I think the developer would say that the HOA is under declarant control. He keeps saying that he maintains 100% control of the subdivision until 66% of the lots have been sold. The only thing that I have found that might give him this authority is the following provision in the covenants:

"Amendment: Anything contained herin to the contrary notwithstanding, the Owners reserve the right for the Owners, or the Developer, its successors and assigns, if the property has been conveyed to it by the Owners, to modify, release or amend all the covenants and restrictions contained herein until such time as Developer has sold all of the Lots; and thereafter these Declarations may be modified and amended by the vote of at least 66% of the owners of all Lots then subject to this Declaration, each such lot to carry one vote. Any such modifications must be in writing and filed for record in the Register's Office."

I guess his logic is that since he can make amendments, he can do anything that he wants in the subdivision. In the case of Phase I the developer sold all but lots 1,3, and 4, which he resubdivided and placed the part of the resubdivided lots into Phase IV. It seems like he is intentionally holding on to lots in Phase I for the sole purpose of maintaining control of the covenants for Phase I. I'm sure he'll just hold onto the three lots in Phase I and just start new phases where he will sell lots and hold the lots in Phase I until the end.