Forming HOA in small simple sub legal question

Hello all,

I have been speaking to a the developer of the sub I live in, it was developed about 13 years ago, its a small 9 lot sub with all but one lot sold. We already have restrictions and covenants binded legally by the developer, but she moved away and they have never technically been inforced, and our street which was suppose to be up to county standards is not now. The developer is proposing signing over the last lot and the last amount of monies held at a title company in town with the agreement an HOA is formed to oversee power over the sub. I am going to have a meeting soon to introduce this proposal ( I am acting coordinator right now) and see what the neighbors think. If the decision is made to form an HOA, I would like to have information ready at that meeting to start the formation. I know nothing about this, but I am learning as I go. The type of HOA would be probably voluntary and no HOA dues would be assesed, since the primary reason is to help our neighborhood mainly abide by the covenants and restrictions and allow the county to assess and maintain our street that was suppose to be paved according to the bill of sales we all got. The HOA would be very simple that we would want to form, what legal matters must I look into, and what documentation should I present to the HOA members ( passing up the details of chairman and what not) to form this. I would appreciate any help I could get. From what I understand, the HOA would be welcomed for what we want to all do as residents of this rural subdivision. Thank you very much

I will be providing at the meeting a program of which what we will be discussing and if needed we will be skyping wih the developer if she agrees, I want to make this professional, but at the same time, we have all known each other a long time, and most of all the residents get a long to my personal knowledge, just an extra FYI

Now that I have time, I wanted to go over this in a little more detail.


The Authority to enforce covenants typically belongs to the each member and the Association. With only nine lots, if the current owners aren't willing to comply and/or enforce the covenants, perhaps the covenants need to be changed vs. expecting that those same owners would start enforcing the covenants under the authority of the Association.


Who is going to bring it up to county standards?

Typically the County won't take responsibility for the roads until the road has been brought up to code, inspected and accepted. The developer likely placed a bond with the County/City to make sure that this would be done. If the members take control of the Association prior to the County taking control of the roads, who will pay to bring the roads up to code?

Not the developer, he gave the roads to the Association and the Association accepted that roads as they were.


Once the Association takes control of the empty lot and roads, there is now common area that must be maintained by the Association. Are assessments enough to cover this maintenance and to fund a Reserve to continually maintain the roads in the future if the County doesn't take them over?


Good, then you should be able to answer the questions they have.
I've attached a list of things that should occur during a transition. Hopefully it will help you prepare to answer those questions.


I hope the meeting is a few months out.

Does State law require the Association have to be incorporated.
Should the Association become incorporated (the answer is yes)?
What applicable laws would apply? Don't know - see this link.

In addition to the Lots and the Roads, what other common area/amenities need to be maintained?

What would the expenses of the Association be?
What insurance is required?
Will a Reserve Fund be required?

What has to be done for the County to accept the roads?
Is the county willing to accept the roads?
If the roads are accepted, will there be a special tax district established by the County to pay for the upkeep of those roads?


If it's voluntary and no dues are paid, how will you pay for the:
Insurance for the Association (it will own the lot, it needs liability ins.)?
Maintenance of the common property lot the Association owns?
Property Taxes (if applicable to common areas)?
Printing and mailing of notices?
Federal Taxes?
State Taxes?

It's likely that the Association will need to be incorporated. Becoming incorporated creates a legal entity under the law. As a legal entity the Association gains some protections but must also pay federal and state income taxes and registration fees.


For legal matters, you need to consult with a local attorney who would have access to your governing documents and knowledge of Property and Corporate laws.


If I were a property owner in your Association, I would want the minimum:
Expected expenses
Expected assessment
Expected Budget
Pros and Cons of forming an Association (good thing to have this written down)


You also need to check into what an Association must comply with.
For assistance in understanding the laws (provided in an earlier link) see this thread.


Hope it stays that way after you explain the required financial commitment. With only 9 lots, the cost will be higher than if there were more lots.

Hope this helps,

Tim

Tim,

Thank you very much for your information, it will be very helpful. For the most part the lot mentioned that will be signed over, is one lot that another resident is willing to buy, and that would raise funds to incorporate the HOA. currently, the developer has told me that there is $6000 in escrow fund at the local title co that was used through all the sales of each lot. Besides the entrance signage there will be no "common areas" so we wont have to worry about upkeep. The County commissioner is coming to view our street that is in bad repair, and said that once we form the HOA we will have power to appear in commissioners court for the county to assess and possibly take control of maintanence of the street, and it will become an official county road. When each lot sold, under legal contract $2,000 of that sale went into escrow fund, so that is where the fund came from. We will talk about a due suitable to everyone based on ideas they give, and what is affordable. Simple and straight is what I am shooting for, and one of our residents is a licensed realtor I believe, so she might be able to help me. I am sending each lot owner a letter of proposal and then we will go from there. If we can avoid the cost of an attourney that would be more desirable. We will cross that bridge when we get there. As far any utility bills, we have no street lights ect so I dont think that part will be a problem, I will check with the county to see about any other legalities that need to be addressed, before the meeting, that way I will be able to answer at least I am sure most of the questions that may be asked. I look for a 100% attendance, since this is of interest of all residents, andn I was just the one that took the initiative to start it. Any other information you might think would help would be greatly appreciated. Thank you once again for your time.

Kory R

Umm... that sounds like a common area to me.

Steve, the street is not going to be a common area if our county takes over maintenance, just pointing that out!
and I said BESIDES the entranc signage, there would be no common areas. We are trying to form an HOA now, and the decision for a signage hasn't been a discussed topic, so please read what I was saying before replying. Thank you kindly.

Thank you John for your reply, this is true.
I am hoping it will turn out close to what is being proposed we will see.

Kory - Take note of Tim's statement "To me it appears that the developer is trying to wash their hands of the responsibility of completing what they said they would do and is looking for the members to take over that responsibility and cost. We are just trying to point out the issues we see so you and your neighbors can make an informed decision." I would suggest you get some estimates for the roads to actually see what the cost would be. Work to get the County to take the road over. This will save your community lots of money in the future. Check with an Attorney to see what the fee would be to handle all the paper work for the transition. You have taken on a very large job. I commend you on stepping up. I do suggest legal help to protect yourself and the other homeowners. One meeting with an Attorney is worth the expense. (I feel this should be brought up at your meeting that all homeowners help with the expenses until the developer does turn everything over to them. An Attorney may have some suggestions regarding his fees.)

Thank you all for your replies, and help, I am definitely learning as I go here. I understand now what you were saying Steve, I apologize for sounding rude.
The developer is def trying to (offload) the sub to an HOA. however, this is our only option other than carrying her to a court and suing her for not following through with what she said would take place in our bill of sales, and Cov and restr. I have spoken to the neighbors and this is not the option they want to take.

The County commissioner that is coming to view the street this week didnt disclose any information ( and rightfully so I know) but he did say that he would speak to me regarding the counties intentions if this is what the sub wanted, as far as us ( HOA) paying to get it to county standards, I believe that might be possible maybe with the sale of the last lot and and the remaining amount of escrow funds. The street is approx by contractors measurements 654 feet long not including a optional cul de sac or dead end. end of last year I got 3 estimates all ranging greatly, so that part was taking care of, of course she (developer)declined all the bids.

I suppose until a decision has been made on the common areas ( which I am learning here about) I will at least try and research that information and have it ready for the HOA meeting.

I do have a question if anyone knows.... Now I know how to incorporate like an LLC, but where would I find forms for the actual legal binding of the HOA if so decided? I apologize for sounding ignorant here, I am doing the best I can on my research. Again thank you ALL for your help and replies.

Kory