HOA Dues for Vacant Lots

Started by KL4 • 9 replies • 2651 views

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KL4 (Georgia)
Posts: 15

Posted:

Well this actually isn't a new topic. I saw another post about this back in 2009.

I have been exploring the idea of obtaining a Declaratory Judgment to settle our issue once and for all.

Our deed restricted community of 140 lots, has only 89 homes. The other 51 lots were purchased by an investment firm in a foreclosure sale back in 2010. This company refuses to pay dues on the grounds it has builder exemption. After checking with the Sec. of State online, no one named in this company possesses a contractors license. Their next excuse was that because they owned a grading company they are exempt by proxy. Anyway, during the process it was discovered that the previous owner (from 2006)of all those lots had gone through the annexation process but it was never recorded as a Supplementary Declaration at the courthouse by the HOA president. This is required per the CC&R's. And yet, the investment company's security deed specifically subjects the property to the covenants even though those lots have never been officially recorded as being annexed, which is an error.

After wasting time and money on an attorney, the board's position is that if they aren't subject to the covenants and subsequent dues, that's fine. We feel the ball is in our court now because if they want to be annexed as being part of our swim tennis community it's going to cost them. The hitch is determining the soundness of their "builder exemption" claim.

So here's what we need a judge to determine: Is an investment company(who is not a builder)exempt simply because they own another company that operates a grading company? BTW, no one listed as an officer of that grading company has a contractors license either.

MatthewW4 (Arizona)
Posts: 500

Posted:

KL,

Based on what you wrote I do not think you have a very strong case.

The problem is that the original developer did not record the annexation of those 51 lots, so they are not part of your association. You acknowledged that the statements on the deeds that the lots were subject to the deed restrictions was an error and that is an issue between the seller and the buyer, not between the seller and the HOA or the buyer and the HOA.

Whether the current owner is exempt from assessments under his claims of being a builder is a moot point if the lots are not part of your association.

TimB4 (Tennessee)
Posts: 21,062

Posted:

The question would likely become, did the investor purchase the lots as an investment or did they assume the role of developer and as such inherit the rights of the developer?

KL4 (Georgia)
Posts: 15

Posted:

The current owner purchased the lots on the courthouse steps as a group. When the former owner (not the original developer, who also purchased them on the courthouse steps) had them, it was not his responsibility to record the annexation. It was the responsibility of the HOA president according to the covenant protocol for annexing additional property to the subdivision.

I agree, right now it doesn't matter if they claim builder exemption because they are not technically part of the subdivision. However, even though an error (they are unaware of this at the moment) their security deed would suggest intention to be part of the subdivision. Therefor, in anticipation of correcting the deed and holding another vote to annex them in, I think it should be clarified once and for all whether they, as an investment firm, can be considered a builder by definition. Because as it stands our covenants do exempt builders from paying dues.

KL4 (Georgia)
Posts: 15

Posted:

Tim,

The company is an investment LLC whose acting agent works for a huge commercial/residential real estate investment outfit. They could not assume the role of developer nor inherit the rights thereof unless the lots were conveyed to them by another developer, which it not the case.

MatthewW4 (Arizona)
Posts: 500

Posted:

KL,

I would have to agree with you that the company that now owns the vacant lots is an owner and does not possess the declarant’s rights for exemption from assessments.

But this remains a moot point if the lots were not properly annexed to your CC&R’s.

Annexation is normally done by the declarant and those who owned the property at that time must consent to being annexed. No one has a right to compel another to accept the CC&R’s.

I understand the situation to be as follows:
There was an agreement between the former owner and the HOA to allow annexation of the lots;
The HOA was required to record the annexation agreement;
The HOA failed to record the annexation agreement;
The former owner went bankrupt and his lots were sold at public auction to the current owner.

If these facts are correct, the previous owner’s agreement to the annexation is not binding on the new owner as it was not recorded. The HOA itself, by failing to record the agreement, deprived buyers of a required notice of restrictions on the property. Your association cannot unilaterly impose its restrictions on the current owner no matter what the unrecorded intent of the former owner was.

BTW, my own development has been annexed over 35 times as the declarant continues to add new parcels. My HOA plays no role in these annexations as they are agreements between the declarant and the property owners. The HOA neither approves of the annexations nor records any documents.

TimB4 (Tennessee)
Posts: 21,062

Posted:

Quote:

Posted By KL4 on 05/08/2013 6:32 AM
They could not assume the role of developer nor inherit the rights thereof unless the lots were conveyed to them by another developer, which it not the case.

KL,

I think an argument could be made that if the developer went into foreclosure, that, expecting all the properties were sold as a lot and not individually, whomever purchased those properties at the foreclosure sale inherited the rights of the developer/Declarant.

Is this a valid argument? I don't know. That would be up to your local courts.

KL4 (Georgia)
Posts: 15

Posted:

I don't know how to single out specific text to reply to.

Matthew - yes, you have the facts correctly stated and I agree about not being able to impose restrictions, but what about the security deed that subjects the lots to the CC&R's? It's obviously an error, so how does it get corrected? Having it corrected matters to the board because it will determine how we proceed if this company intends to tie their lots to the amenities and could give us the upper hand when negotiating the "proper" annexation of their lots. We are currently funding the maintenance of their property at the back entrance.

As for your last statement, the original developer/declarant's authority to annex additional property expired in mid 2006, the same year the lots in question went back to the bank and were resold. When THAT annexation failed, the lots went back to the bank again in 2010. So really there hasn't been a declarant since the original developer.

KL4 (Georgia)
Posts: 15

Posted:

Tim,

According to our former attorney, banks cannot inherit the rights of a developer nor transfer them. See also the point I made to Matthew about the expiration of declarant authority.

MatthewW4 (Arizona)
Posts: 500

Posted:

Quote:

Posted By KL4 on 05/08/2013 8:10 AM
I don't know how to single out specific text to reply to.

Click on the "quote" button on the upper right of the message. Put your reply at the end. When you have done it a few times you will find that you can edit out extraneous comments.

Quote:

Posted By KL4 on 05/08/2013 8:10 AM
Matthew - yes, you have the facts correctly stated and I agree about not being able to impose restrictions, but what about the security deed that subjects the lots to the CC&R's? It's obviously an error, so how does it get corrected? Having it corrected matters to the board because it will determine how we proceed if this company intends to tie their lots to the amenities and could give us the upper hand when negotiating the "proper" annexation of their lots. We are currently funding the maintenance of their property at the back entrance.

KL,

It has taken awhile but now I finally see the problem for your association.

As a first step, I would advise both the current owner of the lots and the seller that there is a defect in the deed that has the potential to obligate your association to provide services where no obligation now exists. I would also offer to allow the current owner to formally annex his lots to your association but that he will then owe assessments for each lot. This may also require approval of the members of your association.

If the seller and current owner are unwilling to correct deed then I would suggest going to court and seeking a declaratory judgment. Either the lots are not part of your HOA and their deeds are defective or the deeds are correct and the current owner owes assessments.

The sooner you start the ball rolling the less damage will be done. The more lots he builds on and sells to others the more difficulty you will have this issue.

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