Builder left our HOA in debt

Depends. You need to seek legal help to see what your options are. If the developer had a $100,000 bond you may be able to take it. There are also other legal methods, but they are specific to "your" situation. You need someone professional to look at all your options if you can't do it yourself.

It is time to move on and give up on pursuing the builder. It's best to concentrate developing your HOA and paying off it's debt it is left with. Which may not be the HOA's responsibility. I'd look into that first and foremost. There is a change of ownership and the builder was the owner at the time the debts were made. NOT the current owners which are you and your neighbors.

A HOA is ONLY funded by it's members FOR it's members. Any legal actions you want to take, will come out of the HOA's budget. Anytime you want to pay to collect on debts, it's coming out of the HOA budget. That budget is ONLY supplied by all the members. It doesn't even sound like your HOA is healthy enough to have gotten it's act together to meet it's current bills. Best to concentrate on setting up a collection policy such as "6 months behind we place a lien, a year behind we CONSIDER foreclosure". That way the 6 month mark the debt load usually equals the legal costs to make it worth pursuing. No use in pursing a $100 debt and paying out $500 to a lawyer to do it.

It is time to move on and give up on pursuing the builder. It's best to concentrate developing your HOA and paying off it's debt it is left with. Which may not be the HOA's responsibility. I'd look into that first and foremost. There is a change of ownership and the builder was the owner at the time the debts were made. NOT the current owners which are you and your neighbors.

A HOA is ONLY funded by it's members FOR it's members. Any legal actions you want to take, will come out of the HOA's budget. Anytime you want to pay to collect on debts, it's coming out of the HOA budget. That budget is ONLY supplied by all the members. It doesn't even sound like your HOA is healthy enough to have gotten it's act together to meet it's current bills. Best to concentrate on setting up a collection policy such as "6 months behind we place a lien, a year behind we CONSIDER foreclosure". That way the 6 month mark the debt load usually equals the legal costs to make it worth pursuing. No use in pursing a $100 debt and paying out $500 to a lawyer to do it.

It is unfortunate but it happens more often than what people think. If this is indeed a Condo the builder/developer may have had to fund Reserves either pursuant to the Declaration or mandated by state Law. Assessments may have been unrealistically low. In my opinion, you should seek the advice of a competent Georgia lawyer to evaluate your situation and determine whether you have a case against builder or not.

Yet another matter to investigate would be if your Condo insurance policy complies with an amendment to the 2008 Georgia Condo Act:

"In an effort to provide needed clarity to both associations and the insurance industry, the LAC undertook at the beginning of the Session to amend Section 44-3-107 to more clearly define what the association must insure. It was joined in this effort by the Independent Insurance Agents of Georgia, Inc. The result was HB 1121 which amends the statute to expressly require that the association insure all portions of each building which are common elements (including limited common elements), all foundations, roofs, exterior walls, including windows and doors and the framing therefor, and all of the following items, regardless of who is responsible for maintaining them under the condominium instruments: (a) the HVAC system serving the condominium unit; (b) all sheetrock and plaster board apprising the walls and ceilings of the condominium unit; and (c) the following items within the unit of the type and quality originally installed: floors and subfloors, walls, ceilings and floor coverings, plumbing and electrical lines and fixtures, built-in cabinetry and fixtures, and appliances used for refrigeration, cooking, dishwashing and laundry."

What does the management company have to say about the debt? They were supposed to be managing the finances.

It's customary to do a thorough professional audit when the association is turned over to the owners. Your finances have been mismanaged, so you need accounting professionals, not just lawyers, to determine the responsibility of the developer. I would look for an accounting firm with experience with condo developer transitions.

By the way, I would also look at everything concerning this developer: construction, promised amenities, review your insurance, and review any contracts set up by the developer, including your management company contract.

Lets assume that the developer did not steal funds from the association. If this is the case, then the current debt was primarily caused by delinquent accounts and low assessments in the past. It could be that the developer was trying to keep assessments low to attract buyers. In any case, the developer owned many of the units that were paying too little, and should be held accountable to pay more, according to your governing documents, state law and the audit.

Keep in mind that all of the units were paying low assessments, so you and the other owners will also be responsible to cover the shortfall, not just the developer.

Susan,

Larry's first statement was to "immediately consult an attorney."

He then offered an option that is certainly an extreme option, bankruptcy, but it is still an option.

He also went on to say that, based on the original posting, it's only $500 per Lot/Unit to cover the shortfall. Granted, depending the economic conditions of the area, $42 a month may be the tipping point for some.

He also suggested selling and moving prior to this issue having to be addressed on way or the other.

What I'm saying is, all he was doing is identifying the options. I don't think that informing people of their options is reckless. It's providing information that can help the OP make an informed decision.

There are consequences for every decision. The OP and other members of their Association are the one's that must live with those consequences. If all this site does is point out options and the consequences (as we see them) of those options, the OP can then make an informed decision.

Rather than simply stating that the option is reckless why not explain why, in your opinion, it's reckless. List the Pros and Cons of the statement you disagree with. Others may or may not agree with those pros and cons but at least the issue is actually being discussed.

To Dotti, the original poster of this thread:

The one piece of advice that is constant is to seek the advice of a local attorney. I know that you mentioned the debt may prevent the Association from seeking such advice. However, I do believe that it is money that needs to be spent. An hour consultation with an attorney may provide you with options that aren't mentioned here and will be minimal cost. The real expense would be if you enter into a contract with the attorney to exercise one or two of those options.

Along with almost everyone else, consult with the right kind of attorney ASAP.

Was the MC hired by the developer? It seems that your Board wants to meet with the MC, perhaps the president and the CFO, and ask them to "help" you "understand" your situation and how you got there. Ask for hard data not just a verbal explanation. Seek their advice.

Or does the MC only look after maintenance, etc.?

Examining the contracts with the vendors might show you whether the HOA owes them $$ or the developer, as suggested by someone else.

I would have done it for anyone.

I just hate it when individuals don't appear to be willing to actually discuss the issues and instead resort to . . . well lets call it sensationalism. . . in their style and choice of words. Often when that starts, the thread disintegrates into name calling and one-upmanship that simply doesn't help the original poster or allows anyone else to learn in case they have to face a similar issue.

Aw, John46. Susan's just trying to bait you/others with her crass shouting. Ignore her.

Quote from a leading Florida attorney and expert in FL Condo & HOA Law. It should be the last resort and only if Condo is "dire straights" and have "no other financial options", which I very much doubt is the case of the OP.

"First, an SOC (shared ownership community) cannot file for Chapter 7, liquidation bankruptcy. They can, however, file for a reorganization, usually using Chapter 11 (similar to Chapter 13, but it has a higher debt ceiling). The intent of the bankruptcy is to get an automatic stay on all debts while the association formulates a reorganization plan that will allow it to recover financially.

That said, bankruptcy is not a silver bullet. For one thing, as it involves lawyers and courts, it is expensive to the association–easily mid-5 figures for a full process. I know that’s a bit counter-intuitive, but the purpose of a bankruptcy of this type isn’t to simply swipe a wand and say “poof, you owe no money!” It’s a genuine business reorganization. As part of this process, there are new debts (legal fees and court costs) that will need to be paid.

Now, filing for bankruptcy puts a hundred different eyes on the board of directors that is running the association. The court and all creditors will be closely watching every single act and expenditure to determine whether they are reasonable and fall within the reorganization plan. The association will need to provide regular operating reports to the court to prove that it can carry itself forward, and any evidence of improper actions would subject the association to the control of a trustee appointed by the court.

If the bankruptcy goes smoothly, the association can come out of protection in as little as a year, and be back on its way to a healthier financial future.

So if you hear that your association is considering bankruptcy, don’t panic–it doesn’t mean that the entire world has been lost. There is a light at the end of the tunnel, but remember that tunnel can be long and expensive. So don’t jump into such a decision lightly, but understand that it exists to help associations who really are in dire straights and have no other financial options."

Carol,

Susan has made some very good points. As I stated earlier, I know little about bankruptcy.

It would not make much sense to spend 50 grand to try to avoid paying 50 grand that you still may have to pay anyway.

One thing of interest from what Susan posted:
"Now, filing for bankruptcy puts a hundred different eyes on the board of directors that is running the association. The court and all creditors will be closely watching every single act and expenditure to determine whether they are reasonable and fall within the reorganization plan. The association will need to provide regular operating reports to the court to prove that it can carry itself forward, and any evidence of improper actions would subject the association to the control of a trustee appointed by the court."

I wonder if this would also subject the debts to the same scrutiny. I suspect that many of the association's debts are the personal debts of the developer. It would be interesting to watch him squirm as he explains the sorry state of the association he turned over to the owners.