Transition time??

Started by SteveS8 • 33 replies • 2298 views

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SteveS8 (New York)
Posts: 128

Posted:

We are in New York. Our community started building in 2006 and we are now to the point where the last building is about 4 months from completion. Our Offering Plan (prospectus) has not a single word in it about Transition, and the builder, who has a 4 to 3 majority on the board seems not to want to discuss it at all publicly.

We think we may be 8 to 16 months from being completely sold out, but absolutely nothing has been done yet as far as preparing for transition.

The builder has had a couple of meetings privately with the board in which he tells them that if we hire attorneys only attorneys will make any money, and he would be happy to recommend engineers that can go over the property. He also put out a hint that he may offer a sum of money so we do not have to bother with the process altogether.

Several other residents and I are very, very concerned that our community will be sweet-talked into allowing the builder off the hook without a thorough transition process.

I was interested in what you all thought about this situation and at what point the residents need to start this process so we are protected from any future problems.

Thanks,
Steve

DavidW5 (North Carolina)
Posts: 565

Posted:

Steve,

You are right to be concerned. We were in a similar situation a few years ago. We requested the developer controlled board to appoint a transition committee of homeowners. When they did not do so a group of homeowners began to hold meetings to plan for transition. We called ourselves the Homeowners Transition Working Group (HOTWG) We were careful in all of the information we emailed to residents to make clear that we were not an official committee and represented only ourselves. This process brought enough pressure on the developer board that they eventually appointed an official transition committee. That committee insisted on its right to select the engineering firm to conduct a transition audit, without interference from the developer. That audit identified 67 construction defects/issues. We got the engineer to provide us with the estimated costs of fixing these problems. Armed with information, after the official transition date, we started negotiating with the developer. We were able to reach a financial settlement with the developer for significantly more than our estimate.

Your state laws and your governing documents should specify when and how transition should take place. It is the owners responsibility, hopefully led by the owners on the board, to get an independent assessment of the condition of the common elements and to vigorously demand that the developer either fix any problems or provide funds to the association to have them fixed.

CarolR11 (Colorado)
Posts: 2,563

Posted:

To emphasize one part of David's fine reply, do not permit the developer to choose the engineer or other expert consultants (e.g., architects) that'll inspect your premises.

AllisonD (Florida)
Posts: 449

Posted:

Quote:

Posted By DavidW5 on 12/30/2013 7:43 PM
Steve,

You are right to be concerned. We were in a similar situation a few years ago. We requested the developer controlled board to appoint a transition committee of homeowners. When they did not do so a group of homeowners began to hold meetings to plan for transition. We called ourselves the Homeowners Transition Working Group (HOTWG) We were careful in all of the information we emailed to residents to make clear that we were not an official committee and represented only ourselves. This process brought enough pressure on the developer board that they eventually appointed an official transition committee. That committee insisted on its right to select the engineering firm to conduct a transition audit, without interference from the developer. That audit identified 67 construction defects/issues. We got the engineer to provide us with the estimated costs of fixing these problems. Armed with information, after the official transition date, we started negotiating with the developer. We were able to reach a financial settlement with the developer for significantly more than our estimate.

Your state laws and your governing documents should specify when and how transition should take place. It is the owners responsibility, hopefully led by the owners on the board, to get an independent assessment of the condition of the common elements and to vigorously demand that the developer either fix any problems or provide funds to the association to have them fixed.

How are you able to get a C/O when there are all those defects?

CarolR11 (Colorado)
Posts: 2,563

Posted:

Allison, what's a C/O ?

GlenL (Ohio)
Posts: 5,491

Posted:

Carol C/O: Certificate of Occupancy required before a dwelling can be occupied.

A certificate of occupancy is a document issued by a local government agency or building department certifying a building's compliance with applicable building codes and other laws, and indicating it to be in a condition suitable for occupancy.

A C/O depending on the workload of the inspectors is often "rubber stamped" if the builder is known to the inspectors or if there have been no problems with the builder in the past. Then again there are violations and there are VIOLATIONS, the first while technically in violation pose no serious threat to life and limb and are often missed by the inspectors. Sheetrock can hide a variety of violations if they are not caught beforehand. Then there are VIOLATIONS which pose an eminent threat, substandard concrete in a highrise for example.

Studies show that 5 out of 4 people have problems with fractions

CarolR11 (Colorado)
Posts: 2,563

Posted:

Thanks, Glen--I figured it was something like that.

Allison, as Glen pointed out lots of defects go unnoticed by building inspectors. They can be overworked, under-resourced, "trust" the builder, etc.

Our pathetic Board of Directors here at my HOA dragged their heels about likely defects for almost two years by using that very mantra: "But it passed inspection!" Need I add that our developer was on the Board too? A fundamental change of Board members kept us from exceeding the statutes of limitations on certain defects and we ultimately settled with the developer for over 4 million dollars.

DavidW5 (North Carolina)
Posts: 565

Posted:

Re: certificate of occupancy vs. construction defects -- the 67 items that the engineer identified were not building code violations. Rather they were issues like damaged concrete curbs and gutters, tennis courts that needed resurfacing, missing parking lot lights, etc.

DavidW5 (North Carolina)
Posts: 565

Posted:

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Steve

Most Covenants/Deed Restrictions will have some verbiage about transition timing. It might have a number of specific units sold. It might say within a specific time of when the last unit is sold. It might even have a specific date.

SteveS8 (New York)
Posts: 128

Posted:

John,
I have read the Offering Plan (Prospectus), all 478 pages, several dozen times, and I can assure you it says not a single word about Transition or Turnover.

Our builder has built many other developments, and I get the sense that he may have learned from his mistakes in the past and felt that not obligating himself to a date or number of units sold was in his best interests.

Even our homeowner board members (who are outnumbered by the builder's board members 4 to 3) tell us that they cannot do a thing until the builder says he wants to start.

Frankly, it sounds bizarre and I cannot understand how he can get away with it.
Steve

TimB4 (Tennessee)
Posts: 21,059

Posted:

Steve,

Is there anything in applicable NY condominium laws that would address turnover?

TimB4 (Tennessee)
Posts: 21,059

Posted:

oops, I expected that it was a condominium but you never specified. Therefore, let me rephrase the question:

Is there anything in applicable NY condominium or HOA laws that would address turnover?

FrankS10 (Kansas)
Posts: 276

Posted:

Steve,

Since you state you do have a Board, but it is basically controlled by the developers via a 4-3 vote, most states do require Board members to act in the best interests of the HOA membership. Obviously I do not know NY's laws; however, we face a similar situation here in KS where we have a Board but it is basically controlled by our developers and their allies. The membership has started to fight back with what some of us believe are self-serving decisions that either enhance their (developers and allies) personal situation or harass members who have challenged them by requiring the decisions be for the good of the membership. When we think it is easily demonstrated that they are not such decisions, we continue to report them to the legal controlling authorities.

DavidW5 (North Carolina)
Posts: 565

Posted:

Quote:

Posted By SteveS8 on 12/31/2013 9:38 PM
John,
I have read the Offering Plan (Prospectus), all 478 pages, several dozen times, and I can assure you it says not a single word about Transition or Turnover.

Our builder has built many other developments, and I get the sense that he may have learned from his mistakes in the past and felt that not obligating himself to a date or number of units sold was in his best interests.

Even our homeowner board members (who are outnumbered by the builder's board members 4 to 3) tell us that they cannot do a thing until the builder says he wants to start.

Frankly, it sounds bizarre and I cannot understand how he can get away with it.
Steve

Steve,

Its not unique. Here in Virginia the applicable state laws allow the declarant (developer) to maintain full control of the board of directors until the last unit is settled. In our case this was expected to occur in 2008 but with the housing bust, it didn't actually happen until 2010. Most enlightened builders allow the homeowners to gradually assume increasing control long before that point. But in our case the builder hung on until the last second.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Is the Offering Plan (Prospectus) the same as the actual Deed Restrictions (Covenants) which is filed with the deed?

SteveS8 (New York)
Posts: 128

Posted:

It is a New York condominium and the Offering Plan (Prospectus) includes the by-laws, declaration of covenants, restrictions, easements, charges and liens.
Steve

SteveS8 (New York)
Posts: 128

Posted:

Frank S from Kansas.
Could you clarify what you were saying about your board and having the minority vote and exactly what transpired?
Thanks.
Steve

TimB4 (Tennessee)
Posts: 21,059

Posted:

SteveS,

The following link may be helpful:

Transition published by the Foundation for Community Association Research

FrankS10 (Kansas)
Posts: 276

Posted:

Steve,

Our By-Laws allow for the developers to retain control until the development period is over, which in reality can be longer than selling the last lot as there is no time requirement to build after purchasing a lot. They also receive Class B votes for each unsold lot which gives them 10 votes per lot. With only 78 lots and 9 unsold, they maintain control still.

But KS laws require Board members to act in the best interest of the HOA membership, so we have started to force the issue that even though they have voting power if they serve on the Board they must adhere to applicable state laws.

RogerB (Colorado)
Posts: 5,067

Posted:

Steve,
Attached are transition guidelines we developed and have provided to readers on this Board for several years.

📎 Attachments (1):

⏸ Downloads temporarily unavailable

📝11224040571.doc(23 KB)

RayC4 (Virginia)
Posts: 173

Posted:

Quote:

But in our case the builder hung on until the last second.

Steve, I hate to appear dense, but what would you say are the primary motivations for a developer (such as yours) to "hang on" in that way? I would think the developer is looking to control things until he's crossed his break-even point, made some profit, and then split (leaving whatever headaches for the residents/HOA to deal with).

RayC4 (Virginia)
Posts: 173

Posted:

Sorry, this note above should have been addressed to David (in Virginia).

DavidW5 (North Carolina)
Posts: 565

Posted:

Quote:

Posted By RayC4 on 01/02/2014 2:08 PM

But in our case the builder hung on until the last second.

Ray,

Although we couldn't gather proof of this, it appeared that the developer was awarding "sweetheart" contracts for HOA services to businesses it held a stake in. For example, the company providing landscaping services to the HOA appeared to be a subsidiary of the developer. These contracts were substantially more expensive than contracts we were later able to award competitively for the same or better services. With the drastic slowdown of home sales in 2008 this appeared to be a source of profit that the developer did not want to give up. The developer also did not like anyone questioning this spending.

Dave

RayC4 (Virginia)
Posts: 173

Posted:

David, thanks for elaborating. From what you are saying, your 'post-transition' HOA budgets / homeowner assessments were probably LOWER than the regular assessments previously paid while under the builder / Declarant control. In the HOA world, that experience would be as rare as a brunette on FOX News Channel!

CarolR11 (Colorado)
Posts: 2,563

Posted:

Roger's list seems very helpful. I assume his "11) Current budgets and prior budgets" includes the budgets for the reserve account(s) as I don't notice reserves mentioned elsewhere.

Many HOA don't have a lot of reserve components, but still, it's important to know if the developer has accurately estimated the life of components and their estimated replacement costs so that enough is being set aside to eventually repair or replace them.

Some developers overestimate the items' lifespans and underestimate their replacement costs in order to keep dues low.

Our living nightmare example was cooling towers (they run all of our personal & common area heat pumps) on our twin-tower high rise roofs that were estimated to last 25 years and would cost $450,000 to replace. Well, they lasted 8 years due to defects in installation location and materials not up to professional standards. They also cost over $900K to replace as we had to rent the tallest crane west of the Mississippi to take down the old and hoist up the new ones. Good thing the statute of limitations hadn't run on that defect or we'd have been in serious trouble. But, happily, our settlement with the developer covered the replacement.

DavidW5 (North Carolina)
Posts: 565

Posted:

Quote:

Posted By RayC4 on 01/02/2014 4:28 PM
David, thanks for elaborating. From what you are saying, your 'post-transition' HOA budgets / homeowner assessments were probably LOWER than the regular assessments previously paid while under the builder / Declarant control. In the HOA world, that experience would be as rare as a brunette on FOX News Channel!

Ray,

Actually, we have kept the monthly assessment at the 2008 level. By re-competing every contract, hiring our own staff as direct employees, and greatly reducing waste, we have been able to:

Build an operating contingency of 20% of annual assessments
Fully fund reserves in accordance with the 2011 reserve study
Transfer surplus operating funds to create a Capital Improvement Fund for new amenities

Dave

SteveS8 (New York)
Posts: 128

Posted:

You guys have been great responding to my initial transition question.

Here is the problem from my perspective. It appears that the developer wants to put this off as long as possible. My guess is that, as we sit and wait to hire engineers, the statute of limitations kicks in on more and more buildings in our community since the construction began in 2006, and they intended to be all sold out by 2009.

Now, we have buildings which are over 7 years old, and we are likely sill another 8 to 16 months from the builder leaving.

However, we are an over-55 community and many residents could not care less about issues like this even though they may eventually be paying dearly. It is tough to put the situation in terms that they will understand because the builder and management keep telling them they have nothing to worry about and there is no rush.

I am sure many of you have transition horror stories similar to the ones Dave W and Carol R related above, and I think that is the type of information that may make many realize that we should not just sit back and wait.

If any of you could contribute such stories, I can relate them to my community, and perhaps be can show the community that they need to focus on this issue or pay dearly.

Thanks.
Steve

TimB4 (Tennessee)
Posts: 21,059

Posted:

Steve,

Rather than stories, have a reserve study done. Don't have it done by any engineer or firm recommended by the Builder but by one who may not have ties to the builder.

The Reserve study will tell you more than you need to convince others as it will have actual financial amounts associated with it that will need to be met. There is nothing more powerful than reaching into someone's pocket book.

OH, get this done as soon as you can so, if needed, you can make a claim on any performance bond the builder had to post to the city (as this would be reaching into the builders pocket book).

DavidW5 (North Carolina)
Posts: 565

Posted:

Steve,

I can provide you with copies of the emails we sent to all community members to raise awareness of transition issues. However, it is not appropriate to post them here as they contain names of companies and specifics about our HOA. If anyone on the forum can suggest how we can exchange private emails without posting our email addresses here, I would appreciate it.

Dave

TimB4 (Tennessee)
Posts: 21,059

Posted:

One, or both, of you simply creates an e-mail account with an e-mail provider (gmail, hotmail, yahoo, etc.) for this single purpose. Then post that address. since you will not plan to use that address again (or only use it for the purpose of this forum) it won't matter if the e-mail is posted on the forum or not.

I've posted my e-mail often in this forum and have made many friends by exchanging e-mails.

TimB4 (Tennessee)
Posts: 21,059

Posted:

This older thread within the forum it discusses another way to send private e-mails.

I do not know if it works or not (as I have not tried it). I only offer it as an option. However, even back when that thread was written, the suggested practice was what I offered earlier.

DavidW5 (North Carolina)
Posts: 565

Posted:

Quote:

Posted By TimB4 on 01/03/2014 7:12 AM
One, or both, of you simply creates an e-mail account with an e-mail provider (gmail, hotmail, yahoo, etc.) for this single purpose. Then post that address. since you will not plan to use that address again (or only use it for the purpose of this forum) it won't matter if the e-mail is posted on the forum or not.

I've posted my e-mail often in this forum and have made many friends by exchanging e-mails.

To: SteveS8

If you care to set up an email account as indicated above and post it here, I can send you some materials you may find useful in educating your community on the importance of preparing for transition.

Dave

SteveS8 (New York)
Posts: 128

Posted:

Dave,
I just created a Gmail account. The email address is [email protected]
If you send the info there, I will let you know when and if I get it.
Thanks so much for doing this.
Steve

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