Mechanics Lien

Our developer provided a clubhouse, indoor pool, and a separate lounge area as amenities. The clubhouse and the indoor pool, have had their share of regular problems, that have been fairly easy to correct. However, we have found out that the lounge area (more like an office, with internet access, a small game room, etc) has had a mechanics lien placed against it by a collection of contractors (seven), who are alleging that they have not been paid for services rendered. This amenity was the last to be turned over to the community, and we (board) was not informed about the issue. Actually, truth be told, the developer board, entered into an "indemnity agreement" with the developer, that states, that the association would allow them to handle the legal matters. Even the association's legal counsel was not informed, nor did he review the agreement prior to the developer's staff (the developer board) signed off.

Can an element be "turned over" to an association, not "free and clear"...? And is the association exposed in any manner by those actions? In other words, if the developer fails in court, and decides to fight this issue (lien) further, what are the options (worse case) for the association?

I would talk to an attorney. One that specializes in contractual law or HOA specifically. However, I would find out if the lien is against the developer or the HOA. If it is against the developer's company, then the HOA may not be responsible for paying off the lien. If the lien was filed against the HOA's name, then there is a definite issue. The homeowner's may have to pay off this "debt" to the contractors to lift the lien to get this area if it does get turned over to the HOA from the developer worst case scenerio.
Sounds like the developer is in deep doo-doo. The homeowner's may want to further their investigation into this developer history before agreeing to accept responsibility. I believe there is some "negotiation" room at the table when the developer comes in to turn it over to the homeowners. Make a list of the needs/requirements beforehand and bring an attorney.