Builder turnover of HOA to Property Owners

Started by PhilL5 • 17 replies • 2921 views

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PhilL5 (Georgia)
Posts: 10

Posted:

Property owners have been told that when turnover occurs we must pay $21,000 to the Builder....that the builder "loaned" this $21,000 to the HOA (a Management company chosen by the builder)...None of this so called "debt" has been shown in any financial reports to property owners to date...apparently this so called "debt" occurred in the past and without the knowledge of any homeowners.. This seems "fishy" to me..so far this is all the information that only "some" property owners have been given... Does anyone have any experiences, advice, knowledge with similar situations??? This is in the state of Georgia. Thank you for any info that you provide!

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Phil

Typically the Declarant should have, at a minimum, prepared a Yearly Financial Report and presented it at the Yearly Owners Meeting. The Declarant should have been putting money into a Reserve which would get turned over to the Association upon transition.

While I know some associations that got next to nothing turned over to them, I do not know of one that had to "buy" their way out from under the Declarant.

Do you have any Financial Statements? Begin there.

PhilL5 (Georgia)
Posts: 10

Posted:

thank you, John
The financial statements that the homeowners have seen thus far do NOT show the $21,000.00. Who is the Declarant?? Does Declarant refer to the Management Company that has been managing the HOA (prior to turnover which has not yet happened but is in the process)? It is the Management Company of the HOA that "borrowed" $21,000 from the builder. The Management Co of the HOA does have a very small reserve...which most homeowners think we should keep...Sooo why are how does reserve realte to the issue of this "so called $21,000 debt"?

KerryL1 (California)
Posts: 14,550

Posted:

The declarant is your developer.

It sounds like your developer has been setting a portion on your dues into reserves. Reserves are funds every HOA should keep so that when something the HOA needs to have replaced, there are funds for the project. Let's say there's fencing that is the responsibility of your HOA. Money needs to be set aside each year in a special account to replace it someday, or to paint it every so often. You also have other reserves components--perhaps a sprinkling system, clubhouse, pool, etc. They are need to be in your reserves study, which often is prepared by profession reserves analyst.

Ask you MC for a list of your reserves components.

Whatever reserves you have do not belong to the mgmt. co.,(MC) they belong to the HOA. The MC deposits the funds in a special account, keeps the records, etc. for the developer.

It is the developer who hires the MC. Once turnover occurs, the new HOA board of directors can hire a different MC is they see a need.

Either the MC or the developer need to provide something is writing to you owners that proves the HOA owes the developer money. Ask the MC--in writing--for evidence.

PhilL5 (Georgia)
Posts: 10

Posted:

kerryL1
thank you...Yes I understand the reserve funds...The issue is the so-called $21,000 debt that the homeowners know nothing about.... Are homeowners legally required to pay this $21,000 that they know nothing about which was between the builder and the management company HOA??

PhilL5 (Georgia)
Posts: 10

Posted:

typo correction
why or how does reserve relate to the issue of this "so called $21,000 debt"?

TimB4 (Tennessee)
Posts: 21,059

Posted:

Ask to see a copy of the signed note.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Hi Phil

It smells like your HOA is about to be turned over to the homeowners and there is $21,000 in a bank account somewhere that the builder/developer/declarant wants to get his hands on. Calling it a debt is just of way for the developer to justify getting his hands on the money.

Others who responded to your post have guessed that the $21,000 might be in a reserve account, but that may not be the case.

To simplify things in your own mind, it might be best to ignore the fact that the MC is in the middle of this. The MC is acting on the instruction of the developer - It's the developer who is calling the shots.

Regarding the supposed $21,000 debt, if the homeowners weren't notified that it existed when they purchased their houses and if there is nothing in the materials received from the MC about the supposed debt, then the debt would appear bogus. But if the bank account is under developer or MC control, then you probably want to prevent them from cleaning out the bank account. Go see a lawyer.

Sikubali jukumu. Read all posts at your own risk.

KerryL1 (California)
Posts: 14,550

Posted:

The reserves fund should have nothing to do with the $21,000 unless somehow & weirdly, the developer borrowed $21k from the MC.

As Tim, JohnC and I (none of us is in the legal prof.) all advised you need to see the actual written document that you Owners woe this $$ to the developer. Otherwise, it's just rumor and gossip. Make a written request to your MC.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By PhilL5 on 10/20/2014 5:30 AM
Property owners have been told that when turnover occurs we must pay $21,000 to the Builder....that the builder "loaned" this $21,000 to the HOA (a Management company chosen by the builder)...None of this so called "debt" has been shown in any financial reports to property owners to date...apparently this so called "debt" occurred in the past and without the knowledge of any homeowners.. This seems "fishy" to me..so far this is all the information that only "some" property owners have been given... Does anyone have any experiences, advice, knowledge with similar situations??? This is in the state of Georgia. Thank you for any info that you provide!

Seems fishy to me, too. As others have said, this is not a common practice.

An HOA is established by recording a declaration (the CC&R's) that requires membership and then filing articles of incorporation. While a development is under construction, the builder/declarant operates the HOA and pays its expenses out of his own pocket. This is a normal business expense. The assessments paid by buyers prior to turning the HOA over to the owners are normally used to offset some of the association's expenses.

The reality is that until control of the association passes on to the owners the developer is in control of the HOA's finances. If you believe that he is acting in bad faith (and it sure looks that way) your only recourse may be to seek an injunction and maybe even have a receiver appointed. This is going to cost you and the other homeowners some big bucks but you may be able to recover your costs by way of a judgment. An alternative is to wait until the owners are in charge and then sue to recover the money, but that assumes a new board of directors will be organized enough to hire an attorney and file a lawsuit.

Why $21,000? My first guess is that it is just enough money to make a theft worthwhile. If you try to recover the funds, $21,000 will be about the minimum your association will have to spend on a lawsuit to recover the money. If you sue, you have no guarantee that you will win, no guarantee that the court will award all of your costs, and, of course, no guarantee that you will ever collect a single penny of any judgment you obtain.

PhilL5 (Georgia)
Posts: 10

Posted:

LarryB13, thank you
So Far the homeowners have each paid ~$1200 (plus in Dec 2014 $400 for the year 2015)= ~$1600 each X ~120 homeowners =~$198,000 over the past ~2 years.
We have a brand new HOA board of 3 elected homeowners who have NOT yet formally told the majority of the homeowners about this so-called debt..I just happened to be on the newly formed "Holiday Decorations Committee" to hear our President mention this so-called debt issue....I don't think the actual changing hands has actually occurred yet...I thought the brief info provided by our Pres was vague...He said it was common practice for a so called debt like this upon turnover.. He said our builder wants us to pay over time..(continue to pay interest)....He said the board is negotiating this and will learn more later in a meeting.....Most of the handful of homeowners seemed to think that if we had to pay this, we would prefer to pay it in one lump sum....with every homeowner paying ~ $180.00 each...clear it out and get it over with...Our Pres said the homeowners are required to pay this so called debt...I questioned this..When I asked what the $21,000 was spent for, He said "landscaping"...Our subdivision really does not have much landscaping and what is here is NOT good..almost unnoticeable!! When eventually this is brought to the attention of the majority of the homeowners (I hope it is), I feel certain there will be many questions....It sounds to me like the builder wants a recalculation of the annual dues with a very small but permanent increase so as NOT to get the attention of the homeowners...which also tells me the builder knows they are trying to pull a fast one!! Our elected President is a nice guy...but in a situation such as this we need a bull dog..imo...we will see how this plays out and if you all wish I will update this forum on this!!?? thanks to all! Your input is most appreciated!!!

PhilL5 (Georgia)
Posts: 10

Posted:

Thank you KerryL1....According to what I've heard from New President of HOA, The MC borrowed $21K from the Builder...For more info See reply to LarryB13...The majority of the homeowners have NOT been told yet!!! I am hoping for more questions from other homeowners when we all are privy..This neighborhood is really great with good people who are nice but not suckers!!!

PhilL5 (Georgia)
Posts: 10

Posted:

TomB4, Thank you! ...For more info See reply to LarryB13...

PhilL5 (Georgia)
Posts: 10

Posted:

NpS Thank you very much!! ...For more info See reply to LarryB13...

KerryL1 (California)
Posts: 14,550

Posted:

But, how o you or does the president know that the developer used the funds he borrowed from the MC for landscaping or anything else that benefits your HOA? How do you know th developer just didn't blow this money on his own frivolous purchases??

You MUST see the documents that spell out this loan!!

PhilL5 (Georgia)
Posts: 10

Posted:

KerryL1,
You are 200% correct!!!
We don't....I told the HOA elected Pres that we will need complete transparency...He did not respond.... I am a little premature since the majority of homeowners have not been told yet...I hope they will be told something soon...hopefully after the elected 3 member board meets with the builder/MC this week...So far very vague info....I am most certainly hopeful the 3 member board does not come to some agreement with them without getting input from homeowners first...

Yes. the homeowners need to see everything!! When the other homeowners are clued in, I will talk to some of them and we as a group will request to see everything...

KerryL1 (California)
Posts: 14,550

Posted:

If your Board refuses to obtain the dated, signed doc that spells out this debt and share it with homeowners, I'd think about recalling this Board. I mean it!!

PhilL5 (Georgia)
Posts: 10

Posted:

KerryL1, yes, I will research that also to find out how that is done!! I am waiting for the elected board to "announce" or somehow inform the homeowners...I am hoping for some skeptical reactions to the $21,000 alleged debt that the MC and the builder want to pass to the homeowners...Our subdivision has a web site and I made a rather general inquiry to "feel out" the mood and to get folks thinking...Lots of people viewed but no comments yet...I am hoping our elected board will give us some info soon...There really has been no open discussion by homeowners yet...the majority have no idea about this yet!!

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