Declarant (developer) controls HOA - dues increasing by 60% to cover declarants net loss on HOA operating expenses

We are in a situation where the declarant (developer) is still in control of our community after 10 years. Obviously this neighborhoods sales were very slow because of the down economy and because so little homes were paying HOA fees the developer took on a large operational loss for the common areas every year leading up to now. This will be the first year we break even on our recurring costs, we have zero dollars in reserves and have about 10 lots left (which are selling fast). The developer shows that we have $264,500 in net loss on the balance sheet.

Last year our dues were raised from $700/yr to $750/yr in 2015. This was very reasonable based on a lot of factors and we are starting the year with a Reserve Study. We thought we were headed in a positive direction. That was until were just told today that our dues will be raised to $1,200 a year for 2016 or a 60% increase. A large reason for the increased dues is because they have added a $60,000 budget line item for 2016 to begin to pay themselves the net loss back.

I feel like we have no other options except to consult a lawyer but we don't have any money to do so. I thought I would get some feedback from members here. Some questions:

** Do any state or federal laws supersede whats in our CC&R? Sorry for the novice question! I can't find any real NC Laws around HOAs.
** Is that level of dues increase allowable? 60% seems absurd
** Why didn't the developer or builder have to declare at time of sale the debt that would need to be paid?
- I have read through NC's Disclosure act and the bottom covers HOAs in particular. Its very straight forward but I just read through my sales contract that I signed and it says "Seller does not provide a Property Disclosure Statement to Buyer" Yikes.

Obviously we are extremely frustrated as homeowners and trying to find any and all direction to possibly take a stand against the developer.

Thanks in advance to anyone willing to help!

As a background the CC&R states:

"Section 8. Budget Deficits during Declarant Control Period: Declarant may advance funds to the association sufficient to satisfy the defecit, if any, in any fiscal year between the actual operating expenses of the Association (exclusive of any allocations for capitol reserves) and the annual and special assessments for such fiscal year. Such advances shall be evidenced by promissory notes from the Association in favor of the Declarant and shall be paid back to Declarant if and to the extent that sufficient funds are generated by assessments in future years until such time as Declarant no longer has the authority to appoint the directors and officers of the Association."

Benjamin,

I am curious. What do you think would be a reasonable amount for the assessments?

My math says at $750 per year you were paying $62.50 per month. The new rate is $100 a month. That is a difference of $37.50 per month. Yes, it is a big increase when expressed as a percentage but in terms of dollars and cents it is chump change. To put this into perspective, my brother-in-law once lived in a 2-BR condo where the regular assessment was over $500 a month.

I do not know what common areas you may have or what it costs to maintain them but $100 a month does not on its face sound outrageous. Unless your declarant is scamming everyone, it appears that the owners may have had a free ride for a few years but now it is time to pay the piper.

I am in agreement with you that the developer set the HOA fees at an attractive rate to help sell homes. I don't feel that $100 is unjust as much as I feel that these new rates aren't benefiting our community and our reserve account. The issue of paying back the developers operating losses on the common area seems tough for us homeowners to understand when we all feel like this is an assumed risk. Even more so when those expenses stem back 10 years and many homeowners have been here 2 years or less.

When we have a 10 year old clubhouse, basketball court, pool slide, playground, etc. and the reserve study will help justify the raise in HOA fees. This $260k of debt being a main reason for the rate hike is the tough part. I am aware they could just charge each house a special assessment splitting the debt with each of us. We are more so trying to understand if charging the homeowners for this debt is something we can get out of paying or at least what our options are.

Thanks again for the feedback!

Ben

Time to lawyer up. If others are as upset as you are then you should have no problems building a war chest to hire a lawyer.

Don't see any statutory protection for you. Below are relevant sections from an NC attorney's website.

You might have a claim if budget wasn't provided as prescribed below. But if budget was provided, you have no issue IMO. The budget would have shown the shortfall that needed to be made up at some time in the future. Your contract sets your obligation to make up the difference. In your shoes, I'd take my lumps and not waste money on legal fees.

From http://www.lawfirmrbs.com/FAQs-About-NC-HOA-Condo-Associations-Part-I.cfm

25. What are the resale disclosure requirements?
The Residential Property Disclosure Act (NCGS § 47E) requires owners of residential real estate to furnish potential purchasers a Residential Property and Owners’ Association Disclosure Statement. The Disclosure Statement is not required on the first sale of a dwelling that has never been inhabited. Several questions on the Disclosure Statement concern associations the property is subject to and any outstanding financial obligations, among other things.

26. Does the Membership by Vote or the Board of Directors establish the Assessment?
Varies. (See Question #27)

27. Is a budget required?
For planned communities created on or after January 1, 1999, and governed by the NC Planned Community Act:
Within 30 days after adoption of any proposed budget, the executive board shall provide to all the lot owners a summary of the budget and a notice of the meeting to consider ratification of the budget, including a statement that the budget may be ratified without a quorum. The executive board shall set a date for a meeting of the lot owners to consider ratification of the budget, such meeting to be held not less than 10 nor more than 60 days after mailing of the summary and notice. There shall be no requirement that a quorum be present at the meeting. The budget is ratified unless at that meeting a majority of all the lot owners in the association or any larger vote specified in the declaration rejects the budget. In the event the proposed budget is rejected, the periodic budget last ratified by the lot owners shall be continued until such time as the lot owners ratify a subsequent budget proposed by the executive board. NCGS § 47F-3-103(c)

For condominiums (regardless of when created):
Within 30 days after adoption of any proposed budget for the condominium, the executive board shall provide a summary of the budget to all the unit owners, and shall set a date for a meeting of the unit owners to consider ratification of the budget not less than 14 nor more than 30 days after mailing of the summary. There shall be no requirement that a quorum be present at the meeting. The budget is ratified unless at that meeting a majority of all the unit owners or any larger vote specified in the declaration rejects the budget. In the event the proposed budget is rejected, the periodic budget last ratified shall be continued until such time as the unit owners ratify a subsequent budget proposed by the executive board. NCGS § 47C-3-103(c)

They neighborhood is 10 years old as of July of 2015 but last year the declarant told us that the board (developer) voted to stay in control until the last lot is sold. The developer told us "we wouldn't want to assume control yet anyways, we would be responsible for all of the debt immediately and for refinishing the community roads so they could be turned over to the county/city."

I am not saying they don't have a right to recoup the funds but it seems this isn't a common practice. Now it being such a large amount I get why they want to. My larger issue is that we have an aging community with zero dollars in our reserve account. They will charge us moving forward for this back debt but will leave us in two years with what could be a ton of repairs that we can't afford to fix. It has a potential to be totally fine but we also run a huge risk to be in some serious financial trouble.

It seems like the Section 3, Class A paprgraph (2) ship has already sailed. I don't think that is a matter that is votable. They're out.

Two, I think that since they didn't enact this promissory notes thsat they are due, they are also out. While they deserve the money, you deserve to be noticed and charged in a reasonble manner. It seems like they are playing catchup over a quarter of a million dollars.

Lawyer up with a good mean attorney ASAP

Agreed and thanks everyone on the continued insight. Your mention about the promissory notes is interesting and its called out in the CC&R:

"Section 8. Budget Deficits during Declarant Control Period: Declarant may advance funds to the association sufficient to satisfy the deficit, if any, in any fiscal year between the actual operating expenses of the Association (exclusive of any allocations for capitol reserves) and the annual and special assessments for such fiscal year. Such advances shall be evidenced by promissory notes from the Association in favor of the Declarant and shall be paid back to Declarant if and to the extent that sufficient funds are generated by assessments in future years until such time as Declarant no longer has the authority to appoint the directors and officers of the Association."

Trying to make sense of what exactly our options are is to get a lawyer. That much is clear. No one has never seen an amended CC&R when they "voted" to stay in control longer. I have never seen a promissory note and wouldn't know who is keeping track of them.

We are going to have to do a bake sale or neighborhood car wash to get the funding for a lawyer!

It should be easy for you to find out if the declarant recorded an amendment to the Declaration within 10 years of the original filing. If he didn't formally extend the date by recording an amendment, class B membership terminated on the 10th anniversary.

You have a right to see the promissory notes - those do not have to be recorded. Your Sec 8 does not give them the right to demand full payment upon transfer. The promissory notes might say something different. It could be relatively inexpensive to collect all these docs and bring them to a lawyer for review.

OH, boo hoo hoo !

We have to pay for the stuff you own.

Boo, hoo, hoo !

Sarcastic? Yes

Gruff? Yes

Accurate? YES!

Got a reserve study done. Said that each house should be assessed $1,500 over 3 years. Some folks had lived here 25+. Some were new buyers. Luck of the draw. Unfair? - Depends on who you ask.