Developer use of HOA funds

Started by GeorgeZ • 9 replies • 1733 views

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GeorgeZ (Ohio)
Posts: 2

Posted:

It recently came to light in our community that as part of the demands by the city for our developer to annex and finish the final Phase of our subdivision, the developer was required to perform improvements to the common space that was set aside for the neighborhood.

To meet these requirements, it appears that the developer took monies that were collected as part of the HOA fees and used these funds to add trees, mulch and other improvements to the common space, thus fulfilling the requirements of the city and allowing them to proceed with their development activities.
The developer did send out a communication to the community that because they were doing so well with managing the funds for the HOA that they were going to perform improvements to the common areas for the benefit of the community, and did not in any way inform us that this was to meet a requirement for the city.

The question is: was the developer within their rights to use these funds the way they did, and do we have any recourse to get reimbursement for these funds.

Thanks!

MarkM31 (Washington)
Posts: 494

Posted:

Only your CC&Rs can answer that question

SheliaH (Indiana)
Posts: 6,964

Posted:

If the developer is still running the community, it may be within its rights to do whatever’s they want with the HOA fees until it turns the community over to the homeowners, and then the money should be used to provide services as listed in the CCRs (which may require landscaping services such as pruning trees and lawn care). If the city required the improvements, they might not have had any other choice.

Is (or was) there an issue with the developer doing this instead of something else that was supposed to be covered by the HOA fees? Did you ask the developer these questions? What was the response?

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

JeffT2 (Iowa)
Posts: 880

Posted:

Developers cannot do whatever they want with HOA funds.

Go to the city planning department (whatever name it goes by in your city) to ask them about it, and find out what the developer promised in the plans submitted to the city.

Ask the city to intervene to get the money returned to the HOA (if it was not spent properly).

Most associations are incorporated. The nonprofit law says that directors must act in the best interests of the corporation (HOA), and not in their own interests, and also describes the circumstances and criteria for payments that are allowed and not allowed under the law.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By JeffT2 on 03/01/2017 8:58 AM
Developers cannot do whatever they want with HOA funds.

Go to the city planning department (whatever name it goes by in your city) to ask them about it, and find out what the developer promised in the plans submitted to the city.

Ask the city to intervene to get the money returned to the HOA (if it was not spent properly).

Most associations are incorporated. The nonprofit law says that directors must act in the best interests of the corporation (HOA), and not in their own interests, and also describes the circumstances and criteria for payments that are allowed and not allowed under the law.

Jeff

There is not a snow balls chance in hell the city will get involved. As written by the OP, while the developer is in control they probably had the control (votes) to do what they did. After all, the money was spent on the association.

JeffT2 (Iowa)
Posts: 880

Posted:

Quote:

Posted By JohnC46 on 03/01/2017 10:34 AM

You may be right, but the developer is still building out the development and will need city approvals.

Were these common improvements in the original plan that the developer gave to the city? If so, it sounds like the developer was not within his rights to use HOA money for development of the property.

I still say the city is the first place to try, partly because it does not cost anything, and cities tend to be responsive to blocks of voters.

JanetB2 (Colorado)
Posts: 4,219

Posted:

You need to make a trip to the City and get a copy of the contract they had with the developer (it also might be filed with your County Records). I know mine stated that the developer had to fence certain areas and put in common area before selling lots to consumers.

If you are a single family subdivision the Ohio state statutes for common area state:

5312.08 Common elements; maintenance, repair and replacement.
(A) Unless otherwise provided by the declaration, the owners association is responsible for reasonable maintenance, repair, and replacement of the common elements, and each owner is responsible for maintenance, repair, and replacement of the owner's lot and improvements to that lot, including the dwelling unit and the utility lines serving that dwelling unit.

(B) An owner shall permit agents or employees of the owners association and other owners access through the owner's lot and dwelling unit for the purpose of fulfilling the association's duties and obligations. Any damage to the common elements, lot, or dwelling unit due to that access is the responsibility of the owner that caused the damage or the owners association if it is responsible for the damage. That owner, or the owners association, is liable for the prompt repair of any damage and, if not repairable, for the value of the damaged property or item as it existed immediately prior to that damage.

Potentially they only reference "maintenance", "repair", and "replacement" because a developer is supposed to have included costs of initial "installing" in the cost they recuperate via their selling of the lots / homes.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Also, keep an eye on your local government upcoming meeting agenda's. A developer usually has money in escrow with the local government to properly complete the subdivision. At some point the developer will file to have that money released and if there are any issues the homeowners need to fight to not have it released until any issues are properly addressed.

GeorgeZ (Ohio)
Posts: 2

Posted:

Thanks everyone for all your help.

The Developer has not been responding to any of our correspondence anymore, and it turns out they have just turned over control of the HOA to a Managing Agent, thus further insulating themselves from anything. I am sure that they have covered their collective asses in this instance, and by saying that because they had done such a good job managing the HOA that they would now have funds to mysteriously plant trees in the large common area that before that time they had pretty much completely ignored.

I will take a trip down to the City Planning office just for the sake of my sanity, and see what I can find out.

thanks again!

JanetB2 (Colorado)
Posts: 4,219

Posted:

George:

In case you have not reviewed here is a link to Ohio HOA Statutes:

Planned Community HOA: http://codes.ohio.gov/orc/5312

Condominium Property: http://codes.ohio.gov/orc/5311

I would recommend printing the section you fall under and reading many times with various colored highlighters. When you see the words Developer or Declarant highlight in one color, when you see Owner highlight in a different color, etc. Also, pay attention and potentially highlight in another color words such as "shall" or "must" as these words in legal terms are absolute. If the state law notes something "must" or "shall" be done, unless it defers to the governing documents then the state law supersedes. Sometimes a developer will put items in CCR's which can end up null and void if it violates the state statutes. In my state I see this mostly in CCR's regarding Amending the CCR's. Developers neglect to put in CCR's the section in our state statutes which limits their right to amend if they have not reserved the right. Or, they will put a statement that they can amend everything in CCR's which violates other laws under the real estate statute of frauds. While they think they are being smart they actually are making those sections null and void and essentially screwing themselves because then they would have no reserved rights.

I just recently finished dealing with developers (original plus new one) who were slime bags, but believe me if you stand up for your rights you can come out not completely chewed up ... LOL. By the time second developer now is almost done building they were on their fourth attorney and most likely considered me a Witch with a capital B. The more you know your governing documents and your state laws the easier to defend your rights. Keep in mind "Knowledge is Power".

I wish you best of luck

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