Developer Transition -- what happened to our "HOA initial fee"

Started by PaymonN • 5 replies • 1067 views

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PaymonN (Georgia)
Posts: 1

Posted:

Hi all,

Few questions. Our modest 20 townhouse community is getting ready for a HOA transition from our exceedingly dishonest developer.

1) We all paid in $3,000 as a "HOA initiation". Looking at the financials provided to us, we are getting an account with less then $20,000. Is that permissible?

2) The Developer is balking at fixing the curbs that have been ruined by construction trucks (this is a new community, new roads/curbs were put in). When they DO fix the curbs, can they [legally] use HOA funds to do so? Several of us in the community believe that they have used our HOA funds for road and construction clean up work.

Thanks

(State of Georgia)

LetA (Nevada)
Posts: 2,679

Posted:

Depends on what your "initiation" fee covers. Were you given a breakdown of what your initiation covers?
3 grand times 20 homes is $60K where is the other 40 going?
I don't know about the particulars, but usually the developer fixes all the construction blemishers like broken curbs and concrete utility vaults, then
goes after the offending sub.

All of the "fixes" are completed when the last unit is sold and closes escrow, then before the developer leaves your HOA managing company goes around with the newly elected BOD and blue tapes things that need to be fixed.

As far a funding the HOA your developer, depending on different state laws have to fund your reserves for "x" number of years in advance.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By PaymonN on 03/13/2017 2:11 PM
1) We all paid in $3,000 as a "HOA initiation". Looking at the financials provided to us, we are getting an account with less then $20,000. Is that permissible?

2) The Developer is balking at fixing the curbs that have been ruined by construction trucks (this is a new community, new roads/curbs were put in). When they DO fix the curbs, can they [legally] use HOA funds to do so? Several of us in the community believe that they have used our HOA funds for road and construction clean up work.

1) I assume you expected to find $60,000. Since the developer was in control of the association, he could lawfully spend any or all of the funds if he can justify it as a benefit for the members (as opposed to benefiting himself). You, as a member, should have a right to review the financials and see what happened to the rest of it. Realistically, just how much in dollars and cents are you personally willing to pay to try to recover the missing money? My advice would be to move on unless you are prepared to spend a lot to recover those funds.

2) There is a body of common law that says, in effect, the developer has a duty to turn over the premises in good repair. That means it is his duty to repair the curbs. My understanding is that this would be a repair to real estate that he has allowed to become damaged and association funds could not lawfully be used to as it benefits only him personally.

DouglasK1 (Florida)
Posts: 2,046

Posted:

As Larry mentioned, the developer typically has wide latitude to run the association as they see fit, and to spend association money. In addition to the initiation fee, I assume the developer was collecting dues so has been paid over the 60k in total. On the flip side, the fee and dues should have been going to upkeep of association common elements, hopefully they were.

Have you read your governing documents to see what it says about the initiation fee and if it says anything about how it is to be used? Personally, I would not expect the fee to just be an enforced savings account towards the reserves, so I think hoping that your fees are all just sitting there waiting for you is probably wishful thinking.

Ideally the developer should pay for any construction damage from their funds, not the associations, but unless your docs say otherwise, the developer could be within their rights to spend all of the fees for the fixes you mentioned.

Some jurisdictions require developers to post a bond that's not released until the city or county approves the completion (and accepts ownership of the infrastructure, if applicable). You might want to contact your city or county and see if a bond is in place, and what you can do to make sure it's not released until everything is right.

Escaped former treasurer and director of a self managed association.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Pay

When all is said and done, I expect the Developer will say/show they used the money to run the association in a legally correct and proper manner so you can kiss it goodbye.

JanetB2 (Colorado)
Posts: 4,219

Posted:

You need to look at your CCR's and State Laws. Most CCR's will note what the HOA Assessments can be used to pay. If sidewalk curbing is not noted then guess what that is not HOA responsibility. Also, in some states the State Law will also note what assessments can be used to pay. You should also check with your local government entity to see what their contract with the developer states. In my area this is called the SIA (Sight Improvement Agreement) which the developer signs along with $$$ the government holds until complete. If there are items in that agreement which the developer is to provide then you and your neighbors need to be sure to bombard the local government with your complaints before they release the $$$ they are holding back to the developer.

In my state the developer is responsible for costs regarding any property the developer reserved as the right to use during their period of Declarant Control. Which means the developer would be responsible to maintain and not the HOA ... this is why you need to check your State Statutes. Some states such as FL give developers excessive control and why I would not purchase any property in that state still under a developer.

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