Capital Improvement Transfer Fee used to pay debt

Judy

In your eyes, do all developments have to operate the same way? The buyer has to deal with your association, not one down the road.

In most cases when an association borrows money (debt), they pledge/secure the debt somehow, regardless of how they intend to pay it back. How that debt gets reflected/shown to a buyer can vary from state to state. In some states it would go against the title which I believe is shown as an encumbrance. In other states an Estoppel from the association would reveal it.

As your association is saying it will be paid back with a Capital Improvement fee paid by new owners, I am not sure it gets referenced back to the clubhouse project. It is simply a new buyer Capital Improvement fee which are quite common often in the form of a % (1 to 1.5% common) of the sales price. This makes it negotiable as to who pays it. The seller or the buyer.

This is a bad idea. Think about it. How many new owners do you get a year? Your HOA would have to have a pretty high turn around on homes or selling new homes at a pretty good clip would they not? The people who would best benefit could up and sale could they not? Then what? Leave the burden of this clubhouse bill on those new owners who had no voting rights to agree/disagree.

Taking out a loan for a HOA is very risky business. Your basically having every member taking out that loan. This should call more for a special assessment to put into the reserves fund to pay for this. What is the immediate need?

Personally, I wouldn't purchase in a development that had such a fee.

I interpret such a fee as potential financial issues for the Association or that the Association is trying to expand beyond the scope of the governing docs. A financial stable
Association wouldn't need such a fee (in my opinion)

AMEN ... same here ... I would most likely not purchase in such an HOA. Are you sure they already took out a loan ... or is this feed to be collected until money is there to pay for future Capital Expenditure? Here is one site I found discussing these type fees: http://www.thekolbteam.com/what-is-the-capital-improvement-fee/

I hope $$$ is going to an account for "future" possible expenditure vs paying a current loan. Because some states no longer allow some fees of this nature to be charged when homes are purchased. So ... If the State Law in future no longer allows and if a loan was already taken out ... that could put all other owners in a nasty bind.

I AGREE!!! ... I am hoping the OP misunderstood and that it is being set aside for future potential expenditure. The article I noted while does not state as fact seems to HINT that such fees are for future estimated capital expenditures ... not a current loan. OP should maybe get a quick attorney consultation on this issue.

Judy ... Do you fall under the Condo Statutes or the Single Family Home Statutes???

If you are condo your state law says:

33-1252. Conveyance or encumbrance of common elements

A. Portions of the common elements may be conveyed or subjected to a mortgage, deed of trust or security interest by the association if persons entitled to cast at least eighty per cent of the votes in the association, or any larger percentage the declaration specifies, agree to that action in the manner prescribed in subsection B, except that all the owners of units to which any limited common element is allocated must agree in order to convey that limited common element or subject it to a mortgage, deed of trust or security interest. The declaration may specify a smaller percentage only if all of the units in the condominium are restricted exclusively to nonresidential uses. Proceeds of the sale or encumbrance of the common elements are an asset of the association.

B. An agreement to convey common elements or subject them to a mortgage, deed of trust or security interest shall be evidenced by the execution of an agreement, or ratifications of the agreement, in the same manner as a deed, by the requisite number of unit owners. The agreement shall specify a date after which the agreement will be void unless previously recorded. The agreement and all ratifications of the agreement shall be recorded in each county in which a portion of the condominium is situated and are effective only on recordation.

C. The association, on behalf of the unit owners, may contract to convey common elements or subject them to a mortgage, deed of trust or security interest, but the contract is not enforceable against the association until approved pursuant to subsections A and B. Thereafter, the association has all powers necessary and appropriate to effect the conveyance or encumbrance, including the power to execute deeds or other instruments.

D. Except as permitted in this chapter, any purported conveyance, encumbrance, judicial sale or other voluntary transfer of common elements is void.

E. A conveyance or encumbrance of common elements pursuant to this section does not deprive any unit of its rights of access and support.

F. A conveyance or encumbrance of common elements pursuant to this section does not affect the priority or validity of preexisting encumbrances.

If as you stated there was NO vote of owners ... then owners could potentially stop the process. Potentially without owner approval the Board action could possibly be illegal. This is Condo Statute and not sure what the other statutes would state. But this is why I suggested you should consult with an attorney. Some attorneys will offer a "free" or low cost consultation. It would be worth checking out ... same as Tim I would not purchase a home under such circumstances myself. If you in future wanted to resell your home ... you could be facing a huge issue.

This is a "mandatory Social Club", something developers and their attorneys have made very common here in the Western US. It allows them to bypass HOA statutes. We have less protection than one would by belonging to fraternal club like an Elks Lodge, because at least there you could drop your membership.

Meeting with an HOA attorney this week. Our recourse at this point looks like a Recall of Officers followed by a complete review of the project.

The original Sun City in Arizona is a good example. They have no incorporated "city" and all of the amenities are in a mandatory Social Club. Multiple golf courses, pools, and recreation centers are all paid for through dues and transfer fees. 23,000 homes. Homeowners there have no protection from HOA laws.

Why is all of this important? Because as interest in golf declines and interest in country clubs declines, more communities will be facing these outrageous long term loan schemes. New buyers will have no idea that big transfer fee is being used for debt. This is what the club is betting on, that new buyers don't read the details which they don't receive until closing.

I plan to post what we learn from attorney.

To me a 1% Capital Improvement fee would not deter me from buying a home I liked. If I can afford say $300K, I can afford $303K.