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ThomasD11 (Louisiana)
Posts: 10
Posted:
Our subdivision has 150 lots, all of which have been sold and built on. The developer does not own any more lots. Per the Declaration of Restrictions, each lot owner is considered a Class A member with one (1) vote. The developer has been issued 2000 Class B memberships, with one vote each. So the developer has 2000 votes, and the homeowners have only 150 votes, thus maintaining control of the HOA. Is this legal to set up an HOA in this manner? Is this typical?
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Thomas

That wording/method is typical as it allows the developer to control. Once the developer turns the association over to the owners his votes/Class B goes away and only the owners (Class A) shares are left. Typically many associations will not bother to change the docs so you just have to "read through" them as in ignore the Developers Class B.
DouglasK1 (Florida)
Posts: 2,046
Posted:
Quote:
Posted By ThomasD11 on 09/19/2017 12:17 PM
Is this legal to set up an HOA in this manner? Is this typical?

Legal would be best answered by a legal professional. As far as typical is concerned, there is usually some event that extinguishes developer control, such as a certain number of lots being sold or some date.

Do your docs say anything about transition, or class B being extinguished? There have been occasional posts about developers who for some reason want to exercise perpetual control after they are done selling lots, but I don't think that is common. As John mentioned, even with the developer out of the picture, that verbiage can stay in the docs forever and be ignored.

Escaped former treasurer and director of a self managed association.
ThomasD11 (Louisiana)
Posts: 10
Posted:
Yes, should have mentioned that the developers Class B shares go away in January, 2020, and the homeowners get control. Was just looking for a way to make that happen sooner.
DaveD3 (Michigan)
Posts: 796
Posted:
There is a specific DATE at which the transfer occurs? That seems to be highly unusual. It's generally based on the number of lots/units sold. i.e. once 95% of the units are sold, the transfer to the residents happens.
ThomasD11 (Louisiana)
Posts: 10
Posted:
Here is the exact wording:

Membership. The Association shall have two classes of voting membership:
A) Every person, group of persons, corporation, partnership, trust or other
legal entity, or any combination thereof, who becomes a record owner of a fee interest in any Lot
by transfer from the Developer which is or becomes subject to this Declaration shall be a Class A
member of the Association. Each Class A member of the Association shall be entitled to one (1)
vote for each Lot owned by any such firm, person, corporation, trust or other legal entity.
However, there shall be only one (1) vote for each Lot to which Class A membership is
appurtenant, and the vote shall be cast in accordance with the bylaws of the Association.
B) There shall be two thousand (2,000) Class B memberships, all of which
shall be issued to the Developer or its nominee or nominees. The Class B members shall be
entitled to one (1) vote for each Class B membership so held, however, each Class B
membership shall lapse and become a nullity upon the occurrence of any one of the following
events:
(i) on January 1, 2020; or
(ii) Upon surrender of said Class B Memberships by the then holders
thereof for cancellation on the books of the Association.
Upon the lapse and/or surrender of all the Class B memberships, as provided for in this
Article, the Developer shall continue to be a Class A member of the Association as to each and
every Lot in which the Developer holds the interest otherwise required for such Class A
membership.
GenoS (Florida)
Posts: 4,276
Posted:
Quote:
Posted By DaveD3 on 09/19/2017 6:04 PM
There is a specific DATE at which the transfer occurs? That seems to be highly unusual. It's generally based on the number of lots/units sold. i.e. once 95% of the units are sold, the transfer to the residents happens.

I think that it's normally an either/or situation, i.e. once 95% of the units are sold or by some calendar date, whichever comes first. That way a developer can't deliberately hold off on the 95% to prolong his control.
JanetB2 (Colorado)
Posts: 4,219
Posted:
OMG ... Your State Statute website is BEYOND reprehensible!!! If your State Legislators expect YOUR CITIZENS to follow the laws they pass ... they should at least make them more easily accessible for your Citizens!
JanetB2 (Colorado)
Posts: 4,219
Posted:
Quote:
Posted By ThomasD11 on 09/19/2017 12:17 PM
Our subdivision has 150 lots, all of which have been sold and built on. The developer does not own any more lots. Potentially in most states via their State Laws the developer then has no more control over the association. However, your State has a beyond reprehensible website for your State Laws which they expect you all to follow. So unfortunately researching will require a lot of time ... which mine is limited with regards to you State Statutes. Per the Declaration of Restrictions, each lot owner is considered a Class A member with one (1) vote. The developer has been issued 2000 Class B memberships, with one vote each. So the developer has 2000 votes, and the homeowners have only 150 votes, thus maintaining control of the HOA. Is this legal to set up an HOA in this manner? Is this typical? OK ... So if the Developer DOES NOT OWN any Lot ... how can the developer cast any vote??? Potentially without viewing the sections of the documents you are referring to makes our assessment difficult.


Carefully review your documents to insure what they state with regards to developer control. Wish I could help more on your State Statutes at this time (LOL ... will keep looking at the SNAFU) because they also could limit the developer control period.
JeffT2 (Iowa)
Posts: 880
Posted:
What is the developer doing? Are they involved or still running the HOA?
ThomasD11 (Louisiana)
Posts: 10
Posted:
The developer has complete control of the HOA. The homeowners essentially have no say so on how the dues are spent, as the developer has 2000 votes and the homeowners only 150. There are NO HOA meetings for us to voice our complaints. The HOA takes in $82,000/year in dues. From these funds, $17,500 goes to salary and administrative costs. As I read the IRS code for non-profits, you can't pay out salary in excess of 10% of revenue, which is obviously being exceeded. So maybe the developer is breaking the law.
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Thomas

Is the builder still building? If so how many lots/homes does he have to sell and how many has he already sold?

JohnC46 (South Carolina)
Posts: 14,265
Posted:
Most Covenants do have a before or on a specific date for turnover. Look at what the before is. In our case it was 95% of homes sold.
ThomasD11 (Louisiana)
Posts: 10
Posted:
The developer has no more lots. All sold. The turnover clause is either when the developer surrenders all of his class B shares or January 1,2020.

JanetB2 (Colorado)
Posts: 4,219
Posted:
Quote:
Posted By ThomasD11 on 09/20/2017 11:06 AM
The developer has complete control of the HOA. The homeowners essentially have no say so on how the dues are spent, as the developer has 2000 votes and the homeowners only 150. There are NO HOA meetings for us to voice our complaints. The HOA takes in $82,000/year in dues. From these funds, $17,500 goes to salary and administrative costs. As I read the IRS code for non-profits, you can't pay out salary in excess of 10% of revenue, which is obviously being exceeded. So maybe the developer is breaking the law.


Because your State Statutes are not more easy to read I would recommend you seek an Attorney Consultation. In some areas they will give a short consultation for FREE, and if do be sure you have your ducks in a row and list of questions to stay on track. Even if they charge it could be worth your time because in MOST States once the developer has sold all lots and DOES NOT OWN any property in the HOA they NO LONGER have their VOTES to cast. Many people are not aware of this and will have Devlopers exceed their authority because of not being aware.
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Quote:
Posted By JanetB2 on 09/21/2017 9:49 PM
Posted By ThomasD11 on 09/20/2017 11:06 AM
The developer has complete control of the HOA. The homeowners essentially have no say so on how the dues are spent, as the developer has 2000 votes and the homeowners only 150. There are NO HOA meetings for us to voice our complaints. The HOA takes in $82,000/year in dues. From these funds, $17,500 goes to salary and administrative costs. As I read the IRS code for non-profits, you can't pay out salary in excess of 10% of revenue, which is obviously being exceeded. So maybe the developer is breaking the law.


Because your State Statutes are not more easy to read I would recommend you seek an Attorney Consultation. In some areas they will give a short consultation for FREE, and if do be sure you have your ducks in a row and list of questions to stay on track. Even if they charge it could be worth your time because in MOST States once the developer has sold all lots and DOES NOT OWN any property in the HOA they NO LONGER have their VOTES to cast. Many people are not aware of this and will have Devlopers exceed their authority because of not being aware.

Good suggestion.
ThomasD11 (Louisiana)
Posts: 10
Posted:
The developer has control of the HOA by virtue of his 2000 Class B voting shares vs. 150 home owner Class A shares. The existing covenant states that the developer will lose all of his Class B shares on January 1, 2020, and he has no more lots. Therefore the home owners can take control. Since the developer currently has control of the HOA, can he modify the covenant prior to January, 2020 and extend his Class B voting shares for another 20 years?
KerryL1 (California)
Posts: 14,550
Posted:
I like Janet's idea too. Even if an HOA attorney won't give you a free consultation, several of you owners could chip in and meet with one for maybe $250 fr an hour. Worth it!!
GenoS (Florida)
Posts: 4,276
Posted:
ThomasD11, you said there are no more lots to be built on. What about the common areas? Has the developer turned that over yet to the HOA?
ThomasD11 (Louisiana)
Posts: 10
Posted:
The developer has turned nothing over. The common area is equal to about 6 lots, so he would only have 6 votes.
GenoS (Florida)
Posts: 4,276
Posted:
I found this article that might be worth reading. >a href="http://corporate.findlaw.com/business-operations/sales-of-lots-from-developers-to-builders-legal-rights.html">Sales of Lots from Developers to Builders: Legal Rights, Obligations and Risks talks about games developers and builders sometimes play. One quote: "If the common areas are not completed or conveyed, problems may arise."
GenoS (Florida)
Posts: 4,276
Posted:
Grrrrrrrrr no edit. Link:
GenoS (Florida)
Posts: 4,276
Posted:
One more time

http://corporate.findlaw.com/business-operations/sales-of-lots-from-developers-to-builders-legal-rights.html
JanetB2 (Colorado)
Posts: 4,219
Posted:
Found better info regarding your State on this page: https://www.hopb.co/louisiana/

It goes directly to the statute areas vs massive digging as they apparently want people to do ... grrrr.

If you are a subdivision of lots and not Condo this is what the Statute says:

ยง1141.7. Agreement of owners; voting
A. Each lot represents a single vote which can be exercised by the signature or other indication of the registered lot owner or of a single co-owner, the latter of which is presumed to be acting on behalf of the other co-owners. A plot or parcel of unimproved land which is substantially larger than a majority of other lots in the association, however, shall be treated as separate lots, the number of which to be roughly determined by the size of the land in relation to other lots. The ownership interest in common areas, streets, or street rights-of-way does not constitute a voting interest.
B. For purposes of this Subpart, an agreement of lot owners may be obtained by any of the following methods, or a combination thereof:
(1) By a written ballot that states the substance of the issue before the owners and specifies the date by which the return ballot must be received to be counted. The ballot shall be accompanied by the full text of the building restriction being established, amended, or terminated and shall be mailed to the owner by certified mail not less than thirty days prior to the date by which the return ballot must be received.
(2) At a meeting of the owners if written notice of the meeting stating the purpose of the meeting is delivered to each lot owner. The notice shall be accompanied by an agenda of the meeting and the full text of the building restriction being established, amended, or terminated. Such notice shall be mailed to the owner, by certified mail, not less than thirty days prior to the date of the meeting.

It states that each lot represents a single vote ... it does not state anything about a developer being allowed to have 2000 votes .
ThomasD11 (Louisiana)
Posts: 10
Posted:
Yes, I have read all that before. But it also does not say anything about the developer maintaining control until a certain percentage of the lots have been sold, as it appears most other HOA covenants are written. Basically noting to say he can, but nothing to say he can't. I appreciate all the help.
TimB4 (Tennessee)
Posts: 21,059
Posted:
Thomas,

Have you checked the Articles of Incorporation?

They will often identify the classes of membership (owners/developers) and assign votes per lot to each class.
TimB4 (Tennessee)
Posts: 21,059
Posted:
Quote:
Posted By ThomasD11 on 11/15/2017 11:20 AM

Since the developer currently has control of the HOA, can he modify the covenant prior to January, 2020 and extend his Class B voting shares for another 20 years?

Depends on what the requirements are for amending the document.

Are amendments based on number of votes or a percentage of owners?
JanetB2 (Colorado)
Posts: 4,219
Posted:
Quote:
Posted By ThomasD11 on 11/16/2017 2:41 AM
Yes, I have read all that before. But it also does not say anything about the developer maintaining control until a certain percentage of the lots have been sold, as it appears most other HOA covenants are written. Basically noting to say he can, but nothing to say he can't. I appreciate all the help.


If it was me I would check with 2-3 attorneys on your question. Just make sure NONE of them are ones who primarily are known for representing any developers. Those are the ones in my State who pretty much lied to us and stated if Developer owned majority of lots they could do as they wished; however, Court documents ended up throwing that idea out the window and showed they were biased. Some attorneys will give free short consultations with additional fee for over X time limit ... or only charge a minimal fee.

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