Developer controlled TX HOA - new resident board members want to sue

JenL (Texas)
Posts: 5

Posted:

I live in a developer controlled HOA in Texas.

Last month we elected two new resident board members (the other 3 are appointed by the developer and consist of two family members of the developer and someone who works for our management company). The developer is about to start on a new, separate development that will back up to ours, and have a similar name.

The new resident directors are threatening to sue the developers for trademark infringement, even though the HOA has not yet filed for a trademark of our name, and the developer has a pending application for it. I’m concerned about the damage this lawsuit could do to our HOA, and was hoping to get some guidance on what can be done here.

The majority of residents seem to be jumping on their bandwagon, so I’m definitely in the minority, unfortunately.

I’m nervous that the developer will walk and leave us holding the bag on completing the amenities, as well as potentially selling the adjacent land to someone who will build something much less desirable than a nice, mid-range SFH community which happens to have a similar name to ours.

I should point out that one of the new directors also happens to be a trademark attorney...

Thank you.

SheliaH (Indiana)
Posts: 6,964

Posted:

There may not be a lot you can do as long as the community is still controlled by the developer - until the homeowners take over, they can do whatever they want, including selling the adjacent land. You can be supportive of the resident directors, but if the rest are appointed by the developer, they'll be outvoted.

Personally, I'd be more worried about the developer leaving without completing the amenities because the homeowners would likely be on the hook for finishing them. Have you seen any indication that could be happening? One way you might check is to pay close attention to the Association budget - if you're receiving that as well as income/expense reports, you can check to see if your assessments are being spent as the developer promised. The resident directors may be able to help you decipher the information and if there are concerns the homeowners can rally behind them to push for more disclosure.

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

JenL (Texas)
Posts: 5

Posted:

I don’t support the direction that the new resident directors are taking at all. One of them claims to have several years experience on other HOA boards so this course of action, and lack of understanding about who is in control of the board is puzzling. The other guy (the trademark attorney) just seems to be on a power trip.

I have been paying close attention to our financial statements, nothing really seems to be out of the ordinary. And we are close to being fully built out anyway so there aren’t any large amenities left to be completed. I just don’t want them to get sick of us and walk away from the other development, as that could have a much worse outcome. But as you say, there’s nothing we can do to stop them.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Well, you can't control what someone wants to do on their own.

Since the declarant appointed board members control the Board vote, it won't be an association action (regardless of what the residents desire).

JenL (Texas)
Posts: 5

Posted:

That’s what I figured. Hopefully they will also figure it out quickly and let it lie, before any more damage is done.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

How can you change something you don't own? The developer owns the HOA still and has applied for the name. So that lawsuit won't go far as long as your HOA is not owner owned.

Former HOA President

JanetB2 (Colorado)
Posts: 4,219

Posted:

Quote:

Posted By SheliaH on 10/23/2017 1:28 PM
There may not be a lot you can do as long as the community is still controlled by the developer - until the homeowners take over, they can do whatever they want, including selling the adjacent land. You can be supportive of the resident directors, but if the rest are appointed by the developer, they'll be outvoted.

Personally, I'd be more worried about the developer leaving without completing the amenities because the homeowners would likely be on the hook for finishing them. Have you seen any indication that could be happening? One way you might check is to pay close attention to the Association budget - if you're receiving that as well as income/expense reports, you can check to see if your assessments are being spent as the developer promised. The resident directors may be able to help you decipher the information and if there are concerns the homeowners can rally behind them to push for more disclosure.

Sorry Shelia ... We agree on many items but this is one I will disagree depending on an individuals State. In MY state the developer cannot "do whatever they want" ... they can ONLY do "whatever they have RESERVED the right to do ... and fully disclosed to consumers"!!! States who follow UCIOA do not allow the Developer to arbitrarily screw over homeowners nor do they allow homeowners to screw over developers. Also, the middle man who is the "Secured Creditor" is also protected. TX for sure follows UCIOA for Condo and has been working on following for HOA's with past legislation changes.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Quote:

Posted By JenL on 10/23/2017 1:09 PM
I live in a developer controlled HOA in Texas.

Last month we elected two new resident board members (the other 3 are appointed by the developer and consist of two family members of the developer and someone who works for our management company). The developer is about to start on a new, separate development that will back up to ours, and have a similar name.

If you are and HOA and not Condo your State Statutes note:

(c) The declaration may provide for a period of declarant control of the association during which a declarant, or persons designated by the declarant, may appoint and remove board members and the officers of the association, other than board members or officers elected by members of the property owners' association. Regardless of the period of declarant control provided by the declaration, on or before the 120th day after the date 75 percent of the lots that may be created and made subject to the declaration are conveyed to owners other than a declarant or a builder in the business of constructing homes who purchased the lots from the declarant for the purpose of selling completed homes built on the lots, at least one-third of the board members must be elected by owners other than the declarant. If the declaration does not include the number of lots that may be created and made subject to the declaration, at least one-third of the board members must be elected by owners other than the declarant not later than the 10th anniversary of the date the declaration was recorded.

The new resident directors are threatening to sue the developers for trademark infringement, even though the HOA has not yet filed for a trademark of our name, and the developer has a pending application for it. I’m concerned about the damage this lawsuit could do to our HOA, and was hoping to get some guidance on what can be done here.

The majority of residents seem to be jumping on their bandwagon, so I’m definitely in the minority, unfortunately. Seems the SMART ones tend in today's society to be in the minority ... LOL. Developers many times will start separate developments next to others and have similar names. Some will be noted as X Subdivision Phase I vs same X Subdivision Phase II. Potentially your new resident directors are not also considering that the Developer also must abide by the Local Government requests and requirements. In my area the Local Government wants the adjoining property via the same developer to be the similar name with different phase numbers.

I’m nervous that the developer will walk and leave us holding the bag on completing the amenities, as well as potentially selling the adjacent land to someone who will build something much less desirable than a nice, mid-range SFH community which happens to have a similar name to ours. What amenities??? Do you still have HOA property which has not yet been deeded to the HOA???

I should point out that one of the new directors also happens to be a trademark attorney...

Thank you.

JenL (Texas)
Posts: 5

Posted:

So here’s how they plan to circumvent the developer control - at yesterday’s board meeting the resident directors declared that the developer-appointed directors were not impartial in matters which affected the developer and must therefore recuse themselves from any votes on such matters. The HOA attorney stood up and told them that they were incorrect, and time ran out before they could even vote on either of the items that were to do with the developer.

Of course our residents are now claiming that the attorney is also not impartial, and demanding their own attorney, without any consideration for cost, naturally.

JenL (Texas)
Posts: 5

Posted:

Quote:

Posted By JanetB2 on 10/24/2017 12:44 AM

Posted By JenL on 10/23/2017 1:09 PM
I live in a developer controlled HOA in Texas.

Last month we elected two new resident board members (the other 3 are appointed by the developer and consist of two family members of the developer and someone who works for our management company). The developer is about to start on a new, separate development that will back up to ours, and have a similar name.

If you are and HOA and not Condo your State Statutes note:

(c) The declaration may provide for a period of declarant control of the association during which a declarant, or persons designated by the declarant, may appoint and remove board members and the officers of the association, other than board members or officers elected by members of the property owners' association. Regardless of the period of declarant control provided by the declaration, on or before the 120th day after the date 75 percent of the lots that may be created and made subject to the declaration are conveyed to owners other than a declarant or a builder in the business of constructing homes who purchased the lots from the declarant for the purpose of selling completed homes built on the lots, at least one-third of the board members must be elected by owners other than the declarant. If the declaration does not include the number of lots that may be created and made subject to the declaration, at least one-third of the board members must be elected by owners other than the declarant not later than the 10th anniversary of the date the declaration was recorded.

The new resident directors are threatening to sue the developers for trademark infringement, even though the HOA has not yet filed for a trademark of our name, and the developer has a pending application for it. I’m concerned about the damage this lawsuit could do to our HOA, and was hoping to get some guidance on what can be done here.

The majority of residents seem to be jumping on their bandwagon, so I’m definitely in the minority, unfortunately. Seems the SMART ones tend in today's society to be in the minority ... LOL. Developers many times will start separate developments next to others and have similar names. Some will be noted as X Subdivision Phase I vs same X Subdivision Phase II. Potentially your new resident directors are not also considering that the Developer also must abide by the Local Government requests and requirements. In my area the Local Government wants the adjoining property via the same developer to be the similar name with different phase numbers.

I’m nervous that the developer will walk and leave us holding the bag on completing the amenities, as well as potentially selling the adjacent land to someone who will build something much less desirable than a nice, mid-range SFH community which happens to have a similar name to ours. What amenities??? Do you still have HOA property which has not yet been deeded to the HOA???

I should point out that one of the new directors also happens to be a trademark attorney...

Thank you.

This is a completely separate neighborhood, there are over 40 phases of our current development but they wanted to start fresh I guess. They are using the same builders, naming conventions for the streets and building the same lot sizes. I’m not sure why it had to be separate at all, other than they were sick of all the obtuse residents in our development. I will do some research on the local government aspect.

DouglasK1 (Florida)
Posts: 2,046

Posted:

Quote:

Posted By JenL on 10/24/2017 5:31 AM
So here’s how they plan to circumvent the developer control - at yesterday’s board meeting the resident directors declared that the developer-appointed directors were not impartial in matters which affected the developer and must therefore recuse themselves from any votes on such matters. The HOA attorney stood up and told them that they were incorrect, and time ran out before they could even vote on either of the items that were to do with the developer.

Of course our residents are now claiming that the attorney is also not impartial, and demanding their own attorney, without any consideration for cost, naturally.

The majority of the board could just as easily claim the minority has shown that they are not impartial. I'm not sure that "impartiality" is a requirement for board members to vote on an issue. "Conflict of interest" might be another matter, but even then it is generally up to the board member who has the conflict to declare that and abstain. Do your governing docs, or state law say anything about conflicts?

Another point to consider is that two board members probably don't constitute a quorum so even if the developer appointed members did have to recuse themselves, they could just leave the meeting and that would prevent any action. I'm not a Robert's rules expert, but as the majority, there are probably other things they can do to stop the vote, such as adjourning the meeting early and controlling the agenda, preventing non-agenda items from being considered.

Escaped former treasurer and director of a self managed association.

DouglasM6 (Arizona)
Posts: 724

Posted:

If 3 of 5 recuse themselves there will not be enough to conduct a vote anyway.