Developer issue!

Started by JeffW6 • 24 replies • 800 views

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JeffW6 (Florida)
Posts: 65

Posted:

Our development is 11 years old. We have 882 lots sold. Approx. 650 houses on the lots. 882 was the original total, but, at 2017 annual meeting they changed it to 982. We have 1 resident BOD. On 9/2014 a home builder bought all the remaining lots of 822. At this point should it have triggered a turnover or at least more homeowner BOD?

In our 2017 audit there is an Developers obligation calculation (The Developer at this point owns zero plotted lots) and it reflects we owe him $372,000! Why would this calculation even been completed? He had zero lots out of the 822!

The MC is giving me everything I ask for in records! The calculation in the audit has not been reflected on the balance sheet as of 11/18! At the end of 2017 the Due to Developer was $102,000 which was mostly created by the same audit calculation in 2016.

Who should I contact at the city, state or whomever?

SueW6 (Michigan)
Posts: 814

Posted:

The new builder bought out the former developer/owner.

So that figure needs to show up on some kind of report, but remember that is a developer’s liability - which would be transferred to a Member HOA when there is a turnover.

Can you ask the auditor where that number is seen in the overrall financial report as a future obligation of the HOA corporation?

(At least this is how I see this whole picture)

JeffW6 (Florida)
Posts: 65

Posted:

The Homebuilder bought all of the remaining lots in the 822 count of the lots. The Developer kept control of the H.O.A.

JeffW6 (Florida)
Posts: 65

Posted:

As of today the previous years $102K has never been changed as of the November 2018 financials posted! The 2016 audit reflects the amount owed to Developer going from $26K and adding $76K to total $102K as of 12/31/16!

DouglasK1 (Florida)
Posts: 2,046

Posted:

Quote:

Posted By JeffW6 on 01/04/2019 8:01 AM

Who should I contact at the city, state or whomever?

The CCRs that form an association are essentially a contract between owners (and the developer for a period). For the most part if there are issues they would be handled as civil issues in the courts (via somebody suing).

There are limited situations where government might get involved:
1) If the conditions of approval for the development are not met, the city or county might get involved. This might also include using a bond posted by the developer as leverage.
2) For condos, the state Department of Business and Professional Regulation will get involved with some issues, primarily related to elections in my understanding. See Florida Statute 718 (720 for HOAs) for more details.
3) The police or DA might get involved if a criminal situation exists, such as embezzlement.
There might be others, but none come to mind offhand.

Escaped former treasurer and director of a self managed association.

JeffW6 (Florida)
Posts: 65

Posted:

CCR is who?

DouglasK1 (Florida)
Posts: 2,046

Posted:

CCRs refer to one of your governing documents (Declaration of Covenants, Conditions, and Restrictions), but can also be called Deed Restrictions, Covenants, or some other name. This is the document that is attached to your property deed.

Escaped former treasurer and director of a self managed association.

SheliaH (Indiana)
Posts: 6,964

Posted:

You have several legal questions, so your best bet is to contact a private attorney and discuss your concerns with him or her, especially since it appears a developer is still involved.

Before you go, check the documents you got when you brought your home to see if you have any Bylaws and Covenants, Conditions, and Restrictions (CCRs). The bylaws usually dictate how the organization (the HOA) is run, addressing issues like voting rights of members (homeowners), duties of the board of directors, etc. The CCRs usually govern how the common areas are to be used - this is where you would see stuff like applying for prior approval, pets, parking, rules enforcement, etc.

If you don't see any of these documents in your packet, getting a copy and reviewing them is job one so you'll have a better idea of what questions to ask regarding the money and everything else.

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

JohnC46 (South Carolina)
Posts: 14,265

Posted:

It is not uncommon for a developer to be "loaning" the association money when the association dues do not cover expenses. How this "association debt" is handled at turnover is the issue.

EdC5 (Florida)
Posts: 117

Posted:

Quote:

Posted By JohnC46 on 01/04/2019 11:48 AM
It is not uncommon for a developer to be "loaning" the association money when the association dues do not cover expenses. How this "association debt" is handled at turnover is the issue.

This is called "debit funding". On it's most basic level, the expenses are totaled, the dues are collected from the unit owners, and any remained balance of expenses is paid by the developer.

Edward J Cooke, CMCA, LCAM

JeffW6 (Florida)
Posts: 65

Posted:

The Developer had the choice to pay HOA fees or cover a yearly deficit! However, we have a 530K+ net income over the last 3 years! He is taking all of our net income. How is that legal? We do have all of our HOAs legal documents. I started FB group of a 100 owners and we are getting ready for the future turnover when I uncovered this!

JeffW6 (Florida)
Posts: 65

Posted:

There has been no debt for over three years. The $530K+ should be put into the Reserves. But, they keep putting off a spending Reserve Analysis. This development is over 11 years old.

RoyalP
Posts: 1,104

Posted:

? What is your annual budget ?

There should be NO net income.

Income = expenses + reserve funding (future expenses of known assets).

?

pool

clubhouse

'lagoons / lakes' drainage elements

entrance

roads

landscaping

etc

etc

?

JeffW6 (Florida)
Posts: 65

Posted:

Budget about $800K!
Net Income for 2017 $308K! $17K in accumulated reserves after 10 years at 12/31/17
Very large walk in pool, playground, clubhouse, workout gym, 2 tennis/basketball courts!
Net income thru 11/18 is $150K and $21K in accum reserves!

JeffW6 (Florida)
Posts: 65

Posted:

Roads are city owned! Drainage part of CDD!

JeffW6 (Florida)
Posts: 65

Posted:

$75K net income in 2016!

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Could we stop using the ! key and go back to Periods? Thanks. Makes it difficult to read. Thanks.

Former HOA President

TimB4 (Tennessee)
Posts: 21,059

Posted:

Jeff,

More then likely, the builder purchased the remaining lots and developer rights (or a portion thereof) within the Association.
Therefore, turnover to the membership would not have been triggered.

JeffW6 (Florida)
Posts: 65

Posted:

Does is sound right that as long as the Developer remains in control he can take our net income probably for the next 3 years without funding much in the way of reserves? For the last three years they have been charging us homeowners $75 for cable/internet while paying only $25 to $35 per house to create most of the net income? This also was saving the builder on his over 200 lot purchase in 2014 since the cable/internet charge only to houses.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Typically a HOA doesn't have a net income unless developer owned. A HOA is a non-profit. It sounds right they are charging for cable IF your agreement is for dues to cover cable. Our HOA cable isn't provided by the HOA. It wasn't an expense we felt was a HOA requirement to be provided. However, some HOA's enter into a "Bulk plan" with a cable company to lower costs. That is why they do provide cable as part of what the dues go towards.

The developer is in the business of making a profit while they own it. The HOA when owner owned is in the business of meeting it's bills and having enough in reserves for major capital components. So there is a difference between how a Developer handles HOA business and how the owner's will be handling theirs when the time comes.

Developers also don't typically pay the HOA dues on the lots they own until they are sold. They own them and the purpose of selling lots is to collect money from the people who buy them. So not seeing the developer pay dues isn't unusual or required in many cases.

Former HOA President

JeffW6 (Florida)
Posts: 65

Posted:

It looks like the Developer will receive about $500K of the $530K net income our HOA has earned in years 9,10 and 11 of the HOA. I guess our CCR allows him to recover previous losses. I am irritated that the turnover process will start within 24 months and we currently have $21K in reserves and our Developer controlled HOA is just now starting a Reserve Analysis. It may be legal, but, we don’t have to like it. Also, a big chunk of the net income came from charging residents more for cable/internet services then what was being paid out to the cable/internet operator.

CjC
Posts: 210

Posted:

When a developer comes in to build a new HOA, there are costs associated with this that they "up front". This way, they can put in infrastructure, roads, club house, pool and anything else that is slated for the HOA. The developer knows that he should have the cash flow to be in it until it is turned over to the HOA to control. They will run a deficit on HOA dues until hopefully they turn positive cash flow. Hopefully this happens before it is turned over to HOA control. T Hey will need to "recap" the funding that they gave to the HOA to get it started. You may think this looks odd in years 8-10 when the reserves aren't being built up, but this is normal in the development process. You need to pour over the figures before buying into the HOA as well as during the transition. The developers may seem to charge more for cable than they are paying, but in the budget, they need to "make" money somewhere to recoup costs.

JeffW6 (Florida)
Posts: 65

Posted:

This developer did not pay for infrastructure it is paid for by us through the CDD!

JeffW6 (Florida)
Posts: 65

Posted:

Why not man up instead of trying to deceive everybody? Since I have been here LGI came in here and sells houses for zero down, puts linoleum and low ceilings in their houses they mass produced and may pay the HOA fees for a year. Then after the first year their home buyers don’t act like they know anything about HOA fees, CDD taxes and HOA restrictions. They then they llet their houses get foreclosed on. I guess it is an honest scam!

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Not seeing a scam at all. It's basically how every HOA works. Developer buys the land. Builder builds houses on it. Buyers buy the houses. The Developer/Builder advertises that by buying into their development their are restrictions/rules so to keep the homes attractive. Plus offer certain amenities like a clubhouse, pool, or recreational. People buy into that idea but not necessarily the idea one has to work to enforce those restrictions or pay for those amenities long term. Developer/Builders are short term out once sold out.

As for not knowing about the CC&R's/Articles of Incorporation that is because they may not have a copy. Some states it's the seller's responsibility to provide them. Other states they are PUBLIC documents and the buyer's responsibility to be informed. The By-laws and/or ACC rules are the HOA's responsibility to provide once the person is a member. So the blame for not following the rules is on the owners.

If you don't like how a HOA works, then get out. Stop blaming everyone else. It's what you bought into. If want change that is up to you and your neighbors to make it happen.

Former HOA President

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