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Developer refusing to turn over HOA bank account

Started by RyanC5 • 27 replies • 1253 views

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RyanC5 (Texas)
Posts: 12
Posted:
Currently our HOA situation is this. July 6th the developer emailed a letter to the HOA management company advising that he is done managing the property and the homeowners need to take over management of the HOA. A meeting was held August 4th, selecting board members with a vote/proxy. August 6th the first board meeting was held electing officers (president, treasurer and secretary). The 2019 dues, and all dues for the past 10 plus years, have been deposited into a bank account with the name of our HOA and all documents/statements as the name of the HOA. There is a balance of over $5000 that we need to pay bills, but cannot until the board has access to the funds.

The developer is refusing to give us access to the bank account and has refused to provide financial statements for years. How does the board take control of the that bank account if it is listed as the HOA bank account? Developer does not return phone calls or emails.

Board resolution? Meeting minutes are in hand advising who was elected to the board and officer positions.

Ryan
CathyA3 (Ohio)
Posts: 6,299
Posted:
Skilled lawyer with HOA experience, STAT. How do you know there is a balance over %50000 - without access to the account, you're taking the word of a person who is displaying questionable ethics. At best he's been paying other bills out of this account and is waiting for money to roll in replace the stolen funds.
RyanC5 (Texas)
Posts: 12
Posted:
The HOA management company informed me of the balance and that all the 2019 dues were deposited into that account. The developer has also claimed that he has been spending his own money on maintenance because dues have not been enough to cover it. Is that not the developer's responsibility until it is changed over to the HOA. Also, the developers home is adjacent to the community, but not part of the HOA. We believe that he has is landscaping company mow both his property and the HOA's, with the HOA footing the bill.
SheliaH (Indiana)
Posts: 6,964
Posted:
Time to get an attorney if you don't already have one. It's a shame tussling with the developer is the first thing the board will have to deal with, but it is what it is. I wouldn't be surprised to find the developer is on the verge of bankruptcy, in which case you'll have to file a proof of claim as soon as he does. Your local bankruptcy court may have an information page on how that works and there are stories around this message board on how others handled departing developers behaving badly.

The bank account may be in the HOA's name, but if the developer is listed as the account holder, simply telling the bank about this probably won't be enough to get hold of the money.

If you find you'll have to hire an attorney, it's helpful to get one with HOA experience because this can ve a very specialized area of law that a regular real estate or general business attorney might not understand.
The bar association may be able to give you a referral, along with your property manager, but you must do your due dilligency. Check with the bar association to see if there have been any disciplinary action against the attorney. As for at least three references (other HOA clients, that is), and CHECK THEM. and CHECK them. Have a frank and honest discussion about money - you should be working from a fee schedule, so you'll know how much every email, phone call, letter, in-person visit, etc. will cost.

There's information around this site with other useful tips you can consider, but I'll end with this. Once you hire the attorney, you don't need every.single.board member contacting him or her with questions or conflicting instructions. Determine who will be the primary contact and establish a policy when the attorney should be contacted. You shouldn't have to contact him/her for EVERYTHING and if you do, the contact should be pre-approved during a board meeting. The designated contact should report a summary of the conversation - when I did this for my association during my tenure on the board, I'd copy the board members and property manager on the exchange so everyone know what was going on and why. Good luck!.
If it is not right do not do it; if it is not true do not say it. Marcus Aurelius
SueW6 (Michigan)
Posts: 814
Posted:
Looks like you got the bum’s rush to take iver the HOA. An audit should have been done and all accounts cleared up. Most likely he will produce invoices to show the last $5,000 is rightfully his.

Carry on. And make sure there are no liens or outstanding accounts payable that may show up later. Ditto for contacts.

Buyer Beware.
LetA (Nevada)
Posts: 2,679
Posted:
Quote:
Posted By RyanC5 on 09/17/2019 1:49 PM
The HOA management company informed me of the balance and that all the 2019 dues were deposited into that account. The developer has also claimed that he has been spending his own money on maintenance because dues have not been enough to cover it. Is that not the developer's responsibility until it is changed over to the HOA. Also, the developers home is adjacent to the community, but not part of the HOA. We believe that he has is landscaping company mow both his property and the HOA's, with the HOA footing the bill.

WELL, Now that the BOD are in control. you can fire the landscapers at the end of the contract term.
JeffT2 (Iowa)
Posts: 880
Posted:
It is now your association. The new President and the Treasurer should take all the documentation, including printouts of correspondence from the Developer that turns over the association to you, minutes of meetings and so on and go to the bank tomorrow. Tell the bank about the voluntary handover and you are the new board and officers, and you are there to become signatories on the account. Don't mention any refusal from the developer who no longer has any position in the association.

If the manager is currently a signatory on the account, then tell the management company that you would like them to continue to be your management company, as long as they come to the bank with you, without first telling the developer.

When at the bank, get online access and then immediately lock out anyone else (developer and management company) and immediately download all bank statements, transaction data and check images.

If for some reason the bank refuses, then get a lawyer.

If the bank refuses, you can consider asking the bank to freeze the account, which is probably your fiduciary responsibility, and for better and worse will tie up all the money in the account until it gets worked out.
CathyA3 (Ohio)
Posts: 6,299
Posted:
Quote:
Posted By JeffT2 on 09/17/2019 4:58 PM
It is now your association. The new President and the Treasurer should take all the documentation, including printouts of correspondence from the Developer that turns over the association to you, minutes of meetings and so on and go to the bank tomorrow. Tell the bank about the voluntary handover and you are the new board and officers, and you are there to become signatories on the account. Don't mention any refusal from the developer who no longer has any position in the association.


The bank will not make anyone signatories without the current signatories signing off on it. Printouts are useless, they could be forgeries. These are business accounts, and banks make you jump through a bunch of hoops whenever anything changes. They are paranoid about fraud and money laundering and other crimes, and won't do anything that could put the bank at risk if one of the accounts they're holding falls into the wrong hands.

The OP's board needs a lawyer if the developer won't play nice.
AugustinD
Posts: 5,144
Posted:
RyanC5, in my experience, the cost of hiring an attorney may quickly exceed the $5000 your Board believes the developer owes the HOA. How many members does your HOA have? Barring more information, I'd be inclined to urge the board to forget about the $5k; explain its reasoning to the membership (the cost of an attorney exceeds will likely exceed the cost of getting the money back); and then special assess owners as needed.
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Quote:
Posted By AugustinD on 09/17/2019 7:44 PM
RyanC5, in my experience, the cost of hiring an attorney may quickly exceed the $5000 your Board believes the developer owes the HOA. How many members does your HOA have? Barring more information, I'd be inclined to urge the board to forget about the $5k; explain its reasoning to the membership (the cost of an attorney exceeds will likely exceed the cost of getting the money back); and then special assess owners as needed.

I am thinking I agree. Depending on the size/budget of the HOA, probably cheaper to kiss the $5K bye bye.
RyanC5 (Texas)
Posts: 12
Posted:
We have the paperwork submitted to the bank (amended board resolution signed by all board members, meeting minutes, email from developer relinquishing control) and changed the names with the State Secretary's Office for the non-profit business. I am just waiting to hear back from the bank, because the forms had to be submitted manually.

SueW6 (Michigan)
Posts: 814
Posted:
Consider that account closed.

And if course you have opened a new account. ...
RyanC5 (Texas)
Posts: 12
Posted:
Yes a new account was opened, with no funds of course because all dues were deposited into the old account. Positive is that we collect dues again in January, just might have to have a group of volunteer mowers until then.
RyanC5 (Texas)
Posts: 12
Posted:
One more thing to add, what if the developer uses the funds out of that old account after the July 6th email and August 4th election of board. At this point he is just considered a regular homeowner who owns 1 lot (9 votes) but way short of majority to spend those non-profit funds. Is my thinking out of line, or isn't that theft?
SueW6 (Michigan)
Posts: 814
Posted:
There was not a proper “turnover” ( who does this by email??) The new board did not seek proper legal or professional consultation.

There is no HOA account other than what the new board has established.

Like the rappers say: “He gone”

PS what about your bylaws and CCRs and legal contracts - are they updated?

RyanC5 (Texas)
Posts: 12
Posted:
The board cannot afford an attorney when all 2019 dues have been deposited into an old account. Small neighborhood of only 30 homes.
RyanC5 (Texas)
Posts: 12
Posted:
What do you mean "no HOA account". The old account was listed in bank records under the associations name and as a non-profit, never as a personal account.

We know there was not a proper turnover, which is 95% of the problem. Developer said, "it is your problem now, bye" and will not return phone calls, emails or letters.
MarkM19 (Texas)
Posts: 1,459
Posted:
Ryan,
We are all trying to play detective here and it would be easier if you answered a few questions all at once.

How many homes? Got that one 30
How much is your current dues?
How do you pay Monthly, Quarterly or annually?
How many vendors work for the HOA?
Is a Management company involved?

It could take years to work your earlier dispute out through the courts if you choose. Your problems are running the HOA from today on and that takes money. You need to have a Come To Jesus meeting with your homeowners. Establish how much money you are going to need to make it till the first quarter of 2020 and ask for a special assessment. They all own the same problem as you do now. Make sure that they understand that fact and get everyone involved.
JeffT2 (Iowa)
Posts: 880
Posted:
I agree with you that the account is not gone and that you should continue to try to get control of it.

Ask the bank to freeze the account until you work out the signers.

The bank should help you. People on business accounts change all the time, move, die, get fired, retire etc., and become unavailable.

Who are the current signers on the account? The manager? Can the management company help you get the account?

Who are or were the previous officers of the corporation? They are often listed on the secretary of state website. They are also responsible for the funds and can sometimes be used to get the account or to put personal pressure on the developer.
RyanC5 (Texas)
Posts: 12
Posted:
Technically 29 homes
$275 / annually
Only bills are landscaping, electric to run irrigation / pump from lake and insurance
Management company is involved
RyanC5 (Texas)
Posts: 12
Posted:
Current signers are members of the developers company and himslef. Management company simply told me to take the minutes to the bank and then we should have access.
Officers of the corporation are the developers.
MarkM19 (Texas)
Posts: 1,459
Posted:
Ryan,
If I were you I would explain to your homeowners the current situation. I would try and ask your members to see if you can get any members to prepare the annual dues for 2020 early. Tell them that you are working real hard o get a handle on this situation and this is a short term solution to OUR long term commitment to the Community. The good news is you have very little exposure because of the size of your HOA. The last thing you want is vendors to abandon ship or start suing the HOA in situations like this.

Once you get the Bank account issues cleared up and have access to those funds life may be easier.
LetA (Nevada)
Posts: 2,679
Posted:
Honestly I would see if you have a Ombudsman in your area and explain the situation to them. I would call the TX Secretary of State or your State Attorney Generals office for the name and number of the Ombudsman.

Since the developer turned over the community to the owners, you run the show. I would organize with the other board of directors and owners to put your assessments into an escrow account and keep records of who paid. This management company was hired by the developer so they could be in cahoots with the developer, I would kick them loose the day their contract expires.
RyanC5 (Texas)
Posts: 12
Posted:
UPDATE:

The bank approved our documentation and removed the old signatories from the old account and I was able to transfer all of the money into the new HOA account. I also have access to all the bank statements and currently getting copies of the checks written. For now there is a strange check written every month for $433. I have already been in contact with out district attorneys office.

Thank you everyone for your insight and I hope our situation can be used as an example.
SueW6 (Michigan)
Posts: 814
Posted:
Just curious...
What “documentation” did you take to the bank since you claim there was no “ turnover” done.
RyanC5 (Texas)
Posts: 12
Posted:
Forms Submitted to the Bank:

Amended Corporate Resolution with signatures from all board members

Meeting Minutes

Email from developer relinquishing control of the HOA

Went online and changed the registration of the HOA association with the state of Texas secretaries office.
GenoS (Florida)
Posts: 4,276
Posted:
Nice going, RyanC5. Persistence pays off. Hope you figure out who the monthly mystery payment is going to.
RyanC5 (Texas)
Posts: 12
Posted:
We are handing over all financial records to the District Attorney's Office for an inquiry into Embezzlement charges against the developer

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