Developer Controlled HOA IOU questions

Okay, so I am new here but have questions. I am in a neighborhood where the developer 100% controls the HOA which I have been lived in a neighborhood like this before. This developer however has a running tab going with our HOA with a growing "loan" that has no breakdown documented other than dates and amounts. Because its a small development I believe the shortfall is considered to be this loan, however, this developer is not charging enough in HOA fees for the neighborhood to cover the expenses even once fully build further leaving the neighborhood in the red. Is this growing "loan" even legal is my question?

Legal meaning can they make a loan with no paperwork in writing regarding said loan and require the HOA/residents to pay them back? There is no breakdown or documentation what so ever. Our last neighborhood was controlled by the developer and they covered the shortfall until the neighborhood could support itself. The HOA fees were made based on full build out enough to support the neighborhood. Our last developer never called it a loan. They never wanted to be paid back. Our current developer I don't feel has our neighborhood in its best interest. They are leaving us in the red right off the bat even at full build out our HOA fees aren't high enough to cover expenses. Theres no way our HOA/residents could pay back the developer. I would think it would be in our best interest to have our HOA file bankruptcy at that point.

They can't raise the dues that much legally, the state has a cap how much dues can be raised per year. It will take a decade at least to do unless the community at that point votes to raise it by more than what the state allows once we take over the HOA. Our dues do not cover expenses, so I believe the developer is "loaning" the money to cover the short fall. However they are not documenting it that way. They are keeping a ledger of money loaned but not stating what the loan is for.

As a point of reference,
Texas Property Code does include the following,

The board may take actions without having a board meeting, in which case the notice and open meeting requirements do not apply. However, all board members must be able to express their opinions and to vote, and the action cannot involve any of the following items, which must be considered and voted on at an open board meeting:

• Increases in assessments
• Levying special assessments
• Lending or borrowing money
• Adopting or amending a dedicatory instrument (i.e., the HOA’s governing documents)
• Approval of an annual budget or budget amendment that increases the budget by more than ten percent.

Our HOA increases cannot exceed the percentage the CPI went up in the previous year per our governing documents.

Dana, almost all the documents I have seen in Texas limit the increase to 10% (or some other percentage) without approval of the Association. The increase often may exceed 10% with approval of some percentage of the Association. As another poster mentioned, other documents link increases to the CPI or another formula.

The Board and owners may find themselves in a situation in which a Special Assessment, and regular assessment increase, may be need immediately following turn-over from the builder.

How close are you to the turnover point?

Is the builder still selling homes? Does he disclose during the selling process that the dues is not enough to cover costs? It sounds to me like the dues might be too low so the builder can sell the houses. If he is misleading the buyers maybe he could be charged with fraud.

The builder is still building homes. They are not disclosing verbally or in writing anything regarding the dues being insufficient to cover the HOA expenses at the time of build out. The HOA dues are about 1/2 of what they should be. In fact they advertise how low our HOA dues are in their solicitations.

I find it interesting that if you lived in a developer controlled development before, that you would want to repeat the experience, as you likely know how the these type of Associations work.

Our last one was run much differently. The developer was much more transparent, they always attended every single HOA meeting. There was just a lot more communication which made a huge difference. This one avoids attending any meetings or any communication whatsoever. This neighborhood actually previously did not have an HOA and for the first residents that were in the development they were not notified at all when the developer invoked an HOA.

It's not uncommon for developers to keep assessments low to attract buyers, and to structure shortfalls as loans to the association. The CCR should be written to allow for this, but it doesn't always happen. Often the developer will "forgive" the loan at turnover, sometimes in exchange for the new homeowner board agreeing to accept the commons as is, and not pursue any future litigation against the developer.

I believe the real question is not how the developer is doing his business accounting, but what will be turned over to the owners especially in debt and reserve funds.