Taking over HOA from Developer

Started by MatthewC4 • 8 replies • 677 views

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MatthewC4 (Ohio)
Posts: 6

Posted:

Hello – Relatively new to this forum and I can’t seem to find a search feature (any help on that is appreciated) so apologies in advance if this has been asked before but at the same time it may be helpful to know the specifics...

Our relatively small neighborhood is in a rural township and the HOA has been under developer control for over a decade as growth has been slow. We’re now at 30 houses built with another 16 empty lots and the developer is looking to hand off the HOA to residents and looking for volunteers to be on the board.

I am considering throwing my hat in the ring but curious as to what the hand off might entail? All Google results I get seem to come from HOA Management Companies or Attorneys selling their services but in our small, $75/year neighborhood – feels like paying someone may be overkill and we SHOULD be able to handle it ourselves.

Most folks seem to agree with the “if it ain’t broke…” mentality but there are 1-2 who might try to make trouble. One seems to think our $75/year should pay for a communal pool (not kidding), another wants to use those funds to turn our street into a gated community, and there has been grumbling about sidewalks and lights - that will be on us as the township in question is struggling financially. Not kidding.

We have a meeting with the developer in a couple of weeks and I want to be prepared with questions to ask, etc. He is a respected man who has been doing this for a while so I don’t believe he’ll try anything shady but want to make sure I have my ducks in a row before I make the commitment. Any input you folks you have would be greatly appreciated but some preliminary questions I have are…

• Should we hire an attorney or management company?
• Should we consider redrafting an entirely new covenant or can we just amend the current?
• Is it unreasonable to insist on D&O insurance given our fees/dues are so low?
• Is there anything else I should be asking?

GeorgeS21 (Florida)
Posts: 3,808

Posted:

Good time to be asking these questions and finding answers.

Is the HOA registered with Ohio as a not for profit?

If you have CCRs and Bylaws already (assuming you do), what about them needs changing? What do they say about changing - percentages, processes, etc?

Will the developer be able to still control the HOA by virtue of lots owned and preferential voting ratio?

Have CCRs and Bylaws and architectural docs (if you had these), Rules and Regulations ... been recorded?

Do you have sufficient owners with sufficient knowledge and interest to manage an HOA? (should be easy with small number of properties)

What percentages are require to amend the CCRs and Bylaws?

D&O and liability insurance, to me, get built into any budget FIRST ... I would never serve on a Board without D&O insurance.

Have you met with interested neighbors to review your docs, line by line? Have you reviewed applicable Ohio statutes for not for profit and HOAs?

Has there been a tax return for the HOA, previously?

Has the developer built out, and turned over an HOA previously? In your area? Can you contact them to see how it went?

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Will the builder be paying dues on unsold lots and will the dues continue (by the lot buyer) when the lot is sold?

BarbaraT1 (Texas)
Posts: 821

Posted:

Quote:

Posted By MatthewC4 on 02/03/2020 5:52 AM
Hello – Relatively new to this forum and I can’t seem to find a search feature (any help on that is appreciated) so apologies in advance if this has been asked before but at the same time it may be helpful to know the specifics...

Our relatively small neighborhood is in a rural township and the HOA has been under developer control for over a decade as growth has been slow. We’re now at 30 houses built with another 16 empty lots and the developer is looking to hand off the HOA to residents and looking for volunteers to be on the board.

I am considering throwing my hat in the ring but curious as to what the hand off might entail? All Google results I get seem to come from HOA Management Companies or Attorneys selling their services but in our small, $75/year neighborhood – feels like paying someone may be overkill and we SHOULD be able to handle it ourselves.

Most folks seem to agree with the “if it ain’t broke…” mentality but there are 1-2 who might try to make trouble. One seems to think our $75/year should pay for a communal pool (not kidding), another wants to use those funds to turn our street into a gated community, and there has been grumbling about sidewalks and lights - that will be on us as the township in question is struggling financially. Not kidding.

We have a meeting with the developer in a couple of weeks and I want to be prepared with questions to ask, etc. He is a respected man who has been doing this for a while so I don’t believe he’ll try anything shady but want to make sure I have my ducks in a row before I make the commitment. Any input you folks you have would be greatly appreciated but some preliminary questions I have are…

• Should we hire an attorney or management company?
• Should we consider redrafting an entirely new covenant or can we just amend the current?
• Is it unreasonable to insist on D&O insurance given our fees/dues are so low?
• Is there anything else I should be asking?

I wouldn't worry too much over the gated community issue. That's something that typically is decided before the community is even platted and changing it after the fact is virtually impossible. Once you are on the board, I would tell your neighbor who wants to be gated is to go off and research the cost of replatting, building perimeter walls, installing a gate system, and long term maintenance of the streets, sidewalks, streetlights and sewers and then report back to the board. I have done this lots of times; they never come back.

Don't worry about the pool either - adding amenities typically requires approval of the entire membership. Once again, folks who want a pool should be asked to form a committee and research the feasibility and cost, and report back.

You must have D&O insurance. I wouldn't be a board member without it. It is irrelevant how low your dues are. D&O insurance protects YOU from being personally liable for the decision you make as a board member.

As others have said, as if you are property incorporated and in good standing with the secretary of state, confirm that the developer, once he is no longer declarant, is just another dues paying owner and must pay on his lots. Ask for the financials. Is there a reserve account? How much common area do you have? Has it all been deeded to the association? Has the developer been paying shortfalls? Has the developer been pursuing delinquent accounts? If the developer has been covering budget shortfalls, you will be in for a nasty surprise financially. And if he's not been pursuing delinquencies you will have a mess to clean up.

Personally, I think you're too small for a full service management company, but I'd look into financial management or at least hiring a bookkeeper, and hope for active volunteers to handle the rest.

MarkM19 (Texas)
Posts: 1,459

Posted:

Matthew,
From reading your original post you seem like the perfect guy for this job. You appear to be level headed, clear thinking and willing to learn what you don't already know. You should lead your association into the future.

I personally have never been on a board that was still under builder control and handed over to homeowners thankfully. I would think that since you said the Developer/Builder is an honorable person you should try to work with him while being an advocate for your homeowners. He has the resources you will need and he can only make things easier at this point. At some point every HOA grows up and moves away from the developer.

GeorgeS21 (Florida)
Posts: 3,808

Posted:

John,

Sorry - forgot that question, John!

It is very important!

Also, any potential transfer needs to include full accounting of dues back several years, as well as complete understanding if anyone, including the developer is in arrears.

Any ongoing legal proceeding against property owners.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

You are going to need a lawyer for a few things. Do not hire a Real Estate attorney. Your dealing with contractual and/or corporate laws here.

I would get a copy of your CC&R's, by-laws, ACC, and Articles of Incorporation documents ASAP. You all want to read them and decide what you want to modify. Also need to remove all references to the developer and their voting system. Also people overlook the part where have to be an owner to be a member. That usually is in there so the Developer can hire or use an employee to be on the board. Once turned over that should be removed to lessen confusion.

This is the best opportunity to get things on the right track. Keep in mind you will all OWN everything. So if you have a pool now, your all responsible for paying for all costs associated with it. Want private gates? You will need to raise dues to cover the expenses. A HOA is ONLY funded by it's members for it's members. So expect the dues to go up or down for whatever you want the HOA to have.

Former HOA President

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Former HOA President

MatthewC4 (Ohio)
Posts: 6

Posted:

THANK YOU ALL so much for all the responses!!! Ton of great info and will have us off on a good foot to get started. I'll keep you posted!

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