Developer Charged HOA for their time

We just took over from a developer controlled board. After reviewing the financials and details I found invoices from the developer for their time that had been paid before we took over. Could this be legitimate? I am struggling to find a reason.

It does matter, the developer charged the HOA for their "services".

Yes, it could be legit. The developer was doing professional work on behalf of a corporation and charged for his time and expenses. If he was working in more than one community at the same time - it can happen, winding down one while another is in the early stages of development - then he would split his charges accordingly.

You'd have a reason to look more closely if there were evidence that he was charging personal expenses to the HOA.

Maybe I don't understand what is being discussed. If the Developer sent dubious invoices to the HOA, then paid itself with homeowner money, it certainly seems like it was their bill - since they paid for it. If the charges were not legitimate it would be fraud, and very much in the homeowners' interest to get to the bottom of it.

In fact, any invoice in the past to any vendor is the current and legitimate business of the homeowners. It has been their money paying for everything.

This is a new budget. No longer Developer involved. Should now be funded only by the mebers/owners. Why carry the sins of the past forward?

I don’t think any of us fully understand the OP but I think you understand least.

While developers do fully find associations in the very beginning, one the lots start selling, it IS member funded. There will be developer contributions along the way, but as the membership increases the shortfall funding decreases so that by the time a community has reached transition, it has been funded by its members for a while.

It isn’t uncommon for developers to try and foist their expenses off on the association. Removal of silt fencing, property tax on land not yet deeded to the association, new utility meters… I charitably assume these are mistakes from lack of knowledge not intentional misuse.

But that’s why it matters what the charges are for. And the amount matters because that determines how much effort you put into trying to get it back.

If the homeowner board is starting out with a 6 figure deficit from spurious developer expenses, that isn’t a sin to simply be ignored.

We need more details from the OP before we can shrug and say “oh well!”

I recommend that the HOA have an audit. This may well be required by the bylaws, and it would help answer questions about whether or not there are questionable charges.

If there are, the question becomes whether or not they add up to enough to make legal action reasonable.

Also, FWIW - people who buy in HOAs currently under development can protect themselves by dealing with reputable developers and builders. The pros generally don't just pull bad behavior out of thin air one day - they'll very likely have a track record of bad behavior, and there will be some evidence of that on the web.

Look at it this way. The corporation (HOA) needs things to be done. The developer (and his crew) can either do the work themselves and bill the HOA, or he can hire others to do the work and let them bill the HOA.

In either case the work has to be done and it has to be paid for by the recipients of the work, namely the HOA. People can get confused by the fact that the HOA board works for free, and they expect others to do the same. Not how it works.

Nobody "owns" an HOA.

Again, it depends on how much was spent and what it was for.

If the developer used $3million association funds to cover the cost of grading and paving the roads and installing street lights, is that still water under the bridge?

If the association is now broke because the developer spent the entire operating budget on new office furniture for themselves, is it water under the bridge?

If it turns out the invoice was for $200 to review an ACC request, then yes, that's water under the bridge.

But unless the original poster comes back and enlightens us, all we can say is, "it depends."

Exactly what stock do I own in this "fairy" corporation? Is it a long term or short term capital gain?

Our former Declarant, as fine and honest businessman as you could meet, did charge the HOA an MC fee.

As he should, unless people believe he should work for free. The other option would have been to hire an MC, who most certainly would have been paid for their services.

Exacty why is it "fraud"? It is not fraud. It's a honest charge on the record books. They charged for their time whatever the definition that means.

You are already going to illegal terms and calling out "Fraud" when we don't even know the details. Plus if Cathy/John are right (which I agree with them) then there is nothing illegal going on. It's an expense the HOA in the Developer's name has every right to charge.

Exactly why and how are you going to sue or press charges against your HOA using your own HOA member's money to do so to get back money that was already taken out of the budget for a budget expense?

Interesting question: does someone own the HOA? I understand what you mean when you say that the developer "owns" the HOA, but it would be more correct to say the developer "controls" the HOA, for the period of developer control and then the owners control the HOA.

Doing an internet on ownership of nonprofits turns up many sites that explain:

"No one person or group of people can own a nonprofit organization. Ownership is the major difference between a for-profit business and a nonprofit organization. For-profit businesses can be privately owned and can distribute earnings to employees or shareholders. But nonprofit organizations do not have private owners and they do not issue stock or pay dividends. "
That is from https://cullinanelaw.com/nonprofit-law-basics-who-owns-a-nonprofit/

And from https://www.501c3.org/who-really-owns-a-nonprofit/ :

The concept of who owns a nonprofit organization can be hard for some to grasp, especially given that the answer is, “No one!”

...Nonprofit corporations do not declare shares of stock when established.

...Also, a nonprofit cannot be sold. Again, without an ownership mechanism, it simply isn’t possible.

...It is difficult for some people to wrap their head around this idea of non-ownership. That’s completely understandable. We’re programmed to think of business in terms of entrepreneurs, owners, and shareholders. A nonprofit organization is not “owned” by the people who start it, nor their successors in leadership.

Certainly for condos, unit owners are "tenants in common" and own an undivided interest in the common areas, and we pay property taxes on our units and our undivided interest. Our Declaration lists the par value (or fraction of ownership) of each unit - if you add up the par values of all the units in the community, they add up to 1.

But it's definitely not the same as owning shares of publicly traded companies or owning my own company.