Transition question

DavidG45 (Delaware)
Posts: 994

Posted:

we are a newer community with 550 homes completed out of a total 656 in our plan. In May the developer terminated control of the HOA, but he still controls the common areas (about 70 acres spread over a dozen parcels) along with two separate clubhouse areas with pools and sports courts.

The common areas are nowhere near complete according to the plan - about a hundred trees have yet to be planted, walking trails have not been constructed, grading is not sufficient, etc.

The clubhouses and pools are complete, although the landscaping around them is not. Again, shrubs and trees do not match the plan, lawn areas are dirt and rock, etc.

The board has indicated that within the next few months the developer is going to deed the amenities to the HOA. Out of curiosity, I searched the parcel information and discovered that one of the clubhouse sits on a parcel that is 14 acres - spreading out throughout much of the resident areas. The other clubhouse sits on about 26 acres - again snaking throughout the neighborhood in easement areas, drainage areas, etc. I do not believe the board is aware of this - I suspect they think the two parcels are just a couple of acres housing the amenities.

This sort of raises an alarm to me. I have always been told that when the development is complete all of the common areas will be deeded to the HOA, but it will first involve a complex procedure where we hire an engineer who, together with the town (to which the developer has posted a large bond) will inspect the common areas to make sure they match the plan, and negotiate with the developer before the common areas are accepted. However, the board board has made no mention of this. I am told he will simply file a quit claim deed and we will own the two parcels on which the clubhouses sit, along with the forty acres of common areas.

If we accept the deed, will we not then be accepting all 40 acres on which the clubhouses sit? Do we forfeit our right to inspect it and force the developer to complete it to the plan?

Our board is pretty inexperienced, and "our" attorney is actually the developer's attorney, so I am afraid we are about to get hoodwinked. On the other hand, I can't help but think there is some kind of safety measures in place for this kind of thing.

Thoughts?

AugustinD
Posts: 1,027

Posted:

Quote:

Posted By DavidG45 on 10/14/2022 8:53 AM
we are a newer community with 550 homes completed out of a total 656 in our plan. In May the developer terminated control of the HOA, but he still controls the common areas (about 70 acres spread over a dozen parcels) along with two separate clubhouse areas with pools and sports courts.
.
.
.
Our board is pretty inexperienced, and "our" attorney is actually the developer's attorney, so I am afraid we are about to get hoodwinked. On the other hand, I can't help but think there is some kind of safety measures in place for this kind of thing.

The way I see it (and emphatically so):

The developer is one corporation.

The HOA is now another, completely separate corporation.

An attorney representing both at the same time on this issue has a massive conflict of interest.

The HOA Board is its own boss now. It should hire its own attorney.

To minimize the chances of disputes and possible, subsequent litigation, and so protect the HOA, I agree the HOA should be taking a number of lengthy steps prior to turnover of this common area occurring.

MichaelT21 (Arkansas)
Posts: 462

Posted:

David,

This might not answer your question, but I cringe when I read about 550 homes with acres of common space, pools, and multiple clubhouses. That is as much stuff going on as many small towns in my home state.

You'll need ample professional help to pay for the management expense of what your association owns. Your homeowners will need to pay for it. Please set your dues high enough to hire good quality professional help to manage your complex HOA.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By AugustinD on 10/14/2022 9:15 AM

Posted By DavidG45 on 10/14/2022 8:53 AM
we are a newer community with 550 homes completed out of a total 656 in our plan. In May the developer terminated control of the HOA, but he still controls the common areas (about 70 acres spread over a dozen parcels) along with two separate clubhouse areas with pools and sports courts.
.
.
.
Our board is pretty inexperienced, and "our" attorney is actually the developer's attorney, so I am afraid we are about to get hoodwinked. On the other hand, I can't help but think there is some kind of safety measures in place for this kind of thing.

The way I see it (and emphatically so):

The developer is one corporation.

The HOA is now another, completely separate corporation.

An attorney representing both at the same time on this issue has a massive conflict of interest.

The HOA Board is its own boss now. It should hire its own attorney.

To minimize the chances of disputes and possible, subsequent litigation, and so protect the HOA, I agree the HOA should be taking a number of lengthy steps prior to turnover of this common area occurring.

I should qualify the attorney situation. This is the attorney that the developer hired six years ago when development began. He has been serving the HOA via the developer this entire time, and the new board has chosen to keep him on board. But realistically he gets his gigs through the developer, and has always acted in a way to makes me feel he is more beholden to the developer than the homeowners.

For better or worse, he is the attorney the board is going to use.

I'm mainly curious if we are at risk of forfeiting any rights we have by accepting the deed without a transition study; ie should I be forcefully arguing to the board that we need a transition study ASAP, and that we cannot accept the deed until such study has been made. I believe many here are anxious for the amenities to be turned over to us, so we can manage them efficiently and not have to go through the developer for every repair or light bulb. But I am afraid if we rush to accept the deed the developer (who has not proven himself to be in any way scrupulous) will skip away gleefully, with nobody to hold him accountable to the plan.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By MichaelT21 on 10/14/2022 9:22 AM
David,

This might not answer your question, but I cringe when I read about 550 homes with acres of common space, pools, and multiple clubhouses. That is as much stuff going on as many small towns in my home state.

You'll need ample professional help to pay for the management expense of what your association owns. Your homeowners will need to pay for it. Please set your dues high enough to hire good quality professional help to manage your complex HOA.

Yes, we are paying in excess of $150,000 annually for a nationwide property management company to manage our property. Unfortunately, they are breathtakingly incompetent, and completely incapable of guiding us through a complex transition - so I am trying to stay on top of it.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

David

Are you on the BOD?

AugustinD
Posts: 1,027

Posted:

Quote:

Posted By DavidG45 on 10/14/2022 9:30 AM
I should qualify the attorney situation. This is the attorney that the developer hired six years ago when development began. He has been serving the HOA via the developer this entire time, and the new board has chosen to keep him on board. But realistically he gets his gigs through the developer, and has always acted in a way to makes me feel he is more beholden to the developer than the homeowners.

For better or worse, he is the attorney the board is going to use.

I'm mainly curious if we are at risk of forfeiting any rights we have by accepting the deed without a transition study; ie should I be forcefully arguing to the board that we need a transition study ASAP, and that we cannot accept the deed until such study has been made. I believe many here are anxious for the amenities to be turned over to us, so we can manage them efficiently and not have to go through the developer for every repair or light bulb. But I am afraid if we rush to accept the deed the developer (who has not proven himself to be in any way scrupulous) will skip away gleefully, with nobody to hold him accountable to the plan.

[shaking head] You do realize that this attorney cannot take any action that hurts his client the developer, don't you?

So when the board rightly turns to the HOA's attorney to see what the "HOA attorney" thinks of your suggestion, this HOA attorney should tell the board to get another attorney. It's an easy call. But: What if the "HOA attorney" does not recuse himself?

Maybe ask the board to get the opinion of the HOA insurer here? Else I think you should go ahead and recommend a transition study (if this exists, and it may) and, gently, a second attorney's opinion. But forget about the "forceful" part. Thinking that being "forceful" is going to accomplish anything is a psychological myth. You present your arguments calmly. Calmly question those who disagree. Let the chips fall where they may.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By AugustinD on 10/14/2022 9:51 AM

Posted By DavidG45 on 10/14/2022 9:30 AM
I should qualify the attorney situation. This is the attorney that the developer hired six years ago when development began. He has been serving the HOA via the developer this entire time, and the new board has chosen to keep him on board. But realistically he gets his gigs through the developer, and has always acted in a way to makes me feel he is more beholden to the developer than the homeowners.

For better or worse, he is the attorney the board is going to use.

I'm mainly curious if we are at risk of forfeiting any rights we have by accepting the deed without a transition study; ie should I be forcefully arguing to the board that we need a transition study ASAP, and that we cannot accept the deed until such study has been made. I believe many here are anxious for the amenities to be turned over to us, so we can manage them efficiently and not have to go through the developer for every repair or light bulb. But I am afraid if we rush to accept the deed the developer (who has not proven himself to be in any way scrupulous) will skip away gleefully, with nobody to hold him accountable to the plan.

[shaking head] You do realize that this attorney cannot take any action that hurts his client the developer, don't you?

So when the board rightly turns to the HOA's attorney to see what the "HOA attorney" thinks of your suggestion, this HOA attorney should tell the board to get another attorney. It's an easy call. But: What if the "HOA attorney" does not recuse himself?

Maybe ask the board to get the opinion of the HOA insurer here? Else I think you should go ahead and recommend a transition study (if this exists, and it may) and, gently, a second attorney's opinion. But forget about the "forceful" part. Thinking that being "forceful" is going to accomplish anything is a psychological myth. You present your arguments calmly. Calmly question those who disagree. Let the chips fall where they may.

Yes, "forceful" is a bad choice of words.

AugustinD
Posts: 1,027

Posted:

You might find super gentle wording to bring up concerns about the developer's attorney maybe not being entirely impartial here.

Of course, who knows? Maybe the developer's attorney will agree with you. I think he's in a terrible position in this and really holding himself out there to liability down the road, with either the developer or the HOA potentially or an insurer suing him.

What you need are some real life case studies of things going amiss following transition.

I will get down from the soap box (about the attorney here) starting now.

LetA (Nevada)
Posts: 2,679

Posted:

David, is your development a sub association of a master association? This would be one of the only ways I can see a developer handing off the HOA to the owners,
REGARDLES, under no circumstances sign off on the bonds util every thing is repaired. Constriction vehicles do a lot of damage to sidewalks, curbs, utility vaults etc. Walt the entire property Preposition
yourself, anywhere a mouse can go.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Most developers are required to post a bond with the city/county.
I would recommend that the HOA place a claim on that bond until everything is completed according to plan.
You may need an attorney to do this properly.

Regarding transition, I offer the following:

Best Practices - Transition from the Foundation for Community Association Research (pdf document)

Developer/Homeowner Transition: A Guide To Success

Developer Transition in a Community Association

Developertransition.com This website is intended to specifically address the issues facing townhome, condominium, and homeowner associations in North Carolina. [still has good general information as well]

Subject: HOA transition from developer control to homeowner control Thread in HOATalk that discusses having a Transition Study done by an engineering firm.

What Goes in an HOA Transition Checklist for New Communities 2020 article

I've also attached the checklist that is typically provided by many on this site when there is a discussion about transitioning.

📎 Attachments (1):

⏸ Downloads temporarily unavailable

📝11014483517671.doc(23 KB)

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By TimB4 on 10/14/2022 12:48 PM
Most developers are required to post a bond with the city/county.
I would recommend that the HOA place a claim on that bond until everything is completed according to plan.
You may need an attorney to do this properly.

Regarding transition, I offer the following:

Best Practices - Transition from the Foundation for Community Association Research (pdf document)

Developer/Homeowner Transition: A Guide To Success

Developer Transition in a Community Association

Developertransition.com This website is intended to specifically address the issues facing townhome, condominium, and homeowner associations in North Carolina. [still has good general information as well]

Subject: HOA transition from developer control to homeowner control Thread in HOATalk that discusses having a Transition Study done by an engineering firm.

What Goes in an HOA Transition Checklist for New Communities 2020 article

I've also attached the checklist that is typically provided by many on this site when there is a discussion about transitioning.

Good information especially the part about putting a claim on the bond.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Conflicts of Interests a Leading Cause of Malpractice Claims

Quote:

"Even experienced and well-meaning attorneys can suddenly find themselves in representations that present conflicts of interests. Vigilance and a game plan are key to preventing these conflicts from becoming a bar disciplinary action or a malpractice claim."

Here's a quick thought experiment: which client will generate the most revenue for the attorney, the HOA or the developer? Not only is there a conflict of interest between the two clients, the attorney also has a financial incentive to keep one client happy at the expense of the other.

This is a really bad situation. If I were that attorney, I'd be concerned about lawsuits and professional sanctions as well as the hit to my professional reputation.