New Tennessee HOA Legislation

I've drafted legislation to limit the period for which the developer can remain in control of an HOA. I have both a State Senator and State Representative lined up who will carry the legislation to the next General Assembly but need a broader base of support from residents across the State of Tennessee. If you're interested in joining in I'd like to talk with you. Draft of new legislation is attached.

Cathy,

I've talked to Mick offline. He lives in a community where the developer has taken advantage of the issue. There have been legal actions on some of the things the developer has done (and the developer has lost).

In Micks situation, he is doing what he can for the community.

I assumed there was some reason behind it. We've heard plenty of stories on this website about developer shenanigans, and I do agree that they need to be addressed in some fashion.

I'm always a bit wary, though, of a universal solution to a problem that isn't universal. Unintended consequences are a thing, and it would be unfortunate if the law ties the hands of people whose hands don't need tying in order to deal with the ones whose hands do. I prefer a more targeted solution.

In any case, another law just provides another tool for prosecuting those who misbehave. In such cases, the ultimate "justice" will come about through the courts. This adds an additional financial burden on those who often can't afford it (*), and will be available only to those with the deep pockets necessary to lawyer up. Expensive litigation is a terrible way to launch a new community, and I question whether even those who can afford to litigate will ever recover from their adventures through the court system.

(* I'm willing to bet that the vast majority of home buyers don't have a line item for litigation in their budgets. I wonder what lenders would have to say about this.)

I'm in a different state.

Also, full disclosure: I've spend more over 14 years serving on a couple different condo association boards, and I've been employed for 17 years by a new home builder (who doesn't pull shenanigans). My employer actually builds in Tennessee, so I have a conflict of interest. I'm just an interested bystander since the issues you bring up can exist anywhere.

There are other issues involving developer transitions that can arise through no fault of the developer. For example, during the Great Recession and housing market downturn, a number of developers and builders went out of business. Buyers in those communities may have bought with the expectation that there would be amenities such as a pool or clubhouse, but the developer declared bankruptcy. Or the developer who's on the verge of going broke sells his remaining lots to a new developer or to the city. These new owners may change the nature of the community or put up rental or commercial properties. These things can happen. It's always a risk buying in a community that's under development because to some extent you're buying a promise, regardless of what it says on paper.

I'm not saying that the laws shouldn't be strengthened, just that you have to be realistic about what such changes can achieve. At some point the economy is going to determine what is possible, regardless of what the laws say. You can't force a bankrupt developer to do anything, as many discovered back in 2008-2012.

As far as a choice between elected homeowners who aren't professionals or an developer with conflicting interests, I don't want either one.

There is a reason that a receiver - who is a professional who's paid to perform the work of the board when a community doesn't have a board - can earn $200 - %500 per hour. There is a lot to know, nobody learns it overnight, and well-meaning newbies can get themselves and their communities into legal trouble with even the best intentions (Roads to Hell, etc.). An experienced developer should at least know enough to avoid legal trouble, but that person won't have the interests of the community in mind. At least the developer may be willing to talk dollars and cents, so you'd have some basis for discussion. You also can't generalize, since both of these options can be relatively benign or really toxic. If I were faced with such a choice, I'd go with the one with the least potential for damage. I at least can talk the developer's language, so there's a chance we could come to a meeting of the minds without too much harm to anyone.

All that said, I agree 100% about the influence of the Big Money Interests in this area. I believe that community associations exist to serve those interests, not the interests of buyers in these communities. And realistically, developers and builders are in it to make money. Any laws that require them to take what they view as unreasonable risks will result in them pricing the cost of those risks into their products - which may raise home prices beyond what many can afford. Or they may get out of the business altogether or go into commercial development. Sometimes there aren't great answers, just less bad ones.

Profit. You may not think "profit" is a real reason. But in the real world, it is.

Pardon?

The declarant's/developer's corporation is not non-profit.

Interesting question. I think it's more likely to be due to the nature of condo ownership vs. ownership in an HOA.

In condos, owners are tenants in common and own fractional shares of the condominium property - each owns an undivided interest in the common areas of the entire property, with the emphasis on "undivided". There's no way a developer could hang onto a piece of land inside the condo property that belongs to him alone. He could personally only own land that's outside of the currently defined condominium property. The condo association would have to annex this land and amend the CC&Rs in order to incorporate the land. (This actually happened when my condo community was being developed. When it was time to build a new building, the land changed ownership and our Declaration was amended to include the new section. You can still see these old property lines on the county's Geographical Info System maps.)

In HOAs, the association owns the common areas and individual homeowners own their own lots and homes - so an individual can personally own one or more lots that are inside of the HOA.

"Controlling agent" is not a legal term.

The declarant is profiting from the sale of lots and homes. Does it make financial sense to retain control so as to maximize profits from the sale of lots and homes? Of course it does.