Developer Turnover of a Different type

What I have been seeing with many of these mass builders across the country at turnover, in my opinion is completely illegal and unregulated. These turnovers are controlled by the developers. The new incoming Board is relying on the developers to do the transition. Unfortunately, these new members who most likely have no real knowledge of HOA's or access to operating funds, cannot or do not have the resources to hire an HOA attorney, or even think they even need one to review the financials or other documents prior to the turnover to make sure the developer isn't pulling a series of fast ones on the community. Has the developer even been collecting dues since the buyers moved in? We found that after the turnover, the receivables were over $100,000 on over 35 residents. Some residents didn't even know they were living in an HOA and never received the documents. Many were told by the Developer Reps/sales to,"get as much done as you can before the new HOA takes over" to avoid applications. Now, after the turnover, there's dozens of residents saying, " well the neighbor did this to their property, why cant we?" The other missing subject is the Reserve Study. Many dont even know what it is and the developer has no interest in creating a Reserve especially if the state doesn't, "require it". I've read of developers low-balling dues specifically to attract buyers, only to learn the dues suddenly became double or triple the original number by closing time. Developers stating they will include a number of amenities during sales time only to find that they either pull the funds at the last minute and triple the dues, or tell the new board they have to pay $3,000,000 to purchase the amenities or they will sell to an outside firm and force buyers in the community to purchase memberships. I've read many stories of devastated new home buyers that literally don't know where to turn for help.

Sigh – another massive paragraph that’s hard to read. Please use shorter ones next time – one idea to a paragraph usually works and is easier on the eyes.

Anyway, the things you said do happen around the country and it IS sad and has been going on for years. You also know money talks and BS walks, which explains a lot of this (and it doesn’t matter which political party is in power). Unethical doesn’t always mean illegal – it would be nice if it did, but that’s life.

There are so many HOAs these days, that it really behooves people to find out as much as they can about them and the developers who build these communities (maybe some are better than others in preparing their homeowners for successful transitions.) You don’t say you’re on this board, but you seem to have a good grasp on the issues that can cause lots of trouble for an inexperienced board. I hope you're considering offering to help them with the transition.

I’d start with looking at the Community Association Institute (CAI) website, which has lots of educational materials on a variety of HOA issues, including transitioning from developer controlled to homeowner controlled. As you’ve guessed correctly, there’s a lot to this and some developers are better than others in educating the new board on what they’ll need to know. Hopefully that’s your situation, but if not, look around that website and suggest the new board invest in some of those education materials as well as look at their documents thoroughly. The Board Member's Toolkit would be excellent for your board and then you can look at other subjects.

There have been some conversations on this website about developer transactions and you can read some of those to get some ideas on what to do and what to avoid. You can put subsequent questions on this conversation since the old conversations are – old – and there have likely been lots of changes since then.

Back to educating your board - some areas I'd look at include:

• Board operations – duties of board officers, protecting against conflicts of interests, effective meetings, parliamentary procedure (if you don’t want to work with Robert’s rules of order, you don’t have to, but you need to bring some order to the meeting so you aren’t there all night and get things done), when to have executive sessions, running board elections

• Property managers – how to select them, work with them, evaluate them, what to consider if you’re considering becoming self-managed

• HOA insurance – this may be huge, depending on the extent of your common areas because master insurance is going way up and some HOAs have been dropped and are having a difficult time finding coverage

• Reserve funds – what are they, why do you need them, what is a reserve study, how to use the study to help prepare the budget. PS: If you don’t think this may not be important, read up on the Surfside disaster.

• Governing documents – what’s the purpose of the declaration vs. the bylaws vs. the CCRs, the hierarchy of documents (basically rules set by the board will be trumped by the documents, which are trumped by local, state and federal law, in that order), how to amend them. This will also require that you read your documents carefully

• The association attorney – why you need one, how to hire one, etc.

• Collections – establishing a policy, addressing delinquencies

• Budgeting – establishing a budget, evaluating them, reviewing income/expense statements, what balance sheets tell you about the association’s financial health

• Internal controls – policies and procedures you’ll need to prevent waste, embezzlement and outright fraud from everyone (board members, property managers, etc.)

• Association vendors – how to hire and manage them, evaluating them, writing and reviewing request for proposals

And that’s just for starters. It's a lot and may be overwhelming for some, so it's important the board identifies who has talent in what and those board members can take the lead. Every board member should have something to focus on - the more people who share in the work, the easier it will be and you can always rotate to learn about different areas. People don't always know what they're capable up unless they're given the opportunity.

There should also be an effort to establish advisory committees where other homeowners can bring in their skill sets. Some of them may serve on the board someday, so this is a good way to get acquainted with what's required. As for everyone else, encourage everyone to read their documents - some say they weren't aware of a HOA, but I suspect there were documents somewhere in that pile of paperwork they signed at closing and they didn't read any of it. Too late to back out now - the developer really doesn't care because it has the money, so now it's up to the homeowners to find out how their community is supposed to work and how they can help make that happen.

You seem to know the issues that can cause lots of dramafor your community, especially if the board doesn’t educate itself, so I hope you’ll consider reading up on best practices and then offering your assistance. You may even wind up on the board itself and make even more contributions – good luck!

Thank you for your input. I am currently the VP of our HOA of 300 homes and the Chair of the ARB Committee. Ive been on Boards since 2016. My prior comments were focused on the mass builders Ive read about throughout the country from other board members and the nightmares they have dealt with.

FS 720.307 (section (4) in particular) has a long list or requirements for developers at turnover. Have you reviewed these?