Assessment/Votes on Undeveloped Lots

I would like some help in interpreting this statement from our Declaration "property and/or lot owners will be responsible for maintenance and repairs of said items on the basis of each lot owner (including lots owned by the developers) paying a proportionate share calculated on the number of lots owned as compared to the total number of lots laid out." Does this mean one assessment for each lot or one assessment per owner?

We are currently in the process of setting up an HOA (Developer never set one up). We are trying to determine assessment fees. Currently, every owner of a lot with a house on it pays an assessment fee (to the developer). Many have purchased extra lots to prevent someone building close to them, but no one pays an assessment fee for the undeveloped lots. The attorney interprets our covenant to read an owner pays only one assessment no matter how many lots they own because it says "each lot owner" and not "each lot". We have one owner who has two houses and currently pays two assessments. Additionally, the attorney we consulted says it is one vote per lot if the covenant does not say differently. Ours says nothing about voting. It doesn't seem right that you can have 4 votes but only pay one assessment.

We have one owner who has a total of 4 lots, one with a home on it. Although it seems right to me that every lot should be assessed, it also seems very unfair to ask that owner to pay 4 full assessment fees (currently $600 a year) when they were not told this when they purchased.

I welcome opinions and points of view. I have attached the complete section of the Declaration below for those that want to read the paragraph.

He is ignoring the rest of the verbiage ("calculated on the number of lots owned as compared to the total number of lots laid out"). Foul.

Worse, he is not going to like non-attorneys arguing with him.

Consider getting a second opinion. With luck the first attorney will be demoralized and quit. Seriously.

If the declaration says nothing about undeveloped lots paying less than developed lots, then the Declaration wording is what it is.

If you state what year this HOA's Declaration was recorded, then I will check NC statutes to see if there is anything to back up the interpretation you and I have.

Undeveloped lots are generally assessed at the lower rate than lots with houses on them. Your CC&Rs will address this.

And yes, it's one assessment per lot and not per owner, unless your community is very unusual. Think what would happen to the budget if one person owned 50% of the homes and only paid one assessment. The remaining homeowners would have to pay a disproportionate share of the maintenance costs to make up the difference. That's a recipe for a lawsuit if the CC&Rs didn't allow this.

The problem is our Declaration does not address this! The section (which is now attached below) is the only mention of assessments. That is why I am trying to clarify. I agree completely that it should be one assessment and one vote per lot, but unfortunately, the developer has told people they only need to pay one assessment no matter how many lots they own.

A more complete answer:



This reads a little weird, but I think what it says that if your community has been platted to have 100 lots, then an owner of 1 lot pays 1/100 or 1% of the year's total assessment amount for the community. An owner with 4 lots would pay 4 individual assessments, or 4% in total.

Where the math can get messy is with undeveloped lots. These are nearly always assessed at a lower rate than lots with homes on them. So I believe that the owner who owns 4 lots with a house on 1 of them will pay 1 full assessment plus 3 undeveloped lot assessments. The bottom line dollar amount would be the same if the owner with the house only owned that lot and the other 3 were sill owned by the developer.

But it will depend on what your CC&Rs actually say about this.



Usually it's 1 vote per lot, so I agree with the attorney here. It's not unusual for there to be a disconnect between the assessment amount and the votes while the community is still in development. For example, the developer's vote often carries a greater weight than a homeowner's vote, even though the developer's lots are being assessed at the lower rate. Once the community is fully built out, this particular discrepancy disappears. Where you may continue to have a disconnect is if the undeveloped lots each have a full vote. if your CC&Rs are not clear about this, it may be worth considering amending them to clarify this situation. It's also possible that people who currently own multiple lots will want to subdivide them in the future, so may as well get things straightened out now so that future boards aren't making things up as they go along.

Another question:

Is the developer still in the picture, or has control been turned over to the homeowners? I think it's a bit odd that the developer did not set up the HOA - that typically happens before any sales or construction happens, since the presence of an HOA is a required disclosure for real estate transactions. If the developer is still in control, then I believe this expense should belong to him and not the owners - it's part of the cost of doing business. He may end up passing the cost on to you in some form, but still....

If there was no HOA and the homeowners have decided that they want one, then I assume the attorney has told you that this will probably require 100% buy-in from owners. If not, then you absolutely should ask. If this has been addressed, nevermind... :-)

The declaration says what it says. All buyers knew they paid the assessment regardless of the lot being developed or not.

Just saying: I would not interject an opinion that might provoke some neophyte cowboy director into some weird interpretation down the road. Too often boards just make up the rules, with no basis in the covenants. Do not help this mistake along.

Besides, for one thing the undeveloped lots are more valuable with a properly maintained road. Why should the owners of the undeveloped lots not have to pay for the road upkeep?

Are there more than 20 lots in this subdivision? If so, I agree the NC Planned Community Act requires the HOA to be organized as a corporation. Furthermore, the liability risks to the present owners seem to me to be large without incorporation.

I would present the corporation requirement for the HOA (with more than 20 lots, I presume) to the developer and ask him to establish a corporation. If he refuses, send a demand letter light. Then keep escalating. No turnover until he registers the corporation.

"All buyers knew they paid the assessment regardless of the lot being developed or not." Many of the multiple lot owners bought the undeveloped lots after they purchased their home directly from the developer and he did not tell them they needed to pay assessment and he has never collected it. In my case, my house came with a small attached lot that has our septic on it. It could never be sold. Our purchase agreement stated one fee, not two. We have two newly purchased lots in the development, neither has started construction. One owner is paying the full assessment, the other is not. The assessments have not been applied in the same manner. That is why I am seeking clarification. We don't want to be making up rules.

We have 35 lots so the NC Planned Community does apply to us.

We do have roads and wells. We have a sign at the entrance. We also have a common space (.75 acre) which is supposed to give us access to a small waterway but the lot is extremely steep and heavily wooded. There is currently no way to get to the creek. This is a real sore point with owners. Previously we had access to the creek, but the lot was sold and a house was built on it with no easement to get to the common area.

First time buyers were told there was an HOA, fee amount, and that the developer was president. It wasn't until later we learned that there really wasn't an HOA. Owners who bought additional lots at a later date were told there would be no additional fees.

We have contacted an attorney and had one consultation so far. Unfortunately, he is busy and not being very responsive. We are in a very small county and he is the only attorney that will deal with HOAs. We may have to go further afield to find someone to assist us.

Elle,

We have had a couple of informal meeting with other owners and we have appointed a transition team. Everyone is in agreement that the past will stay in the past and we will start fresh. We won't be trying to collect back assessments and everyone is ok with this. We just want to be clear and legal and follow the covenant and state law from the date of incorporation.

You are right about educating the new board. There has been many a mention of maintaining "status quo". I keep saying we can't have "status quo" if it is not in the statutes, declarations, or bylaws. We can't just make things up.

I would want to see this "HOA's" financial records. I'm not saying that the developer has done something shady. I am saying that since he's been pretty loosey-goosey about doing things, it would have been easier to hide wrongdoing if it exists. Many CC&Rs require periodic audits of the books, and financial records are typically available to homeowners to inspect (I've never heard of a community association where homeowners could not inspect the books). So this is not an unreasonable thing to ask for.

Also somewhat related, but one other thing the new board should check on is the presence of insurance.

Not only does such insurance help protect the association from things like physical damage to the common areas and liability if someone is injured, it often contains some other types of insurance as well. These include Fidelity/Employee Dishonesty insurance (protects monetary assets if someone embezzles) and Directors & Officers insurance (protects board members and officers if they are sued for actions taken in the course of their duties). Some CC&Rs also required workers comp or equivalent (will depend on state law and if the HOA uses volunteers instead of professionals for various maintenance chores). In my association, the first four types of insurance are required, while workers comp is optional.

All insurance is important. But nobody should put their personal assets at risk in order to serve on an HOA board, so I consider the D&O insurance a must.

Cathy,
I would love to see the financial records as well! I have asked for receipts/bank info/expenses for the past two years so we could have some idea of what the expenses are to assist with setting up a budget. He refused. I know we can pursue this legally, but again the community has agreed to not push him. I don't believe he has done anything intentionally shady, but I don't doubt the money has not been handled appropriately. The transition team is planning on having a more formal discussion with him about the transition and we will ask him again.

What makes this difficult is that he is a part of our community. He is a friend to many. We don't agree with the ways some things have been done, but we have no desire to "punish" him. He has set up a beautiful peaceful community and everyone is extremely happy living here. We just want to move forward positively and make sure we follow the Declaration and state statute from here on out.

As far as insurance, there is none. We have already received bids from three agents for both liability and D&O insurance.

Thanks for all your input!

OMG. Thank heaven you're on top of it.