HOA buying and selling land

Our HOA has a divisive issue going on right now, and I am researching the legality of it. I am not currently a board member and do not have access to our HOA attorney. This has to do with the HOA buying and selling land.

A piece of land came up for sale next to our entrance. It was zoned commercial, and there has always been a fear that someone would put an undesirable business there, like a gas station or a Dollar General.

The current HOA board decided to buy this land and zone it residential and then sell it. They have already bought it and got the zoning app approved. So the next step is selling it.

The land was purchased using funds from our private road fund, the rest with a conventional mortgage. So at this exact point time our road fund, which has been building for over a decade is now depleted and we have mortgage payments added to our budget.

I have been researching the legalities of an HOA selling community property and the answer I’m seeing online is that it would take 100% of the vote, not just a property owners, but of all the bank mortgage owners as well. Similar post online warrant that it is very difficult and probably not gonna happen..

My question is if anyone sees anything different about our situation, then a more typical situation of an HOA, selling community property. That typical situation would be where the declarant had property that was tied to every individual property owners deed. Since this land that our HOA purchased was a recent addition, I don’t think there’s any language in property owners deeds.

Since the HOA bought the property without a vote of the neighborhood, but rather using executive privilege of the board, does that mean they can just like sell it without a vote?

Was the purchase of the land in the first place legal without a vote? Either way, that ship has sailed and we are now the proud owner of the land and hold a mortgage on it, and our fund is depleted.

(By the way, this is the same board that in my previous post converted our voluntary HOA into a mandatory HOA without a vote. I’m not trying to combine those two issues, though.)

In answer to your question about the lack of a vote, if you actually were an HOA and not an LLC, the answer would almost certainly be yes a vote was required. But you're not an HOA, so you'd be governed by whatever CC&Rs govern your LLC. Hopefully the CC&Rs have been recorded in your county and you'll be able to get a copy of them.

(Not being snarky, but in your shoes I'd be debating who to call first, a lawyer or a realtor.)

Please locate a copy of your HOA's Declaration of CC&Rs and its bylaws. Please quote here, word for word, everything they say about the corporation/company buying and selling land.

The aforementioned documents are contractual terms. You have a right to enforce these terms in court.

Typically the Declaration and/or bylaws say that a super majority or sometimes, 100% of owners have to approve the purchase or sale of land owned by the HOA corporation.

What HOATalk is going to do for you is introduce you to the main legal authorities (here, the Declaration and Bylaws) for what the board and owners can and cannot do.

Our HOA had the right to buy land. It was written in our documents. However, it is kind of one of those things left over from the Developer. At the time Developer was involved the land around us wasn't occupied or built on. So this left us the ability to have bought the land to expand our HOA if we choose. It would increase our membership. However, over the years this got overlooked and not possible. It would be possible if there were parcels available.

It sounds like your HOA may had some land leftover from the Developer? The reasoning I can think of purchasing this land to make it residential is to have more membership or common area. Do they want more houses built there? Did they purchase it for development? Did they purchase it to add an amenity?

There is one major concern in all of this. The tax ramifications. It doesn't sound like anyone considered if they sold that land for profit for the HOA, that is ALL subject to taxation. It may not be like selling one's house. That scenerio is usually not taxable income. However, it could be as a HOA that is incorporated as non-profit.

I'm in NC and our declaration states we need 75% approval to buy or sell land.
What does your declaration say?
This sounds like a stupid move bythe board, I would try to get on the board and get them kicked out.

a good reference book is the ebook
COMMON INTEREST COMMUNITIES
IN NORTH CAROLINA
SECOND EDITION
BY
BRIAN S. EDLIN

99% of the time I get an answer in it.

Doesn’t sound stupid to me. A business near the entrance will affect the appearance of the community, traffic entering and exiting the community, and may have a negative effect on property values. The opportunity presented itself for the HOA to purchase the property and the board acted.

The purchase is a temporary expense and the funding will be returned to the appropriate account. Hopefully the board consulted legal council to determine they had the authority to complete the purchase and financing the way they did it.

Another perspective is that the property is simply an investment (like purchasing a certificate of deposit) and NOT common area or a common element.

With this perspective, the statute cited by Wendy would not apply.

Your interpretation of this law is incorrect. Just because the HOA purchased land, does not make that land a common element. For land to be a common element, the land must contained within the legal description of the HOA. The legal description will contain the surveyed boundaries.

An Board does not require homeowner approval to convey (transfer) the land or for a security interest on that land when it is not a common element under the law you quoted.

Mark

I doubt your BOD took this task on without some legal advice maybe they know what they are doing.

Common area must be designated as such on PLATS.

My Association talked an owner into giving/selling a lot to the Association for the purpose of having it as common area (they wanted to build a pavilion).
Our attorney, and confirmed by the County, since the lot had been designated "build-able" it could not just become common area without rezoning.
The Association could still purchase it and treat it as common area, but would have to pay property taxes on the Association would be in violation of our own CC&Rs that specified residential use only.

The Association could try to have it PLATed as common area but that would be an additional expense and zero guarantee the zoning commission would do it (as the county would lose the property taxes from it).

Fortunately, in my opinion, the board never followed through with it.

In a no income tax state, I am a bit shocked HOA common areas are not taxed. They are in Ohio.