Developer hid lease from the POA

KellyC14 (Montana)
Posts: 4

Posted:

Our POA is a mess but this is the most pressing question I have right now. POA is in Missouri.

Our developer has the right to enter leases on behalf of the POA per our documents. Developer owns the clubhouse, it has not been transferred to the POA (will have to be sold to us). Just recently we found out that 10+ years ago he drafted a lease whereby he (as developer) leases the clubhouse to the POA for $60,000 a month. He has never billed for the monthly rent and until July, never disclosed it's existence to anyone. Then we get financial statements and there's over a million dollars in back rent on the balance sheet. Obviously this is a material amount and would have affected whether we would have purchased, as well as many of the other home owners, had we known about it.

So many questions about it, but on the surface, do we have a leg to stand on to get this lease voided and/or the back rent removed due to it not being disclosed. We just built 2 years ago, I certainly am not going to pay for prior years of rent that should have been billed/collected at the time.

Looking for advise as to where we should go with this, try to negotiate with the developer or just head straight to an attorney.

There are other issues, but this is the biggest one that we are willing to take a stand. Additionally, is there a way to get the board (all developer members) removed due to this?

Thank you for your input, happy to answer any questions.

CathyA3 (Ohio)
Posts: 6,299

Posted:

You personally need to consult with a lawyer and the board also needs to talk to an attorney before anyone tries any negotiating. You have no idea what obligations this lease imposes on the POA, or if you personally have any claim for failure to disclose the lease.

Start looking for attorneys who are well versed in real estate law. The board should look for attorneys who handle community associations. Lord knows what other skeletons are lurking in a closet somewhere. I'm assuming there are some, because I think what the developer did is pretty sketchy if he was still in control of the POA when the lease was signed and he still had ethical obligations to the POA.

ElleN (Idaho)
Posts: 1,335

Posted:

Quote:

Posted By KellyC14 on 11/11/2024 10:21 AM
Our POA is a mess but this is the most pressing question I have right now. POA is in Missouri.

Our developer has the right to enter leases on behalf of the POA per our documents. Developer owns the clubhouse, it has not been transferred to the POA (will have to be sold to us). Just recently we found out that 10+ years ago he drafted a lease whereby he (as developer) leases the clubhouse to the POA for $60,000 a month. He has never billed for the monthly rent and until July, never disclosed it's existence to anyone. Then we get financial statements and there's over a million dollars in back rent on the balance sheet. Obviously this is a material amount and would have affected whether we would have purchased, as well as many of the other home owners, had we known about it.

Have you actually been billed for back rent?

Quote:

Posted By KellyC14 on 11/11/2024 10:21 AM

So many questions about it, but on the surface, do we have a leg to stand on to get this lease voided and/or the back rent removed due to it not being disclosed. We just built 2 years ago, I certainly am not going to pay for prior years of rent that should have been billed/collected at the time.

Has the POA or POA members been using the clubhouse?

I will say that this is not uncommon. It is a development scheme attacting wealthier folks (who see all the bright shiny objects that come with the home purchase and do not do more investigating) that tends to be legal. Sometimes things fall apart 20 year later, when the developer is gone or nearly gone. When all manner of HOA corporate infrastructure (leased or owned outright) comes with a home purchase, I say: "buyer beware."

KellyC14 (Montana)
Posts: 4

Posted:

No, we have not been billed. It just appeared on a balance sheet this past month.

The members have been using the clubhouse.

KellyC14 (Montana)
Posts: 4

Posted:

CORRECTION, it's $6,000 a month, NOT $60,000

DouglasK1 (Florida)
Posts: 2,046

Posted:

Quote:

Posted By CathyA3 on 11/11/2024 11:47 AM
The board should look for attorneys who handle community associations.

According to the OP, the board is developer appointees so apparently the HOA is still under developer control.

Quote:

Posted By KellyC14 on 11/11/2024 10:21 AM

Our developer has the right to enter leases on behalf of the POA per our documents. Developer owns the clubhouse, it has not been transferred to the POA (will have to be sold to us). Just recently we found out that 10+ years ago he drafted a lease whereby he (as developer) leases the clubhouse to the POA for $60,000 a month. He has never billed for the monthly rent and until July, never disclosed it's existence to anyone. Then we get financial statements and there's over a million dollars in back rent on the balance sheet. Obviously this is a material amount and would have affected whether we would have purchased, as well as many of the other home owners, had we known about it.

So many questions about it, but on the surface, do we have a leg to stand on to get this lease voided and/or the back rent removed due to it not being disclosed. We just built 2 years ago, I certainly am not going to pay for prior years of rent that should have been billed/collected at the time.

Looking for advise as to where we should go with this, try to negotiate with the developer or just head straight to an attorney.

There are other issues, but this is the biggest one that we are willing to take a stand. Additionally, is there a way to get the board (all developer members) removed due to this?

Based on your updated rent of $6k/mo I assume the balance on this is likely well under 1 million, unless this has been going on for 15 years or more. In any case, talking to an attorney with the specifics is a good idea. Maybe you can join with other concerned owners to share the cost of this.

I assume your association is under developer control if they appoint the board members. Your governing documents and possibly state law should tell you when association control is to be transferred to the members, what is the criteria for that to happen? Assuming that threshold has not been passed, the board will stay developer appointed unless you sue and win a case directing transfer of control to the owners. Keep in mind that suing could easily cost 10s of thousands of dollars, so unless you have that to burn, you might want to see of there are other owners willing to join in this action.

Escaped former treasurer and director of a self managed association.

DeanJ
Posts: 1,786

Posted:

Quote:

Posted By KellyC14 on 11/11/2024 10:21 AM
Our POA is a mess but this is the most pressing question I have right now. POA is in Missouri.

Our developer has the right to enter leases on behalf of the POA per our documents. Developer owns the clubhouse, it has not been transferred to the POA (will have to be sold to us). Just recently we found out that 10+ years ago he drafted a lease whereby he (as developer) leases the clubhouse to the POA for $60,000 a month. He has never billed for the monthly rent and until July, never disclosed it's existence to anyone. Then we get financial statements and there's over a million dollars in back rent on the balance sheet. Obviously this is a material amount and would have affected whether we would have purchased, as well as many of the other home owners, had we known about it.

So many questions about it, but on the surface, do we have a leg to stand on to get this lease voided and/or the back rent removed due to it not being disclosed. We just built 2 years ago, I certainly am not going to pay for prior years of rent that should have been billed/collected at the time.

Looking for advise as to where we should go with this, try to negotiate with the developer or just head straight to an attorney.

There are other issues, but this is the biggest one that we are willing to take a stand. Additionally, is there a way to get the board (all developer members) removed due to this?

Thank you for your input, happy to answer any questions.

I wonder what would happen when the HOA is turned over to the homeowners and the HOA declared bankruptcy.

LetA (Nevada)
Posts: 2,679

Posted:

Like others have said, you need to find a lawyer to protect your home asset. If you are still under declarant control, how
many board of directors are appointed by the declarant and how many board members have been voted by the HOA or are all
the board members appointed by the declarant?

Those board members that were voted on by the homeowners need to get a lawyer not associated with the declarant.

DeanJ
Posts: 1,786

Posted:

Quote:

Posted By DeanJ on 11/11/2024 6:53 PM

Posted By KellyC14 on 11/11/2024 10:21 AM
Our POA is a mess but this is the most pressing question I have right now. POA is in Missouri.

Our developer has the right to enter leases on behalf of the POA per our documents. Developer owns the clubhouse, it has not been transferred to the POA (will have to be sold to us). Just recently we found out that 10+ years ago he drafted a lease whereby he (as developer) leases the clubhouse to the POA for $60,000 a month. He has never billed for the monthly rent and until July, never disclosed it's existence to anyone. Then we get financial statements and there's over a million dollars in back rent on the balance sheet. Obviously this is a material amount and would have affected whether we would have purchased, as well as many of the other home owners, had we known about it.

So many questions about it, but on the surface, do we have a leg to stand on to get this lease voided and/or the back rent removed due to it not being disclosed. We just built 2 years ago, I certainly am not going to pay for prior years of rent that should have been billed/collected at the time.

Looking for advise as to where we should go with this, try to negotiate with the developer or just head straight to an attorney.

There are other issues, but this is the biggest one that we are willing to take a stand. Additionally, is there a way to get the board (all developer members) removed due to this?

Thank you for your input, happy to answer any questions.

I wonder what would happen when the HOA is turned over to the homeowners and the HOA declared bankruptcy.

The scenario I would propose to legal council is the owners forming a separation owners association to bring a civil suit against the developer for fraud or deceptive marketing and the HOA declaring bankruptcy and refusing to pay the rent.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Quote:

Posted By DeanJ on 11/11/2024 9:35 PM
... snip ...

The scenario I would propose to legal council is the owners forming a separation owners association to bring a civil suit against the developer for fraud or deceptive marketing and the HOA declaring bankruptcy and refusing to pay the rent.

It may get to that.

If the developer is still in control, I doubt whether the association's attorney would even talk to homeowners - the attorney's client is the HOA, and the representative of the HOA is the board (now controlled by the developer). Homeowners who are on the board, if any, have no authority to do an end run around the board as a whole - and that includes talking to the HOA attorney. Any HOA lawyer who knows his business can see a legal dispute brewing and will tread carefully.

If I were in the OP's shoes, I'd try to find out as much as I could about that lease. When was it signed? Was it recorded in the county? What are the rights and duties of both parties? What provisions, if any, allow for either party to cancel the contract?

I assume that the lease and previous financial statements are all association records that should be available for inspection. I would expect push back for any such request, though. OP needs a lawyer who represents OP's interests which may or may not coincide with those of the rest of the community.

KellyC14 (Montana)
Posts: 4

Posted:

Quote:

Posted By CathyA3 on 11/12/2024 4:34 AM

Posted By DeanJ on 11/11/2024 9:35 PM
... snip ...

The scenario I would propose to legal council is the owners forming a separation owners association to bring a civil suit against the developer for fraud or deceptive marketing and the HOA declaring bankruptcy and refusing to pay the rent.

It may get to that.

If the developer is still in control, I doubt whether the association's attorney would even talk to homeowners - the attorney's client is the HOA, and the representative of the HOA is the board (now controlled by the developer). Homeowners who are on the board, if any, have no authority to do an end run around the board as a whole - and that includes talking to the HOA attorney. Any HOA lawyer who knows his business can see a legal dispute brewing and will tread carefully.

If I were in the OP's shoes, I'd try to find out as much as I could about that lease. When was it signed? Was it recorded in the county? What are the rights and duties of both parties? What provisions, if any, allow for either party to cancel the contract?

I assume that the lease and previous financial statements are all association records that should be available for inspection. I would expect push back for any such request, though. OP needs a lawyer who represents OP's interests which may or may not coincide with those of the rest of the community.

There aren't any homeowners on the board, only the developer (3 members). The developer won't answer any questions, they simply reply that they have provided us all they are required by law (financials) and thats it. We could exercise our inspection rights but haven't taken that step yet, they say we have to justify why we want to see the records, which we could do. Any other questions they simply ignore us.

I'm going to look at the county, and see if the lease is recorded there. Thanks for that tip.

LetA (Nevada)
Posts: 2,679

Posted:

Quote:

Posted By KellyC14 on 11/12/2024 9:23 AM

Posted By CathyA3 on 11/12/2024 4:34 AM

Posted By DeanJ on 11/11/2024 9:35 PM
... snip ...

The scenario I would propose to legal council is the owners forming a separation owners association to bring a civil suit against the developer for fraud or deceptive marketing and the HOA declaring bankruptcy and refusing to pay the rent.

It may get to that.

If the developer is still in control, I doubt whether the association's attorney would even talk to homeowners - the attorney's client is the HOA, and the representative of the HOA is the board (now controlled by the developer). Homeowners who are on the board, if any, have no authority to do an end run around the board as a whole - and that includes talking to the HOA attorney. Any HOA lawyer who knows his business can see a legal dispute brewing and will tread carefully.

If I were in the OP's shoes, I'd try to find out as much as I could about that lease. When was it signed? Was it recorded in the county? What are the rights and duties of both parties? What provisions, if any, allow for either party to cancel the contract?

I assume that the lease and previous financial statements are all association records that should be available for inspection. I would expect push back for any such request, though. OP needs a lawyer who represents OP's interests which may or may not coincide with those of the rest of the community.

There aren't any homeowners on the board, only the developer (3 members). The developer won't answer any questions, they simply reply that they have provided us all they are required by law (financials) and thats it. We could exercise our inspection rights but haven't taken that step yet, they say we have to justify why we want to see the records, which we could do. Any other questions they simply ignore us.

I'm going to look at the county, and see if the lease is recorded there. Thanks for that tip.

You need to hire a lawyer that deals with HOA and real estate, this may be a class action case. Only a lawyer can advise you on that.