Declarant board ready to transition, with Financials showing 45K in debt and large withdrawals from Reserve Fund

We are a small Seniors 55+ community with many retired and in their upper years with little HOA experience. I moved in 6 months ago and started comparing the new budget for next year to the previous years. I was a member of an HOA for 32 years but had no experience with a declarant board. What I am learning has really got me worried. The board is currently owned by a large builder in the area. The covenants were written to give them broad control over everything and no obligation to pay any assessments for their homes, etc. I am learning that is standard. What bothers me, however, is that the budgets and monthly financial reports do not match up. Overspending is a pattern, and the assessments have been kept low to attract buyers. Additionally, the financials are carrying a 22K developer loan and a compounding 3-year deficit loss of around 32K. They just raided the cash reserves for 17K for operational expenses in August. Currently, without the loan on our liabilities side, we would be insolvent. All 117K of initiation fees have been spent on the HOA operations. There has been little to no communication with the elderly homeowners, and those that try to get help get the runaround from the HOA management company. Because it is a 55+ community, the covenants cover all general homeowner landscaping, home painting every 6 years, and roofs. After 3.5 years there is 12K left in reserves. I found some very expensive expenditures not on the budget and similar high unbudgeted expenditures the previous year. The Association was incorporated in 2022, and the first homes were built and sold in 2023. The HOA management is refusing to allow me access to the financial reports for 2023 even though the 2024 financial shows the carryover of the 22K loan and 11K in deficit losses from 2023 into 2024. I am at a loss. They have hidden the debt in plain sight but never discussed it at the homeowners meetings. I found out about half of the older homeowners did not attend because they did not know how to use Zoom. I called a private meeting of the homeowners to alert them to what I have found, and everyone is looking to me to help figure this out. I guess my main question is—is this normal practice? I live in Georgia. I am now resorting to having to send a certified letter just to gain access to the earliest financial reports, and I have caught the HOA management director in a lie twice about the board meetings, board minutes, homeowner meetings, and the early financial. She told me they don't exist, but I explained they have to, because 2024 carries forward a loan and deficit losses. At that point I was told I have to put everything in writing and send it certified. I understand business, and I have been very careful with my words and tone. Does the Declarant Board have to follow the Bylaws? Can they leave us with this mess. The HOA manager suggested I try to negotiate the losses off at the transfer, but I don't believe the were reasonable charges. This whole thing makes me sick. I just wanted to retire and live my life. This such a mess.

What LetA said.

Sorry to hear about all this, but unfortunately, this is how many (not all) developers run things. They’re mostly interested in building out the community, selling the homes and getting out as quickly as possible with lots and lots of money in profits. Who cares if the community is solvent by the time they turn it over to the homeowners or if the initial HOA board is educated on best practices on managing it? They won’t be around when the caca hits the fan, so if the homeowners find their assessments will jack up some more to cover severely underfunded reserves, them’s are the breaks (just ask people living in those high rise HOAs in Florida….)

So, can the developer leave you with a hot, steaming pile of poo? They shouldn’t, but they do and it’s not unusual. I don’t live in a 55+ community, but it was built by two developers, both of whom went belly up before the community was turned over to the homeowners with 75% of it being built. There are conversations on this website about developers who’ve left without putting in the sidewalks, streets or other amenities the homeowners were promised, and the punch list was left unfilled, so homeowners had to pay to finish that work. Such is capitalism.

The first clue that things are getting messy is the money. Just like your household budget, HOA budgets are a guide at best, and sometimes the amount you list in the budget gets blown up when the bills actually come in. If you have those monthly budgets, say for the past year or so, take a look to see what’s gone up faster than expected. I expect master insurance will be one because HOAs everywhere are paying more (look at Florida again to see how that’s shaking out).

I suspect this developer isn’t selling homes as fast as it expected, and so they’re robbing Peter to pay Paul, John and even Jesus because the documents as written say they can. But what do YOUR documents say about your access to financial records? Take a look at that, and if you need to request them in writing, do it. Starting now, keep copies of every email, fax, text message thread and letter you send and receive, note what was said and who said it during any phone call .you make and receive.

As LetA noted, the new board shouldn’t sign off on anything releasing the developer until certain demands are met. That could start with the reserves – at the very least, there should be a reserve study and the reserve funds funded the way the study recommends up to the day of the handover. There are lots of arguments over fully funded reserves and what that means on this website and everywhere else, so I won’t go there, but whatever amount they withdrew needs to be refunded.

How will you get that money? Brace yourself for a dustup in court because there will be a battle with the documents at the heart of it all. You said your neighbors are looking to you to help fix this, but you can’t and shouldn’t do everything. This is also their community, so at the very least, they’ll need to pass the hat for hiring an attorney because you’ll need one. They also need to get used to attending meetings to discuss this stuff. I understand if they don’t have the internet and need to attend in person, but for those who do, nothing should be stopping them from going to the Zoom website to find out how to access the meeting (it really isn’t that complicated). Or they can ask someone who does know (grandkids?) Or someone can print out instructions and hand them out.

Once the attorney is hired, the first task will be to get financial reports – if they say you have to put your request in writing do it and copy the attorney. The attorney may be able to write the letter on your behalf. Oh, if this winds up in court (and it probably will), be sure you request reimbursement for all court costs and attorneys fees related to the lawsuits (and appeals). When you meet with the attorney, provide copies of everything you’ve been able to get. If there are homeowners who’ve also tried to get information, ask them for copies of what they have. This should also include board meeting minutes – and if you don’t have any, that needs to go in your request for information. You may also need an accountant to help figure out what’s happening with the money, so that may be another expense all the homeowners will have to pitch in to cover.

I know all of this sounds overwhelming, but if you and your neighbors want to live your lives in this community, this is what may be necessary to ensure it starts on sound financial footing. There are older conversations on this website about assorted skirmishes with developers – read a few to see what you can watch out for, what worked or not. Bring your questions to this conversation so you’ll get updated information (lots of things have likely changed since an older conversation was posted and people don’t respond to those). Good luck to you and your neighbors.

PS – with you taking the lead, you do know you’ll probably wind up on the board at some point don’t you? If after this, you’re not up to that, it’s ok to say no (or hell no if that’s how they’ll get the point). If you do decide to take board membership on, be sure to educate yourself (some things have changed A LOT)

Thank you very much for your gold-standard response. It was very helpful. I did have a meeting with the homeowners last Friday, to explain what I had found regarding debt and over spending. From that turn out we put together a volunteer group of eight homeowners without approval from the board.I have created spreadsheets with the two years of financials I have access to and have done comparisons with the budgets. The budgets and the financials are way off from each other, with deficit losses each year 2023, 2024 and 2025. I have cobbled together some of what you said using the internet, but as you might guess, a lot of it is AI generated. I always go to the actual sources they give me to verify. We have several people who moved here that were Board presidents... They don't want to run. That says a lot.

That’s a bit odd because for new construction the developer usually has the buyer sign a form stating they understand the home is in an HOA and they have been provided the declaration and bylaws.