Builder is HOA

Started by RayJ1 • 8 replies • 1308 views

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RayJ1 (Arizona)
Posts: 2

Posted:

We are a new community and were caught up in the bulder slowdown. About 70% of the lots are not sold and 30% are sold and built on and owner occupied. We have a mangegement company retained by the builder, this could be a long term situation given the real estate market. The question is because the builder retains control of the HOA owning most of the lots, we the dues paying memebers have no say in whatis going. Also it appears the builder does not pay dues to the hoa for unsold lots. Is this legal.

PaulM (Pennsylvania)
Posts: 1,347

Posted:

RayJ1: Unfortunately, in this time of RE slowdown, you are not alone in your dilemma. You will need to refer to your official documents, CC&Rs, which will dictate how the 'association' is to be managed while under developer control and at what time (percentage of sold units) transition to resident control will occur.

I am not certain that the developer is bound to pay 'full dues' to the association under his control while there are undeveloped lots with no units built on them. What upkeep and maintenance would be required for an undeveloped lot? However, each sold unit, as stated in your documents, is expected to pay the assessment fee/dues as determined by the developer. This is to cover funding for whatever the docs state are common area expenses, also a portion to go to the Capital Reserve Fund for capital assets the association may own (clubhouse, streets, pool, etc.) The developer may be bound to contribute to the Capital Reserve Fund, however, based on the number of unsold lots. Your local municipality officials may be of help to you with your concerns.

Further, since it may be a long period until transition/turnover occurs, I would hope that the developer will offer communication to the present resident association members and update them on financials, etc. Perhaps the mgmt. company will be of help with this. Good Luck! Spring is coming! and with it, perhaps the market will turn around. We will all be waiting for it to happen.

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Yes, I can understand your concern.

You might want to start by reviewing your association's documents (Declaration or CCRs, bylaws, etc.) and your state laws carefully. I can't speak for the situation in your juristiction, but things to look for might be:

1) At what point (if any) are you allowed at least one homeowner to be represented on the board? For us that's at 1/3 of the units sold and occupied, so if yours is the same, you're close. That's not much help, but one voice is better than none at all.

2) There me be a time limit after which, by law, declarant control must end. For us, one way this may happen is if the declarant fails to close on a unit after a period of two years. Again, not much help, but its better than no answer at all.

Also, in our situation, a declarant only has to pay fees on declared units. For us, a unit is declared when it closes, so in our case, the declarant has no declared units. However, in a situation where there are several units (ie 2 or more) under a single roof, the declarant may have to declare completed units even though they are not sold or occupied. He should be paying fees on those. Again, you have to check your documents and laws to see how they apply to your situation.

Hope this helps.

HaroldS (Arizona)
Posts: 906

Posted:

Yes, a valid concern. We have a builder here in Arizona with four active subdivisions who is forfeiting his unsold lots to the lien holder. That has to be a traumatic situation for the few owners already in those associations. None of the four, according to what I've read, are controlled by the home owners. Does that make the lien holder now the declarant? Where do the owners stand in regard to who's in charge of their destiny? And more importantly who's making decisions that affect their assessment fees - over which they have no control until turnover? This should have a chilling effect on anyone contemplating buying into a declarant controlled HOA.

BrianB (California)
Posts: 2,820

Posted:

oh wow harold... so a bank or lending group becomes the declarant? ouch... i cannot see that ending happily.

GeraldT4
Posts: 1,022

Posted:

RayJ1 - You've received excellent advise so far. Your gov. docs. should hopefully state the percentage requirements for owners being elected by the owners to the board as lots are closed. With 30% closed it may be time according to your docs, for an election to occur. Still your developer will retain control and may even retain veto rights until officially off the board. That is if the owner majority controlled board takes an action adverse to the developer. You the dues paying members may not have any official method of requiring the developer to do something. However, you the owners have the golden opportunity to learn as much as you can about the inner workings of the association because one day you will inherit everything. I strongly suggest you the owners let the developer construct, work with the developer not against, if you disagree or are concerned about something, communicate it respectfully and in numbers, and in writing. You are the customers.

Please provide some detail of how your community is constructed, are their common roadways, sidewalks, a clubhouse, amenities that the HOA will inherit? How many lots are there, etc. There is a great deal of information that can be provided by members of this site on transition of developer control to owners that will assist you and your association.

BrianB (California)
Posts: 2,820

Posted:

i can see this being a nightmare for some HOA's... builders never finish the common areas, clubhouses, tennis courts, pools, etc... and yet the owners are legally contracted to pay assessments for such things. And, as pointed out, the developer retains control of the board, so the owners cannot even change anything, vote out board members, etc.. the developer has total control, and the owners have taxation without representation, essentially.

That's not too bad for a few months, but for a few years?

PaulM (Pennsylvania)
Posts: 1,347

Posted:

BrianB: When developers do not live up to their 'agreement' with the local officials re how/when the development will be completed, and all according to code and standards, the officials have authority to step in. The residents are not left without an anchor.

GeraldT4
Posts: 1,022

Posted:

BrianB & PaulM - RayJ1 never stated how new the community is. Just that there are about 70% of the lots not sold and 30% are sold and built on and owner occupied. To be honest, nothing RayJ1 described is out of the norm. Owners gain seats on the board as units are closed. With 30% closed there should probably be an election of 1 or 2 owners but only the governing documents, or Arizona Planned Community Development Act (if there is one) will confirm. However, without more info from RayJ1 it's impossible to definitively attribute the current state of construction to any kind of slowdown. Info being the date of the first close of the first unit. The date RayJ1 closed his unit. The date of the last unit closed. My association's construction began the summer of 2003 and ended late summer 2005. If you asked me in January 2004, my scenario would be similar to RayJ1. However by late spring of 2004, all units were sold, just not built yet. See what I'm saying? So, RayJ1 - please provide some more info, there is a great deal we can offer after that.

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