Detailed Transition Info Request

Great Forum. A definite example where the www is invaluable.

Approx 90 homes in Texas at the start of talks re: transition. I have seen your 21 point checklist and appreciate the info. The search field for "transition" and "newly elected president" also helped.

My queries are more in line with the focused practicalities of the transition meetings and timelines.

Examples include:

1- Who pays for the homeowner attorney prior to and during transition?

2- Does the attorney attend all meetings?

3- Who pays the inspectors for their work? And when?

4- Who pays for the auditor? And when?

5- Can we hire and receive the books for auditing before transition?

6- The developer has a mangement co in place. Do we hire a second company to represent us during the transition? If so, who pays and when?

7- In re: to RogerB checklist, at what point do we hand them these requests so we may investigate them? 1st meeting?

Thanks all

R

Almost all of your questions will probably be dealt with after the formal transition to owner control, unless you happen to have a very enlightened developer. At that point they'll all be paid for by the association. There's no harm in requesting these things prior to, but experience tells me that it probably won't happen. Let's try and sort this out. The developer sits on and controls the Board of Directors, up til the actual transition. Owners may be on the board, as voting members, but they probably don't have the majority control yet.

The attorney, auditor, inspectors, management, would all be retained by the association and paid out of association funds. Whether the developer would vote for these people to be hired or, in the case of management, changed, prior to transition, is something you can request of the board, but may not happen until you have actual control. So, to try and answer your questions:

1) the association pays for the attorney. You probably won't be able to hire your own until after transition.
2) the attorney attends meetings at the request of the board
3) the association pays for the inspectors, usually after formal transition
4) the association pays for the auditor, after formal transition
5) As an owner, you can probably have access to the books for inspection, upon proper notice and during normal business hours. The board would hire the auditor, so that usually means after transition.
6) the management company is being paid by the association. It will continue to do its job until the contract is terminated by the board of directors, under the terms of the contract or state law (some states allow associations to terminate any contract signed by the developer, as the board of directors, regardless of the termination clause. There usually has to be some formal notice and time period)
7) First you will want to establish a transition team (committee), put your lists together and make your requests to the board. It will be up to the board as to which ones they will respond to until the transition actually occurs.

Some states have specific transition requirements. Check yours out, as some of the things I've mentioned may be more detailed in it.

For additional transition information see:
http://www.communityassociations.net/developer_transition_main.html

Joe

Good questions Ro. Transition is a time when the Association has the opportunity to uncover problems and/or potential deficiencies before they become the complete responsibility of the Association. Therefore, the homeowners should have a transition team which meets and works with the Developer. A meeting of the HOA members should be held to elect this team. Together they should agree on the functions to be performed and by whom. Costs may be paid by the Developer and/or the HOA depending on the item and negotiation. If the homeowners want evaluations to which the Developer will not agree, then request his appointed HOA Board provide written authorization to hire experts who will accept payment after the transition is completed.

I would try to have all problems resolved prior to accepting control from the Developer. If this is not possible, future resolution should be detailed in a written agreement signed by both parties.

Misti, I would suggest having the transition team in place from 3 months minimum to 6 months maximum. The team needs time to become educated, meet with the Developer and his Board, hire experts and have them complete their studies, review results, do any followup needed. And I suggest the transition team utilize an experienced independent HOA attorney and/or managing agent.

R,

Typically, the Developer retains seats on the board until 30 days (or time-period) after all units are sold. The Developer's seats on the board are transitioned to the owners by a series of elections over time. While the Developer may retain rights of veto over owners on the board, a strong board, that is alligned with the best interests of the owners, and interested in being proactive (as MistiH is) gathers momentum to be at the ready to start formal transition once the Developer's seats are occuppied by owners.

The transition of Developer seats is not the same as the transition of the elements of the development and ultimate control/responsibility of the owners. You probably know this.

1) The association pays for the attorney. In the beginning the associaiton is the Developer that has an attorney representing the intrests of the Developer. But the board MUST hire it's own attorney as soon as it can after the Developer is off the board.
2) The attorney attends meetings at the request of the board
3) The association pays for the Transition Engineering Firm, PRIOR to formal transition
4) The association pays for the CPA and Eng. Firm Capital Reserve Analysis, PRIOR to formal transition
5) As an owner, you can probably have access to the books for inspection, upon proper notice and during normal business hours.
6) The management company is being paid by the association which is originally the Developer. This is not a statement that both are in cahoots, however if one hand knows what the other hand is doing...... All I will offer is this. Many MC's would like to stay in the good graces of the Developer that originally contracted them because the Developer will have multiple projects that will need MC's.
7) Once the Developer is off the board, the owner controlled board MUST hire an independent Engineering Firm to perform a Capital Reserve Analysis and a Transition Study. The Capital Reserve will correlate the necessary replacement costs of all elements that are the responsibility of the association's collected maintenance dues to fund. This is put in a series of tables over the life-span of the elements. It will show how much it will cost to replace the roofs at year 25 for example. Then the CPA can look at what is currently set aside in reserve acccounts and what will need to be set aside over time. Often what is set aside at first owner occupancy and at the time the board is owner controlled are inadequate to reality. In my community, the reserves were uncovered to be underfunded. We caught the discrepancy very early in our new community.

It is typical for a transition team (committee) to be established at the time of an owner controlled board. Various specific tasks must be assigned by the boards and committee recommendations can be submitted. It will be up to the board as to which ones they will forward to the Engineering Firm, Developer, Attorney, Borough, for a response or to bring to their attention BEFORE transition actually occurs.

I have been involved in the Transition of my large HOA/COA community, from the ground up, and provide you my recommendations based upon years of discovery. So you understand, your process of Transition may uncover construction defects, inconsistencies in construction (of roadways, retaining walls, common elements, etc.) that don't jive with certified site plans, or "as built plans".
These inconsistencies will hopefully be uncovered, by the Transition Engineering Firm, the boards, the Transition Committee, and then documented in the Transition Report for the Developer and the Board's ATTORNEYS to negotiate a settlement to pay for, or fix the deficiencies. The cost of fix, depending on the association, the deficiencies, and inflated construction costs, could easily be upwards of a half million. Given this, I recommend a respectful but business-like relationship with the Developer at all times. However the LAST thing you want to do is reveal your cards to the Developer prematurely. So I would not recommend the Transition Engineering Firm and Transition Committee meet with the Developer.

Best of success!!
GeraldT!

R,

I have given you my advice and am doing so now from my discovery in my nnj hoa/coa, board experience, and transition committee volunteer.

1) What are the titles of the members of your transition team? Owners, attorney, board members, engineering firm representatives, cpa?

2) Have you had a professional engineering firm perform a detailed capital reserve analysis and transition deficiency study?

If not, postpone the meeting immediately, or at least until you hire an attorney and seek his/her advice.

The developer does not pay for the transition costs of the HOA. A reputable developer may address areas of concern as the community progresses through construction. However, the developer is under no obligation to the owners to do so. There are a set of plans the developer is to follow to engineering and construction codes and requirements. Any deviation must be filed with the borough engineer's authorization.

Until the board sees a transition analysis, they have no idea how comprehensive and shocking the deficiencies can be. Our community was constructed by a national and well-known reputable builder. Believe me, the deficiencies can be shocking, things no one will think about, such as core samples and compaction tests on roadways, underestimatitions of materials used that will bump up the replacement costs and increase reserve allocations and maintenance dues, the list goes on an on.

Ideally, you hire folks to represent the owner controlled association and board after the developer is off the board but BEFORE the transition to document deficiencies and represent you. A qualified attorney and engineering firm will tell you not to rush the process because believe it or not, you want the deficiencies to occur while the developer is on the hook.

Payment comes from the owner controlled HOA. Some HOA's pay for the services of Transition from reserves, many CPA's don't recommend this, instead they recommend taking the money from working capital.

Your last question is perhaps the most interesting and complex. A summary of what occured in my HOA and COA (single-family and townhomes) is as follows: The borough is obligated to authorize the release of portions of bond money the developer posts prior to the land being developed upon. The bond release is done in phases as construction of units and elements are completed. A portion of the money is witheld for a period of years after construction is complete and the developer is off the board for big ticket items such as roadways. Because my HOA hired an attorney, and eng. firm and our transition committee held a meeting with the mayor and borough engineer, we got the developer to DOUBLE the time period of the maintenance warranty on our roadways.

If any meeting is to occur, I'd suggest you first document all known deficiencies and concerns from the Transition and Capital Reserve Study and have the board and transition team meet with the borough representatives to get them on your page, not the developers. After all, who are the HOA members paying taxes to?

Best of luck!!
GeraldT1
NNJ

MistiH,

Thank you, I am very appreciative of your feelings. Maybe a team of us should join forces, RogerB offers increadible advise, and there are many, including yourself, who do as well. The questions and perspective are invaluable.

Very best,
GeraldT1
NNJ