Can developer overrule the association's BOD?

About 4 months ago, the developer committed all of our funds to a bank in exchange for a loan to the developer (not a loan to the association as covered in a previous post) and as a result most of our funds are not FDIC protected. Subsequently, the developer controlled BOD of our association, due to its fiduciary responsibilities, voted that the association's funds should be completely FDIC insured and get interest and recommended the CDARS program since two of our funds can exceed the $250K limit by as much as $1 million each. But the developer refused to change the risky setup, arguing that the declaration says "the declarant or its nominee shall administer the assessments and receipts generally benefiting the association (name deleted), as permitted in this declaration." If it withdrew our funds as requested by the BOD, then that may trigger a default which could harm the association, in the developer's opinion.

However, we are self sufficient with our dues funding 100% of our operations without any subsidy from the developer. In our opinion, the developer should exercise its authority through the developer controlled BOD and not in opposition to the BOD since the BOD, by law, has the authority over the funds. Also, BOD actions are the only way the membership can keep track of what is going on with the only assets we own - the $3 million plus in our reserves and operational accounts.

The Bylaws of the declaration say under the "Powers and duties of the Board of Directors.,,,, Collect the assessments, deposit the proceeds thereof in depositories designated by the Board of Directors,,,,,"
Also, our association is formed under Virginia's nonstock corporation act which says at http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+13.1-803 " "Board of directors" means the group of persons vested with the management of the business of the corporation ,.."

What can be more important than the safety of the funds needed to run the corporation? How can that authority be taken away from the BOD?

Can a developer overrule the association's BOD?

Bob

The question you ask is highly dependent on the specifics of Virginia statute. So don't consider anything here as definitive.

In general, however, the answer to your question is, sadly, yes. Most covenants give the developer unlimited control over the association while the developer owns property in the community. I have seen other cases where a developer has pledged association funds for loans to the developer apart from the association. And in numerous situations, the developer co-mingles association funds with corporate funds.

Most covenant documents do have a time period, something like seven years, after which a developer loses control even if it still owns properties.

Many states are beginning to recognize the problem with such arrangements and requiring trust funds or other arms length arrangements with association funds.

Yes the association is still under developer control and the BOD has 4 developer appointed directors who are paid by the developer and 3 resident directors voted in by the membership. The issue raised is how that control is exercised. It seems the developer should use the BOD to achieve its goals and not bypass the BOD since contrary to other provisions of law and the bylaws of the declaration as quoted above.
Bob

Bob,
Many States now have Statutes and Laws prohibiting Developers from mixing HOA funds with Developer funds. You have posted that Virginia does have such laws. Florida also has them and HOAs need to go after developers who do not follow the law. I would ask for legal advice on this one because I have a feeling that by just merely pointing this out to the developer will not get the correct response from him.

This is what Florida says--just for future reference to the Florida folks who are also dealing with this.

720:303----(8) ASSOCIATION FUNDS; COMMINGLING.--

(a) All association funds held by a developer shall be maintained separately in the association's name. Reserve and operating funds of the association shall not be commingled prior to turnover except the association may jointly invest reserve funds; however, such jointly invested funds must be accounted for separately.

(b) No developer in control of a homeowners' association shall commingle any association funds with his or her funds or with the funds of any other homeowners' association or community association.

(c) Association funds may not be used by a developer to defend a civil or criminal action, administrative proceeding, or arbitration proceeding that has been filed against the developer or directors appointed to the association board by the developer, even when the subject of the action or proceeding concerns the operation of the developer-controlled association.

Bob,

You're in year 19 of 40 years of developer control. I recommend you get used to it, it ain't gonna change. While the declarant is in control, he has the upper hand. The fact that his chosen board members comprise the majority on the board means he will always get his way. The 3 h/o board members are only window dressing. With 21 years of developer control still remaining, it behooves you to try to reach a compatible understanding with the developer. Remember, you can get alot more with sugar than vinegar! His majority on the board is probably extended to the membership as well, since the developer usually has more votes per unsold lot than the 1 vote of each member. This means he could very well make some unsavory amendments to the declaration if he's pushed hard enough.

Bob,
I appreciate the owner members on the Board searching for transparacy. To that end, do you all have a website that even could be established by anyone and would serve as an information center for the opinions of the owners. It could be an unofficial site for the exchange of information. You seem to have a good grasp of State Laws etc and rightfully the owners need a forum that is not dictated by the developers majority.

Might be helpful, is used properly.

Thank you Bob,
I appreciate your comment.
To me,,,,interactive sites are the way to go. We are making progress in our association but old thoughts and ideas die hard. Boards tend to be defensive a lot of times, and rightly so. But that still should not deter open exchange among neighbors. Absolutely, you will have controversy, absolutely you will get folks who just go over the line, but I feel it you let this steep and percolate and hold up the banner that the associations is what matters, interactive sites can bring new blood into the fold. You just cannot tell your members they are just going to have to trust you. You must somehow give them a piece of the action. If you need proof look at this board. We don't set the world on fire but we have folks every day thanking us for this ability to interact over a common cause.

Bob,
All we give are opinions.
Over the years I have encountered huge resistance to anything interactive by lots of Boards. They talk a good game but don't seem to have the resolve to follow through. Certainly there are exceptions and as far as I can see "bitching and moaning " is part of life. Wittiness this site and the differences of opinion. This is a positive sign IMO.

The apathy that builds up over the years is deeply ingrained and is many time a carry over from prior associations. It is almost impossible to change given the circumstances and differences of each association, and consider associations (most) are by design built to be different, even Del Webb's.

It justs seems to me an interactive site is much easier to control content and context, than the apathy that exists in most associations. The success stories we hear about around here IMHO are either dictatorships with total apathy, associations that are interactive and do the whole job, or, interactive associations that work hard at self improvement, and watch the Books like a hawk.

I hope and believe our association, after 27 years is working their way up the ladder of the last example mentioned.

I must say that the Board Members that post regularly on this site are as fair as anyone I know, and they certainly don't follow my party line.

I like those ideas. Perhaps the developer will agree but it also may try to keep these issues out of the BOD since state law requires that the declaration include the last 6 months of BOD minutes and buyers of his lots might be scared away if they see the developer risking association funds for developer purposes. But we should give it a try anyways.