Developer Claiming HOA Owes Him Additional Fees

Started by BobS13 • 9 replies • 1380 views

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BobS13 (Indiana)
Posts: 1

Posted:

The developer of our neighborhood has run the HOA for the past 12 years. Per the covenants, the developer was to run the HOA until 80% of the lots were sold, we've finally reached that number. A board has been selected and during one of the transition meetings the developer is claiming that the HOA has been run at a loss for the past 10 years and that he was covering the shortages rather than raising dues. He is now claiming that the HOA owes him between $30,000 to $50,000 for these shortages. Over the past 10 years there have been no meetings or budgets provided to the homeowners and we had no say in how thing were run. We are already having to increase the dues to cover operational expenses, but his claim would be an additional $1000 per homeowner (one time payment, or $100 annually over 10 years). I've never heard of a developer trying to collect additional amounts when turning over the HOA, is this legal? Additionally, he still owns six lots in the subdivision but claims that he does not have to pay the HOA dues on these lots and that the HOA is responsible for maintenance for these lots. The convenants state that the owner of the lot is responsible for maintenance. The neighborhood has a park and pool, owned by the developer, and the HOA is charged a fix amount per homeowner to lease the these facilities. As previously stated he does not pay dues on his vacant lots, but he still charges the HOA for park/pool lease fees for those lots.

I've encouraged our board to contact legal representation, but this has not yet happened. Does what the developer is trying to do sound right?

GlenL (Ohio)
Posts: 5,491

Posted:

No it doesn't sound right; your HOA needs legal representation ASAP.

Studies show that 5 out of 4 people have problems with fractions

DonnaS (Tennessee)
Posts: 5,671

Posted:

Bob,
Glen is right. Get legal help asap. A Develper usually is not some guy who had an extra couple of thousand dollars laying around and decided to build a community. These guys do this to make lots of money, craft out documents, deed restrictions and all of the confusing paperwork that always has their BUTTS COVERED!! You may think that you can get him on something but chances are, he has it covered. Get Legal Help!!

JosephW (Michigan)
Posts: 882

Posted:

The developer should be informed that following a transition audit and consulting with counsel, you will reply. The association attorney will probably argue the developer breached his fiduciary responsibility by artificially maintaining low assessments in order to assist his sales, which has nothing to do with the operations of the association. Make sure the board knows that they may be breaching their responsibility if they make any settlement or agreement with him, prior to getting all of the facts and expert opinions.

Joe

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RobertR1 (South Carolina)
Posts: 5,164

Posted:

Bob,
I agree 100%. The only thing I can add is to dig hard and deep for any documents that your association has that concern turn-over, and ANYTHING else. Including any old sale brochures, and papers any of you members have that has this guys name on them. From the sound of this Donna and Glen are right and if true, he may have had to stick his butt out a time or two and it may come back to haunt him. I have seen this happen.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Bob,

I'm not familiar with IN laws, but here in AZ it would not be legal. The builder/declarant is resp. for managing the assoc while it is still under his control. If he sets the assessments too low and has to subsidize with his own money (from his corp not his private bank account), well that's just the cost of doing business. He probably was anxious to sell the homes and didn't want to raise assessments to cover all the expenses. It may be prudent for the BOD to talk to an attorney if he persists.

KirkW1 (Texas)
Posts: 1,665

Posted:

I think Joseph has hit the nail on the head. My first thought was a breach of fiduciary duty on the behalf of the developer. And if need be I would look to get a few people to try and bring a suit if the board didn't.

Actually, the phrase bait and switch comes to mind. He misrepresented the properties he was selling and now wants to recoup the expense of doing so. I seriously think that instead you should look to recoup $1000 per home.

The thing is that he artificially inflated the value of the homes by holding the dues low. This wasn't something done out of the goodness of his heart. It was an intentional act to sell properties faster (and possibly for more money). If I sold my house hiding something like this the owner could sue me. Since he is a developer he should be held to an even higher standard.

As a note, I would also check to see if there is any licensing of a developer. If so, then you should report this act to the appropriate people. He is likely ripping other people off in a similar fashion.

For him to have run the association at a loss for a couple years and then recouped the cost is one thing. But he did this for ten years.

GeorgerwilliamsW (Indiana)
Posts: 975

Posted:

Bob, I have been following the thread, watching what other people are choosing to say, before I offer my thoughts. In Hoosierland and many other states the laws concerning homeowners associations during the period of developer control and at turnover are murky, at best. The situation can be rife with fraud and misrepresentation.

If your board is interested I will be pleased to recommend a Indianapolis law firm and a specific attorney who has considerable expertise in real estate matters. They do not, as part of their practice, represent homeowners associations on an ongoing basis, so they are free of that particular bias. (Were I you, I would stay away from lawyers that specialize in association representation.) But be advised, the firm does not come cheap. However, just having the firm behind you may be enough to get the developer to back off. And that could be less expensive than engaging a less prestigious firm that has to take it to court.

My gut instincts here suggest that this is a misunderstanding or miscommunication issue, rather than an outright deception. I have raised the issue of developer control and turnover at several legislative meetings over the past couple of years. According to the Indiana General Assembly members I am working with, they are not aware of any constituents expressing concerns that would warrant a look into the matter.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

According to the Indiana General Assembly members I am working with, they are not aware of any constituents expressing concerns that would warrant a look into the matter.

Bob,

Above pasted from George's comments. This would appear that if you contacted the right General Assembly Members (the ones George is working with) you could express your concerns to them and see if they feel your concerns warrant a look.

This seems like a direct pipe line and you could avoid (maybe) the expense of a lawyer and all that trouble if the Correct Indiana General Assembly members were contacted. I do believe these folks would be government employees and you should have open access for an audience.

KirkW1 (Texas)
Posts: 1,665

Posted:

I would suspect that the vast majority of the time a developer does not run the HOA at a loss for many years. The major concern would be the number who don't properly fund the reserves.

But there are probably the cases of outright deception. And if this isn't the case here, then it certainly borders on it. There is no way that this guy should be able to recover his lost money. He clearly knew that the HOA was not covering its expenses. He was after all making up the difference. The best that could be hoped for is that eh was negligent. Either way, he should be punished.

I would say that a single case should not warrant a new law unless there is clear evidence that this is only representational. And while perhaps if a state legislator started asking questions it could resolve the issue, I wouldn't hold my breath.

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