Transition of ownership but not control done without legal advice,...

We are a Virginia POA having already used 18 out of the 40 years allowed for developer control with 950/1400 units sold with a 90% trigger for transfer of control. On 2/2/09 the developer controlled association BOD voted to approve a draft transition planning committee with heavy restrictions favoring the developer such as, no legal advice, no contact with outside government organizations, all members of transition committee appointed by developer, only can advise the BOD, no contracting with business organizations for advice, inspections or any services without approval of the BOD, no contact with the association legal counsel, nor independent legal counsel,...

The developer said the motivation was not to transfer control but to transfer ownership of some of the commons to protect them from liens from some future developer if the existing developer defaults. However, we feel that we are better protected by not owning any commons. Right now the commons are protected from liens since they must be passed free and clear to the association so no bank would use them as collateral against the developer foreclosure since no way to compel the association to pay for the liens. But if the association owned the commons then the developer controlled board could compel the association to pay back the loans it took to complete the remaining development.

I have 4 questions:

1. Do associations usually transfer ownership at the same time as control or do they transfer control many years later - in our case maybe up to 22 years later?
2. If the association owns the commons but has no control how does it protect itself from funding the developer through repayment of collateral loans for the developer since the BOD sets dues and special assessments?
3. If the sales of commons to us is controlled by the developer from both sides of the contract it is a valid sales contract?
4. If it is valid sales contract how do we save the association from large expense later if there are deficiencies in construction and we aren't allowed to inspect despite the starting of the statutes of limitations?
5. Would we have legal recourse on the basis that the transition committee is forbidden legal advice?

Bob

You said:

"But if the association owned the commons then the developer controlled board could compel the association to pay back the loans it (the developer??)took to complete the remaining development.

How do you figure this could ever happen?

Mary,
In Virginia it is Department of Professional and Occupational Regulation which we should contact - they're at
http://www.dpor.virginia.gov/dporweb/cic_lias.cfm and we should contact them even if it is forbidden for those actually on the committee working on the transition since restricted by their written charter: "Counsel or Government Official: the committee may NOT contact the association general counsel, any government representative or government agency regarding committee work without first obtaining approval from the "association BOD" and the manager of resident services."

In the past such permissions are rejected e.g. over four months since our association funds were committed to a weak bank in exchange for a loan to the developer, we still cannot get legal advice from the BOD so our funds remain mostly uninsured and hardly any interest.

Bob

Robert,

You're right about Va state has its peculiar ways but their latest laws which require a license for management firms handling the funds may be the best way to get the developer to follow the rules. We're working that angle right now.

But in this topic, I'm interested in the those 4 questions I raised so if anyone knows if associations ever transfer ownership before control I would be interested to see how they handle the problems that may engender.

Bob

Bob and Mary,
Mary's remarks are insightful and say lots more than the words. Her statement that the transition committee is a mess is right on and demonstrates there are no examples that paralell your situation. Correct me if I am wrong Mary but you are saying it is impossible to take Bob's perdiciment and give it any credibility to be measired against any valid turn over example. I would suggest comparisons may be measured at the conclusion of the turn over and not during. Another poster here has concluded they are screwing with you all and you need to get together and have some say as to what is going on (I don't care if what is going on is bad or good for you, it is clearly your business and your money and you need a place at the table. It may cost you to get it, but at the table is where you want to be, from there you have influence and I don't believe there is any doubt here you all need to be heard........loud and clear.

1. Usually at the same time
2. You're only protected to the extent that the governing documents limit borrowing against common property without a vote of the owners. If there is no mention or restrictions on borrowing, then you probably have no way of preventing it.
3. Probably not, but I'm not an attorney. IMO, any decent attorney could probably show that the developer could not have acted in good faith for both sides.
4. This one an attorney is going to have to answer. Anything on this board would be a guess.
5. Probably, if it can be shown that the developer controlled board did this out of self-interest to protect the developer, not the association.

Couple of thngs to think about: Developer could be transfering ownership of common areas to get out from under property taxes in the future: see http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+55-509.1

Is the developer complying with: http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+55-510.2

"§ 55-510.2. Distribution of information by members.

The board of directors shall establish a reasonable, effective, and free method, appropriate to the size and nature of the association, for lot owners to communicate among themselves and with the board of directors regarding any matter concerning the association."

If not, why start here to get your questions out in front of the other owners.

Joe

Joseph,

Thank you for answering my questions and I'll answer yours.
2. The declaration allows the association to borrow against the commons for improving the same but says nothing about other uses such as borrowing to fund developer work. However, the declarant seems to have a right to leverage the commons not only for improvement of the commons but also for general development of the community and this seems quite unusual if done when those commons are owned by the association. Thus our concerns about transferring the commons before control since he could use his control of the BOD to add raw land as commons and then improve that with a loan guaranteed by dues of the association as mentioned above.

We'll look into the taxes - never thought of that - thanks.

Developer refuses to follow many of the state laws and we have explicitly requested that he provide the communications proscribed by law but to no avail. But I have set up a community blog with the intention of converting to a forum system much like the sponsor of this forum when I have more time.

I don't understand your last sentence but if it means that we should start communicating among ourselves, I do have a bcc list where I send out information along the lines of our discussion here. But I would like to see a community wide forum like this. I have asked to get the emails of the residents but have been refused so I only reach a small fraction of the community. I will ask to have an announcement made by the developer about my blog so others can follow these discussions. We'll see what happens.

Thank you,

Bob

Joseph,

I will definitely file a complaint but the developer discourages any legal action against it by members of the community by requiring 75% member vote and the association must pay for any claims against declarant - thus we would be suing ourselves. So our best hope is that the state takes action - otherwise laws are less useful if they are only enforced against us but not when the law is on our side.

The declaration says:

"Section 4.5 purposes of assessments. (a)The assessments levied by the association shall be used as provided in this declaration,... payment of taxes assessed against the common area, payment of any sums that may become due to the declarant pursuant to subsection (c) of this section,... (c) Not withstanding any other provisions of this declaration, neither the association nor any other person or persons on behalf of the association shall institute any action at law, suit in equity or other legal or administrative proceeding against the declarant without the prior written approval of members entitled to cast at least seventy-five percent (75%) of the votes in the association,..."

Bob