HOA Turnover/Builder leaves HOA upside down

TamaraP (Florida)
Posts: 2

Posted:

Is it legal for a builder who is still building in the subdivision to leave an HOA upside down or in anyway negative when they do the turnover meeting?

We have approx 105 homes in our subdivision, there was mass confusion due to the current builder completing the subdivision from another builder, the new builder blames the old builder for the debt, seems to me like you buy the good with the bad.

Any input would be greatly appreciated?

BryanD1 (Georgia)
Posts: 3

Posted:

TamaraP,

Your question is a very common one, since most, if not all, developers turn over a community to the owners with essentially no money in the bank. I've lived in 3 different communities in which this has happened (2 in Texas and 1 in Georgia). In regards to whether or not it is legal, the problem is two fold. First, the builder is not going to offer up any documentation showing where the collected dues have been spent without being forced to by a judge in a lawsuit. If you do see any documentation, it will just show that items/services were paid for at a much higher rate than they should have been, allowing the developer to pocket the money. Second, since the HOA is essentially broke, they have no money to use to go after the developer. There is also the fact that in most states, laws are intended to protect the developer, not the residents. You will also notice that your Bylaws and Covenants are not necessarily written to protect the HO but rather the developer as well by giving so much power to the HOA.

In my current neighborhood, the original developer built the clubhouse, pool, and a few of the homes. He then sold to a different builder, who then sold the last phase to another builder. Actually, the second builder was Morrison Homes, who then sold off the remaining lots to some of their executives that went out and formed a new builder named SterlingCrest. Morrison then left the state of Georgia. The landscaping for the last phase was never done, the emergency spillway to our lake was damaged by SterlingCrest, and the retaining wall holding up our pool is defective and giving way. Like you, we had no money in reserves when we took over the HOA. In order to go after the original developer, Morrison, and SterlingCrest to get these items taken care of, it would cost us approx. $40,000 that we do not have. In addition, if by chance we did collect enough money to sue, and then lost the case, we would be worse of than we are now. All three of the companies point the finger at the other as to who is responsible for fixing things.

We have decided to just say "good ridance" to the lot of them, and move forward with repairing things ourselves. It certainly leaves a sour taste in your mouth towards these builders, but to be honest, I know of many other builders that have done the same thing in their developments as well. It was very suprising to find out that some of the BIG names in building are actually guilty of these practices as well.

My recommendation would be to bug the current builder as much as possible to get any issues resolved before they complete their buildout. As far as any financial reimbursement, I would just accept the fact that you aren't going to get anything out of either builder (especially in today's crisis). Start working on your HOA budget, and start putting away some funds in to reserves as soon as you can. You might even have to look at raising dues for a couple of years to help you get the reserve fund built up. The only other thing I can recommend to you is to COMMUNICATE, COMMUNICATE, COMMUNICATE, with all of the HO's, and keep them informed as to what is going on.

Bryan

TamaraP (Florida)
Posts: 2

Posted:

Thank You for your response. It is a mess with this HOA, there is even a property management company involved which has been since before the association was turned over and the subdivision elected board members, the crazy thing is that Leland Management (our property management firm) is still playing a significant roll and operating our current board members as puppets, each time the community asks Leland any questions pertaining to old financials, they claim they have nothing to due with any of it, it was all on the builder. The property management firm was originally hired by the builder (MI Homes). The community and committee's have requested the board to get rid of Leland Management since it is obvious to us they are a puppet of the builder, the board has been convinced that they need the management company.

We had an HOA meeting last night, and it was apparent that the management company was running the show, we requested that the board not take on all the responsibility themselves but rather hire a new company to handle our business.

This is a great site and very informative, any input is most valuable.

BryanD1 (Georgia)
Posts: 3

Posted:

I would certainly recommend that you get rid of the current management company and hire a new one. My experience has been that developers usually have "deals" with certain management companies that only look out for their best interest.

Good Luck!

Bryan

RussS (Florida)
Posts: 16

Posted:

In some cases the developer has the right to manage everything until the last lot is sold. and even then they can have their hand in your association funds thru water retention rights and irrigation. In todays world you will most likely be left with very little in your reserve account. Homeowner comunication is important.