Steps to take before HOA is turned over from Builder

There are a number of posts related to transitioning. Also, check the Community Associations Network site (link to the right) for additional ideas and lists of what to do. I would start working on this now so that you have a full understanding of what to expect, etc.

Michelle, Here is a post on this issue.

HOA TRANSITION FROM DEVELOPER CONTROL TO HOMEOWNER CONTROL
By DARCO 8/23/06

The most important year in the life of an Association is usually the first year of homeowner control. Why? Because the initial homeowner controlled Board of Directors will assume responsibility for the previous actions by the Developer controlled Board. To protect the Association and the Board a transition audit should be completed by professionals who have no relationship with the Developer. (Note: the HOA audit is technically a DRV- discovery, review and verification). The purpose of this audit is to determine if there are deficiencies which need correction. Usually problems are revealed which will need to be resolved with the Developer. DARCO can conduct this audit; and will also review with the Board of Directors the other four means of protecting them from law suits.

DARCO recommends the new Board of Directors consider the following:

Managing Agent
The Board should hire a highly qualified managing Agent who has no relationship with the Developer. The Managing Agent should be capable of performing the transition audit and provide all other management services the Board desires. DARCO has that expertise. DARCO is capable of conducting the audit. However, since the Association has been under the Developer’s control for 10 years we recommend the Board consider utilizing an independent CPA and experienced HOA attorney. DARCO can recommend and can coordinate efforts with these professionals. DARCO will secure the Association documents including those items for which we have previously provided a check list.

Financial audit
A financial audit should be completed immediately upon takeover. Depending on whether the Developer has conducted audits and has used an independent CPA, this audit may require going back up to 10 years. The extent of the audit will depend on the discrepancies found. The audit will investigate, among other things, whether payments made were valid and were an obligation of the Association rather than the Developer; and whether the Developer has paid all assessments owed and outstanding contractors, sub-contractors, and employee expenses and liabilities.

Physical audit
A physical audit of the common area elements should be done. DARCO can do the initial inspection and if serious problems are present which can not be resolved with the Developer, an experienced architect or engineer may be needed. The entire Development will be inspected for drainage, safety, and any signs of defects in design, materials, or workmanship; or variances with recorded documents. Any warranties on the condition of the property will be sought from the Developer; these warranties may be statutory, contractual, or implied by law. Warranties may be in sources such as state laws, purchase contracts, marketing materials, and written documents.

Negotiations
Problems uncovered by the transition audit will need to be negotiated with the Developer. DARCO can assist to the extent desired by the Board. Some problems may not be resolved. If so, these may require hiring an experienced HOA attorney. The attorney would notify potential defendants and attempt to negotiate a mutually satisfactory settlement. If legal negotiations fail, litigation is the last resort. Before filing a law suit the Board should weigh the probable costs of litigation against the probable benefits. Litigation tends to be time consuming and costly.

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