When builder can request HOA dues

I am in a situation where I am not sure when the builder can start collecting HOA dues for a new residential housing development. The homeowners were told not until 70% of the lots were built on and occupied, but this community is in its first phase with two more phases to come over the next few years. The builder told the homeowners that we lived HOA dues free for this first year, but there still isn't an established HOA at this point. He is basically using our paid dues (first time this last March) to expense amenities such as electricity for the clubhouse and community landscaping. I normally feel that is part of the expenses of an official HOA if established; however, he also told the homeowners the monies were to build up into a fund when he releases control. Just not sure exactly were we lie in this and if he is being honest with our money. He was reluctant to provide expense list of what exactly the dues have paid for so far. We feel we should get some communication on how the money is being spent if he can legally spent it at this point instead of putting it in a pot, so there is an HOA fund when the homeowners elect a board.

Thanks for any input. It is greatly appreciated.

Matt,

This is the "normal" way things are done; of course if your gov docs call for a different system that doesn't mean your assn is abnormal, just a bit different than the norm. Different states have different laws that apply to developments. In AZ the Dept of Real Estate oversees all developments and builders/declarants must comply with the rules of this department.

The developer/declarant forms the HOA before or at the time he starts construction. The members start paying assessment immediately upon closing on their particular unit. The assessments are used by the declarant/developer to pay the expenses associated with running the assn. In some states the declarant/developer is obligated to come up with the money to cover any shortfalls in the budget as long as he is in control of the assn. The developer/declarant turns over control of the assn to the members IAW the procedure outlined in the CCRs - this is called transition. If this is a small community that will be built out in a year or two, it would not be unusual for the membership to not receive any financial data from the developer. You stated that the developer/declarant is required to put the assessment monies into a pot so that funds are available when the members take over. I would have to see this in writing. I'm thinking the requirement could be that a portion of the assessments be placed in a reserve account to cover long-term maint and repair of fixed assets. This may be a requirement contained in your gov docs or in state statute.

The buildup of money is called the Reserve Fund. The deal with that is that the roof of the club house will one day need repair. There will be a number of other repairs that must take place that cost a large sum of money. The Reserve Fund is intended to cover this without a need to hit you for additional money.

It is not unusual for a seller to include some period of HOA dues with the sale of a home. This is what the free year was about. The developer may (or may not) be extending that to the current new home sales.

The amount of accountability will vary from state to state. But at any rate you should have received the following documents when you closed:
1) Covenants, Conditions, and Restrictions (CC&Rs)
2) Articles of Incorporation
3) Bylaws
4) Any other rules that apply

When your development is 75% or so complete then your neighborhood will take control of the association. But keep in mind that the builder/developer has probably reserved some amount of control until all the properties are sold. It could be worth it to start looking to buy remaining units at some point to ensure you don't have a situation like ours where three lots are owned by a developer with little to no interest in actually selling them.

Matt,
As you can see this crap gets complicated, may be different and may or may not apply to different states.

Me, I'm now convinced the association is not really formed until it becomes the association of homeowners. Until that time it is the declarant(developer) association. But I don't for a moment think the developer is a crook or something, I don't know. And lets for a moment stop and realize we are not talking about you, we are talking about all your neighbor and future neighbors. So don't make this your problem, you may wonder about it and you may be forced to do something about it, but you can also find out all you can. I could not tell you the number of times we have had posts about developers turn overs. Check our search feature on this past upper right for Turn over or developer or some such.

Getting that out of the way, I can't tell you how many times we have received posts of developers forcing issues on the residents before turn over. Buyer beware is first, then comes; if it looks like a duck and walks like a duck and squawk's like a duck it is probably a duck. And if the developer starts to act like he needs some help with his bottom line and he thinks he has found the honey pot, it is Katie, bar the door.
You said he is collecting fees for the reserve fund, then he shouldn't mind you looking at this Reserve Fund account and reserve funds are to be kept in a specific account with strict guidelines.

If everything you have told us is clear and above board and can be believed and is absolutely correct, you still need a place at the table and I suggest if any developer does not allow meaningful input by the owners, their call, not his; I would collect as many owners as possible and force him to the table. If this site is any measure then you are going to end up compromising just to get rid of the developer at turnover. Take a business attitude not a "he said" attitude.

our builder has collected homeowners dues since 2009. now his lawyer says he didn't need to charge the homeowners until the assn is turned over to the homeowner so he is refunding all payments. Is this done? It seems at the time the assn is finally turned over to the homeowners, there will be no monies for reserve or anything else. Can he do this legally?