Reserve versus operating expense

Howie,
From your post, you sound well versed in what is going on and realize the situation. As far as I know the developer can out vote (muscle) your Board.
We have had some that post here and are pleased that the developer is doing
a good job during transition. I contend , good developer or bad developer, bottom line is their holy grail. And they will act in a manner to support the bottom line. So, where you all are is not a comfortable place, it is not a economic position that you can support and if challenged the developer will win.

What to do? All depends on the solidarity of your owners. Do they want to fight? Is it reasonable to go to war? If you can get the support and remember you are in this for the long run and the developer will be gone and you will be left, then have a Townhall for your members (No developer). Discuss in the open what you all want to do, select (elect) some articulate (like you) spokespeople,
be smart get a balanced committee, men and women, and draw up a proposal to the developer, ask him to attend an open meeting with owners and present him with your recommendations. Don't hide, he will know what is going on anyway. He may just brush you off, but at your Townhall make sure establishing a owners website is mentioned or a Newsletter or both. Get some vocal support from the audience. Discuss maybe taking this to the newspapers, or your county council. I suspect you know how to do this. He has you all over the barrel, put a little pressure on him and stay civil and united. No lawyers, no threats, no challenges to start, just discussion. His reaction dictates which way you all go.

Howie,

Reserve funds vs operating funds oftentimes can be a fine line. My board had such a discussion at our board meeting earlier this month. They voted to transfer a sum of money from the reserve fund to make up for a shortfall in one of the expense accounts. Even though it may be apparent the developer is choosing to use reserve funds over operating funds to eliminate his requirement to make up the shortfall, consider yourselves lucky you even have a reserve fund. Very few states require a reserve fund and even fewer CCRs require one to be funded by the developer.

Although it appears that the repairs you mention should be paid from the operating fund, while the developer is in control he can pretty much do as he chooses. To suggest that the person who writes the check is in violation of their fiduciary duty to the assn and may face personal liability is a far stretch. The courts will use the business judgment rule when determining a violation of fiduciary duty. Depending upon how much money is in the reserve fund vs the operating fund, it may be wise to use the reserve money. But, regardless, who is going to write this letter? And, more importantly, who is going to bring about this lawsuit????

Thanks to all replies. I didn't want to bore you with the details about the lawsuit already filed against the developer because he refused to pay. Four of the forty six homeowners have spent over $40,000 to force him to pay. The trial was bifurcated (split into 2 parts) and we essentially won in that the judge rules he absolutely does have to make up the shortfall. The second half, later this month, is for past damages he owes the association.
All that leads up to why he wants everything to come from the reserve account - no shortfall to make up that way.
By the way, our CC&Rs limit his Class B member authority by saying he can "take no action nor counter action which diminishes the services the homeowners are guaranteed by the Declaration" and all our common area maintenance, including the gate, are association responsibility.

Howie,

I'm with Robert on this one. If the developer has already been sued by a number of homeowners (at their expense) what advice do you want from us?

I don't care about reading the court papers, but I'd be curious to know exactly how much money the developer owes the assn. Was the lawsuit really worth over $10,000 to each of these homeowners?

Howie,

You did not create a wrath. It happens often when the original post does not give us enough information and after 10 or 20, we get the rest of the story so don't be rattled by us trying to search out more pertinant answers.

Being in a new developement in Tennessee myself, I am prepairing for a turnover some time in the future. I have done all of the research possible to find any State laws that would guide or help HOAs thru this process and for protection from developer fraud. There are none for stand alone homes, only condo and time shares so we are S.O.L. I'll continually stay on top of this because at the rate of new developements going in, we will need some better laws for these developers to behave under.

In Florida(my area of knowledge), the Statutes prohibit anyone from using Reserve Funds for any operating expenses unless approval votes from the owners has allowed that to happen. Even the developer cannot touch them, dispite the fact that he has contributed to the funds. I think that your lawyer will have to settle this one.

Howie,

OK. The lawsuit was entered into because the developer was not contributing to the operating fund when there was a shortfall. Now you want to know what can be done to stop him from using reserve money to get out of contributing to the operating fund when there is a shortfall. I'd say the same thing that was done over 2 years ago if you can find some more members willing to spend over $40,000!!

Has the lawsuit been settled and was the developer found guilty and required to pay back all the funds incorrectly used together with the members' attorney fees?