Developer has abandoned unfinished project

Started by BethM1 • 29 replies • 2708 views

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BethM1 (Idaho)
Posts: 8

Posted:

Our developer quit midstream. About 2/5 of the townhomes homes are sold, 1/5 in various states of incompletion, and the rest not started. @Eight were framed and abandoned in 2006 and are now condemned but not torn down yet. @Four are completed but not sold. @Four in various states of forclosure. Another 10-12 are finished on the outside but not on the inside. The pool and roads are done but the parks are not. We hypothesize that the developer will declare bankruptcy but it hasn't happened in 2 years.

The developer has given only evasive answers and avoids communication.
So far the homeowners are not organized but are paying dues to the developer for common grounds care.
We are thinking of forming an informal HOA Advisory Group but not incorporate. We're afraid of legal liabilities.

Does anyone have experience with a similar situation? We really need to discuss this with someone outside out little group, but not ready to hire a lawyer yet.

Hoping to hear from you.

Boise

JohnO6 (Georgia)
Posts: 424

Posted:

Beth - Wow! Not a fun situation at all .. .. ..

I believe the very first thing your group of concerned homeowners needs to do is to read, re-read, and do a really deep dive into your HOA's governing documents (ARticles of Incorporation, Declaration of Protective Covenants and By-laws). Pay particular attention to references to the "Rights of the Declarant" as well as timelines/duration of these rights. You need to clearly understand exactly who can do what at any given point in time. After doing that, you will probably still have questions and then you could choose to consult an attorney (preferably one experienced in community association law) for clarification and interpretation. I strongly suggest you do your homework first though - it will get you all much more familiar with what your situation is AND it should reduce the number of questions, discussion and time (read as $$$) that you will need from an attorney.

If your county records are available online, I would also suggest searching for any possible covenant/by-laws amendments the declarant might have made since you received your original copy at closing.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Beth,

You need to find out what state agency oversees developers of raw land. Is thee a public report issued that outlines exactly what the developer's responsibilities are? What happens when the developer does not live up to those resp.? Try the R.E. Dept, Sec of State, Corp Commission.

GlenL (Ohio)
Posts: 5,491

Posted:

Beth another place to turn for assistance is the local Zoning Board and Building Department. Often time's developers must post bonds and they can keep him from getting them back until he cleans up some of his mess.

Studies show that 5 out of 4 people have problems with fractions

EllenS1 (Florida)
Posts: 1,148

Posted:

Beth,

Without knowing more it sounds like the developer has gone belly up and you can't get blood out of a turnip.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Beth,
Get your group to elect a sub group to take on the task of a fact finding committee. This group will sit down together and go over the documents line by line. Include your CC&R's, and correspondence any owner has with the developer, and Newspaper articles about the development, any brochures, and agreements between developer and any homeowners.

Get a volunteer to vist courthouse and research all property rrecords under the association name or under the developers name. As suggested, see if there is any connection between developer and county planning or building offices. Also, this individual should search on line or at courthouse all Docket Listings of court cases old and current that has your association name attached or the name of the developer or builder. Most of this can be accomplished on line or phone . Then this person will file all information and present it to the committee and proabably become a member of the committee. It helps to have one courthouse savy owner.

Your position is not enviable, and you will lose swome battles, but you have no choice and shouild not sit back and let things happen. If you have a strong owner group and be smart, you can make a tremendous difference. Make sure you have established your group that it has some formal registry. I would make sure of state laws and don't discount incorporating. Just do not represent your group a the formal representatives of your association. Set up a townhall meeting, with good control to get support and report yor findings that you have on paper.

BethM1 (Idaho)
Posts: 8

Posted:

You sound like you've been through something like this!
I really appreciate the suggestions, but I need some clarification.
Idaho has a thing called LLC - Limited Liability Corporation. I'll look into that What other ways are there to "establish the group on a formal registry" and yet "not represent your group as the formal representatives of your association."
We were thinking of calling ourselves "Pepperwood Advisory Group" Or "Concerned Owners of Pepperwood Townhomes." Does the name matter?
We have a date set for a meeting - Nov 16.
Would you be willing to continue discussing the matter with me as things evolve? I am brand new to this HOATalk so I don't know if it is all open forum or if there are "side discussions". I dont even know whether this reply is going to be posted or just sent to you.
Thanks so much for your help!!
BethM1

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Beth,
I am assuming your last is directed to me.

If you are going to form a group outside the HOA, and as far as I know there is nothing against it, you must have at least a lawyers opinion on how you are going to charter the group. I would stay away from mentioning your association name as registered. I am sure there are a ton of suitable names and so that should be a small matter. Whatever your charter from the state or county or what ever your lawyer says, just form your group according to the information provided. Should be fairly simple. Incorporate a "Mission" statement in your registration at courthouse if that is where you have to go.

Be careful about this "Mission" statement that you don't liable anyone else. Make sure your reason for existence is clearly spelled out. Basically, you are a group of concerned homeowners residing in a certain development that have a desire to improve your community, protect your neighborhood and maintain the integrity of your residential areas and feel that community involvement by the owners is a viable election. Add you hope to preserve property values and will be active to achieving these goals.

Nothing I have said is anything but common sense, always consider this and never do anything detrimental to the association. Again none of this is outside your requirements and obligations that you signed when you elected to purchase property there.

No one can direct your band, you select who is going to lead you, who is going to follow and keep everything above board and transparent, nothing hidden. This is where you start, the response will dictate where you go from there. There are many folks smarter than I on this site and you will find them to be wise council, listen to them.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Beth,

I see one problem with forming a nonprofit corp. A corp must pay taxes, perhaps file an annual report (including a fee) with the Corp Commission, and have D&O insurance. These are all expenses that will be paid by the property owners who wish to be members of the corp. On the other hand, if you just form a group to research the problems with the developer there will be no expenses involved unless you all decide to take legal action. If a corp is formed, the members will have to pay for any legal action taken plus the expenses I mentioned above. In other words, the property owners will be shelling more $$$ if they form a corp. Frankly, I don't think it's necessary to form a corp.

DonnaS (Tennessee)
Posts: 5,671

Posted:

Beth,

I believe that all States have LLCs, Liminted Liability Corps but that certainly is NOT what you would form your homeowners group as . A LLC is defined by the following statement.

"A limited liability company (abbreviated L.L.C. or LLC) in the law of the vast majority of United States jurisdictions is a legal form of business company that provides limited liability to its owners. Often incorrectly called a "limited liability corporation" (instead of company), it is a hybrid business entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC, although a business entity, is a type of unincorporated association and is not a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation and it is well-suited for companies with a single owner.

You might try a Property Owners Association but either way, I suggest that you seek legal advice.

SusanW1 (Michigan)
Posts: 5,202

Posted:

This is such a mess!

Are these unfinished, abandoned homes in the midst of your HOA or are they in another area?

What are your dues being used for?

You haven't said what your lccal building authority is doing about all this?

A judge may very well allow a takeover of the currrent HOA - but you really have to decide IF that's whay you all want.

MicheleD (Kentucky)
Posts: 4,491

Posted:

Are the common grounds being cared for?

You do realize that the housing/construction industry has been through the wringer in the last couple years, right?

If several of the homes are already "condemned" then it is apparent that the local zoning enforcement board is aware of the situation in your development.

As someone up thread said, you can't get blood from a turnip, so I'm curious as to what you want the developer to do, given he's apparently in pretty dire economic straights right now.

After all, he has a huge up-front monetary investment in your development, not unlike the investment you have in your home. Only is is multiplied by the number of lots he has, as well as the out-of-pocket for infrastructure, etc.

It sounds to me like the main thing the developer needs right now is buyers. He can't move forward in any meaningful way without cash flow. I'm quite sure he doesn't want to fail any more than you don't want him to fail.

It would be a great idea for a group of you to come together to discuss what, exactly, you want from the developer.

And then realistically determine what he may or may not be able to provide.

Since he is not very communicative right now, your first goal should be to develop some sort of rapport. He probably has a steady flow of creditors etc standing in line to beat up on him. He probably thinks you guys will be doing the same.

In the end, you both have the same goal, to have a thriving development that maintains your investment values.

Maybe you just need to alter your approach to him and let him know that, in the end, you are all on the same page. Or want to be.

DeeS1 (Michigan)
Posts: 223

Posted:

Beth:

My community has a very similar situation, although we were roughly 80% complete, which gave us a little more leverage with zoning laws.

First: In our situation -- and likely yours -- the developer was forced to post siginificant bond and letter of credit monies with the Township prior to starting the sub. Working with the township, we were able to get some force some of those monies to be used to complete the top coat of the roads and other infrastructure.

Second: In all likelyhood, at least the partially completed homes and completed homes in your comunity are mortgaged with some sort of partial construction note (ours were about 80K per home) and your completed homes probably have a note against them as well. You can look this up with county records. I our case all but one were with the same bank. This bank petitioned to have the operations of the builder placed in Receivership to look out for the banks interest. Luckily for us, the receiver then gets classified as either the developer or successor developer (check your documents and state law), which makes them liable in some degree to elements of the master deed.

Third: We were fortunate (although it didn't seem like it at the time) that the township withheld all builder permits and CofOs on the incomplete units and lots until the Receiver met the requirements of the developer toward the site plan. In our care, the Receiver was eventually allowed to "sell" the properties after an escrow arangement was reached. The escrow funds needed to be used to complete the infrastruction of the sub before the remaining amounts were released back to the receivership and distributed to credit holders.

Because the receiver was a successor developer according to our docs, he was responsible for paying a portion of actual "shared expenses" for the lots that they owned, but not dues. We collected this money at the completion and closing of the lots, which helped our our HOA.

Further, because our sub was over 80% complete, the township was able to inforce some weed mitigation and blight zoning requirements. At the very least, I would suspect your builder is required to maintain his property in a "safe" manner, so the township can enforce this with him.

Your municipality might already be working on something for incomplete communities in your area, it might be worth talking to them. My suggestion:

Read your governing doc and understand them -- get a lawyer if necessary, it is money well spent.
Talk to your township.
Understand who owns the property and who has liens against it.
Look into Receivership.

Our situation has been in libmo for 2 years, but is finally near resolution. Infrastructer is complete, there's a new builder (not developer) for the remaining lots, and things are moving forward. We were just simply homeowners making our way through it, but I wish we had gotten legal advice from the beginning.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Great post Dee,
I think you all have done outstanding. I wouldn't worry about spilled milk. You all stepped in and took the lead. You will not win all your battles but now you know where you stand and have the knowledge to move forward.

I do not hold that homeowners owe some obligation to bail the developer out, UNLESS, it is in their favor. This is strictly a business deal that you all need to, and did deal with.

I would add that I hope you all keep monitoring the county and city property records and court dockets to make sure you are on top of things. I can't see how a developer can fail without some court proceedings taking place and usually the property records will show activity before any home owner is aware anything is going on. Same is true of court dockets, so if there is smoke, look for the fire.

BethM1 (Idaho)
Posts: 8

Posted:

Thanks to all for your input!
We seem to be stuck on a couple things.
We have a "Developer's HOA" whihc has been colectiing fees from the owners and paying for poor landscape maintenance and otherwise not accounting for the money. Now he has asked for 2010's payments in advance and will give a 10% discount.
SO, if we dont want to continue paying him and instead assume overseeing the maintenance tasks ourselves will we become a defacto HOA and become liable? How can we do this without becoming liable????
Beth
PS We are talking about getting a lawyer but people dont want to do it unless they know exactly how it would help.

GlenL (Ohio)
Posts: 5,491

Posted:

Well he could take the money and run leaving the HOA with zero but on the other hand if the people don’t pay him he could use the existing HOA to lien and even foreclose. It's time to talk to an attorney to find out how the members can best protect themselves.

Studies show that 5 out of 4 people have problems with fractions

MaryA1 (Arizona)
Posts: 7,043

Posted:

Beth,

The members cannot just stop paying the assesments. Legally speaking you are not paying the developer, you are paying the assn; however, since the developer is in control he can use the money pretty much as he likes. It sounds like he may be in financial trouble which is why he's asking for advance payments for 2010 dues. If you stop paying your assessments he can put liens on your property which could even lead to foreclosure. As Glen says, you need to speak to an attorney to see if there is any action that can be taken to force the developer to turn over the assn to the members. If the member don't want to band together to pay for legal advice then the only other alternative is to just wait it out. As Glen says, the developer may just take your money and run!

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Beth,
I think Glen is on the money. Hire a lawyer.
But first, a couple the owners are going to have to step into the limelight.
Nothing wrong with each owner doing this on their own and filing suit. Best way to do it is call a townhall meeting, set an agenda, select a few to run the meeting, the rest get out and beat the bushes to get people to come. Present what you know, ask for input and offer to organize a formal group to fight the battle. Not all will accept, and many will refuse to be involved, but, if the group called together speaks that they want to contest this situation, get it on. Just be smart, be sure of your purpose, get all the support you can and do not hide anything you plan to do. This first meeting should be short and to the point. Do you have enough support and interest to get the job done, if yes, vote on hiring a lawyer, appoint, elect some representatives, carefully select a good HOA attorney for just a consult. Write out your concerns and questions, get fed back from attorney, hold another meeting and go from there.
I, for one, can not say for you all to elect to do this or that, you all have to decide, you need the forum that will allow you to make an intelligent decision, a good lawyer will help.

If you get far enough to select some leaders, consider going to the developer as a concerned group of private citizens, totally unconnected with your HOA. Don't call yourself the XXXX XXXXX home owners association or imply in any way the you all are part of the official HOA. You may end up wanting to sue them, as represented by the developer.

The ploy to offer discounts at this time is probably attached to the developers need for cash.............just a guess, of course, I don't know.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Beth,

Robert has offered some very good advice and I totally agree with everything he has said. You will want to look for an attorney who specializes in HOA law as they will be more versed in the HOA statutes, etc. Many attorneys will offer a free consultation.

Since you said the h/o's want to overthrow the developer and form their own HOA, let them know that you've found out that may not be a possibility but the group needs to consult with an attorney to make certain and to also find out if there is something else that can be done. Make sure to take a copy of the CCRs and the bylaws to your meeting with an attorney.

What do your docs say about turnover? From what you wrote in your initial message I'm thinking it will be awhile be/4 that can take place.

BethM1 (Idaho)
Posts: 8

Posted:

We had a meeting on Nov 16 with about half the owners in attendance. We formed an ad hoc committee with the responsibility to research and recommend a couple attorneys and to formulate the questions. Hopefully this will be done within a week and we can select the lawyer and schedule an appt.
Working with a group is so slow, but I think we have to make it as inclusive as possible.
I'll keep you posted and I do appreciate every bit of imput!!!
Beth

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Beth,
Sounds good to me, way to start the process.
As I said and so have others, this job will not be easy and it will take patience and time and is a slow progress. Look at your efforts like you would visualize a seesaw. One end is up and the other is loaded down with undesirable weight. You just keep adding to your side until you add enough good stuff so that your side starts to win. From that point things will move fast and furious, and you are likely to bounce around from hitting the ground. That's momentum and when you tip the scales, it is, "Katy, bar the door."

Someone really lambasted me on my posts one time because I use " " a lot, among other things. Well I don't much care, "Keep up the good work".

DeeS1 (Michigan)
Posts: 223

Posted:

It's great to hear, Beth!

Keep your chin up and don't get discouraged with the municipality's slow pace --and it will be slow -- just stay on top of things and be a possitive force to work with. There is hope!

Our "replacement" builder just broke ground on a new home today after selling the two specs he's currently working on ... 4 vacant lots left!

MicheleD (Kentucky)
Posts: 4,491

Posted:

Beth:

Sounds great! Yes, working with a "group" can be tedious, complicated and slow-moving. But trust me when I say there will reach a saturation point, meaning, there will be a point when there will be a shift in active people in the group.

One day you will look around and find that only a fraction of the "group" is still actively participating. Keep all the others in the information loop, but recognize that ultimately only a handful of you will likely be carrying this ball over the goal line.

-----------------

Robert:

"Really?" Someone doesn't "like" quotation marks?! Huh. Sorry to "hear" that. . . **snicker**

-----------------

Dee:

I like the sound of builders building again. . . and lots selling again. Let's hope it's the beginning of a nationwide trend!

DeeS1 (Michigan)
Posts: 223

Posted:

Michelle: Me too! Although it's kind of funny that all we've heard in the last year are complaints about the weeds, unfished infrastructure, etc. and now HOs can't stop complaining about the construction noise, work hours, extra traffic, etc. ... just can't please everyone!

BethM1 (Idaho)
Posts: 8

Posted:

Does anyone know a source of free or cheap models of by-laws for townhome associations?
I realize we would have to customize one and make sure it fit our state's laws.
Thanks. Beth

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Beth,
You might check search feature on this page, and also on the left highted in yellow, look at CAN and check their resources.

The best way I believe is to stay in your state and stop and ask at any ccmmunities similar to yours, and look at their documents.
Also I bet Glen has some state specific source.

DeeS1 (Michigan)
Posts: 223

Posted:

Beth: I've had some good luck doing internet searches using my home state and "HOA" or "Association." Many communities have open websites and post their bylaws, minutes, etc.

Also, the CCRs are recorded documents with the county. Our county has all the records online for a fee, but you could probably go to the city too. If you have the Property ID Number for the site, you can find the Master Deed/Bylaws, CCRs or whatever is recorded for that community.

TIP: If you look up a house on www.zillow.com and drill down to the home details, it lists the property id number. Typically, at least in MI, the communitie's ID number is the first part of the ID number with the last digits being 00 (then the 00 gets incrimented for each lot)

Actually, if your developer started constuction in your community, yours is probably already on file with the city. Check your house's title and that should have the recording number on it -- at least in MI.

Otherwise, "Creating Home Owner & Condo Association Documents: How to Protect Your Con-Dough" is a really interesting book when starting rules etc. It breaks away from the traditional boilerplate stuff and suggest rules that make sense and are easy to understand.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Beth,
If you take Dee's suggestion, and it is great information, plug in the Book title she referenced on Google. There is a book there by Goldberg, a Ill. lawyer, I believe, also check his site out, he has written some great stuff and has some innovative concepts.

DeeS1 (Michigan)
Posts: 223

Posted:

If memory serves me correctly, Goldberg IS actually the author of the book I suggested ... or is that what you were saying :-)

RobertR1 (South Carolina)
Posts: 5,164

Posted:

DeeS,
God knows what I am saying, half the time I sure don't. But I found you don't have to know what you are saying anyway.
But, if you live in a Condo, Goldberg has written an article that explains what living in a condo really means.......according to Goldberg. Since I agree with him I think he is right.

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