Directors Appointed by Declarant

Started by JeanetteA • 6 replies • 2045 views

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JeanetteA (Georgia)
Posts: 10

Posted:

Currently our subdivision is 75% complete and according to our covenants, the Declarant (developer)no longer has the authority to appoint directors to the board. They say that our HOA is in the red but at the same time they don't have any financial statements to show us. They did not collect dues over the past five years from many homeowners, so therefore we are at a 42% deliquency rate. The previous manager said they were putting liens on properties but never did.
The developers say that they are doing us a favor and staying to help us out by paying the bills for another year or year and half until the last 200 homes are built. They told us that we can't be on the board because they are not surrenduring the HOA, yet. For each home that is built, the buider gets $500 to cover the initial cost of the amenities package, clubhouse, pool etc. and another $300 is supposed to go to the HOA. They tell us that the last company they hired to manage and collect fees did a poor job of keeping the books and that the developer just wrote checks to cover the difference. So now, they don't have a real budget to show us.
How does this sound to those of you have been through the birth of an HOA?
Thanks for your help.

RogerB (Colorado)
Posts: 5,067

Posted:

Jeanette, it sounds very fishy to me.

Have the Developer explain in detail, including details on financials since the inception, "that they are doing us a favor and staying to help us out by paying the bills for another year or year and half until the last 200 homes are built."

And if the Declaration allows, it the homeowners can be elected to the board and if the majority of the Board is held by homeowners the Developer is no longer in control of the Board or the HOA.

Jadedone4 (Virginia)
Posts: 495

Posted:

Agreed... also check your local statutes, or codes (HOA laws, acts, etc) for what the defined criteria the Developer was to have followed with regards to financial management (Developer's required portion of assessments, how to file liens, taxes paid, etc). Get as many documents as possible from the Developer, and the MC and cross check those against the required filings. Also if possible check the tax rolls for proper payments, the local agency that handles the "bonds" filed by the Developer (if your locality requires these).

Also, I would suggest that you, if you can, check the Developer's established track record with other HOA's/sub-developments in your area. Other owners, and boards might be hesitant to discuss some items with you, but at least you develop a understanding of the Developer's issues, if they are consistent. You would be surprised at the information I got from a neighboring HOA's website, concerning my community's Developer.

JeanetteA (Georgia)
Posts: 10

Posted:

Well, it has been three months since my first question. Since then we have had an election night that failed because we didn't have a quorum. The developer now is going to have each member resign and he is going to appoint the candidates of his choice to the board. He will be the last one to go, of course, leaving two homeowners to choose the third board member.
Some of the candidates don't like this approach and those that have been cozy with the developer do. I believe the homeowners are going to be irate when they find out.
But what troubles me the most is that I now realize what was the reason that the developer has wanted to maintain control of the board has not deeded over the greenspace and common area to the homeowners. They have plans to sell part of the commercial property to a daycare and the use of our greenspace to the city of Atlanta. They say they will pocket the money for the comercial property and split the greenspace deal 50/50 with the HOA if it goes through.
If we were 75% done in December 2006 - January 2007 how can any of this be legally done? Isn't the day that we are 75% complete considered a legally binding date in which the common area and all the structures should be deeded over? They told homeowners that we owed them $613,000 but if we didn't have a turnover then the developer would wipe the slate clean.
They never had any reserves or had a reserve study even done. They low balled the HOA fees to sell homes fast. All the initiation fees went into the pockets of the developers, not in the HOA account. There has been comingling of funds, so it is very hard to see what actually came in and were it was spent. I've seen the bank statements and it shows $74,000 depleted from the HOA account in the first two months. There were six checks made out to the developers' corporation. (Our annual dues are paid in January) The property manager they hired in March incorporated last year, has never managed a subdivision of this size, doesn't have a staff or a place of business, yet is being paid one and a half times as much as a reputable company with a staff of 100 and 25 years in the business.
Can we sue the developer for all the suspect or imprudent activity plus any profits that they have made past the 75% mark?
Thank you.

Jadedone4 (Virginia)
Posts: 495

Posted:

Jeanette, the first thing that I would advise you to do is to contact your local housing authority (if your jurisdiction has one that oversees HOA's). Next you should review your governing documents, any and all documents sent to you by the Developer or HOA (as under developer control - this would include dues/assessments, letters, etc). Then head to your local courthouse to research the EXACT filings on the HOA's status as submitted. From there you should have a baseline idea of what rights your community may have.

A "red" deficient of over half a million is beyond explanation - if the developer, or developer board failed to honor their fiduciary duty in abiding, and enforcing the governing documents - this "may" consitute fraud, or negligence at best. Proving it may be cumbersome and a hardship at first, but trust that what you secure now, will only assist the community further down the road.

A few questions...

Why did the community fail to make quroum at the meeting? And why didn't the developer board present proxy voting (does your governing documents, or state/local codes allow?)

Have you been paying an assessment toward the HOA funds?

Does your jurisdiction have "open meeting" laws, or any legislation which requires "turnover" or inspection of documents by membership?

Does your HOA have a registered agent, or a HOA attorney?

Sorry to ask more questions, but it would be helpful to folks here if we knew the above so that better advice could be posted.

JeanetteA (Georgia)
Posts: 10

Posted:

The $613,000 was explained by a budget panel of three homeowners. They were chosen by the property mangager who was hired in March of this year.
She recommended this instead of an audit. An audit was too much money she said. She said we weren't ready for a turnover because we were in the red and if we allowed the developer to stay in control until the end of the year, he would wipe the slate clean and we wouldn't owe him any money.
The $613,000 is the difference between the HOA dues collected over the past four years and what it "cost" the developer to run the place. All initiation fees went to the developer but the annual HOA fees were supposed to go to a the HOA account but it wasn't enough. Delinquencies were also as high as 50% at the beginning of this year.
We didn't have enough people voting because we needed approx 250 homeowners present or by proxy and we didn't have that number. People also didn't know who to vote for by proxy prior to election night. On election night, even the people who didn't pay their HOA dues were counted for the quorum because they hadn't been notified properly in advance. But mainly many people didn't vote because they believed that if we had a turnover, then we would owe the developer $613,000.
Now the developer is interviewing people instead of having an election. He will have the current developer/board members to resign one by one, while he hand picks the homeowners he wants on the board.
In the meanwhile, he has been discussing land deals and how to make some money by selling off portions of the land and walking away with some profits before deeding anything over, yet we have been 75% complete since the beginning of the year.
Does this help?

JeanetteA (Georgia)
Posts: 10

Posted:

Sorry, I skipped some of your questions.
They tried to issue a special assessment but when people stood up and said that they needed 2/3 vote, they backed down. So instead they borrowed $40,000 against the clubhouse.
The registered agent for the HOA is the new property manager, who has no experience in managing a subdivision of 1200 homes, just incorporated last year, has a PO Box and no staff.
Our HOA attorney, just left the law office of the developer's attorneys and doesn't speak to any homeowners since none are on the board. The property manager doesn't act on behalf of the homeowners, so we can't go that route.
There are supposed to be open meetings according to Georgia law but we are never told about any. I wouldn't be surprised if there aren't any minutes or records of any kind.
We have been allowed to view financial records, but now have been told that it will cost us $85 dollars per hour in advance. The HOA had 6 checks for a total of $74,000 issued to the developers corporation at the beginning of the year. Currently the inexperienced property manager is writing her own paychecks for 1 and 1/2 times the going rate for a company with 25 years in the business and a staff of 100.
Does this help?

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