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Subject: Builder/Declarant/HOA Guidance
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JayG5
(Georgia)

Posts:10


07/25/2018 3:18 PM  
New to the board and desperately searching for guidance. I have a feeling(not a good one) I know the answers to my questions, but going to ask anyway. Here is the situation:

Developer created the neighborhood in 2007 in N.Georgia, housing crisis came, developer went bankrupt(long drawn out painful story for another time) and neighborhood sat with a few houses for several years. New builder comes in, now is the Declarant and HOA, and now is changing the covenants of the original plans. the neighborhood is about 35% done and old and new is not matching because the new builder is changing the original covenants. my understanding is that they have to hand over the HOA to the Homeowners at 80% or by December 2019. with that I have a couple questions

Can they change the covenants with no input/vote from the homeowners? we have been told by the builder when we ask that they follow the covenants and they kindly reply "we will not enforce those covenants" on themselves the builder.
What do the By Laws mean? I have a document with the by laws for the neighborhood but it is talking about having a board, voting rights etc but is that for after the builder hands over the HOA? why do they only have to follow a portion of the by laws i.e. they have to have a yearly meeting but not have a board or voting?
They are taking months to fix things like AC in the clubhouse. what rights do we have?

We are going to have our yearly HOA meeting with them and they are sending someone from the management company that has no say so as to what can be done. essentially he has to go back to the builder to ask/confirm anything. Any guidance there?


What rights do we have? I am getting the feeling none I have searched and searched the current laws and only found documentation on the Georgia Property Association Act and most of it refers to I am assuming after the homeowners take over HOA.

thank you in advance for you help
Jay

DouglasK1
(Florida)

Posts:1416


07/25/2018 5:30 PM  

Others will probably chime in, but in most cases the original CCRs and Bylaws give the declarant more than one vote per lot, so until turnover they have the votes to pretty much pass anything they want. In some cases state law might place some limits, but most states don't have laws to do that. Often rather than change the docs, they will just ignore them.

Whether developer controlled or not, the management company works at the direction of the board, handling day to day duties such as accounting, for example. Declarants are well known for not following the rules, in theory there should be a board, but it will just be the declarant or people who work for him/her if there is one.

The dangers of buying into a developer controlled community are discussed fairly regularly here, many don't recommend it. Luckily in my case the development was built during a boom and was built out in a year and a half or so from when homes started to sell so we didn't have to deal with the situation for too long.


Escaped former treasurer and director of a self managed association.
JayG5
(Georgia)

Posts:10


07/25/2018 6:00 PM  
Can they change the covenants or not enforce them on themselves without a vote?
JanetB2
(Colorado)

Posts:4168


07/25/2018 10:20 PM  
Posted By JayG5 on 07/25/2018 3:18 PM
New to the board and desperately searching for guidance. I have a feeling(not a good one) I know the answers to my questions, but going to ask anyway. Here is the situation:

Developer created the neighborhood in 2007 in N.Georgia, housing crisis came, developer went bankrupt(long drawn out painful story for another time) and neighborhood sat with a few houses for several years. New builder comes in, now is the Declarant and HOA, and now is changing the covenants of the original plans. the neighborhood is about 35% done and old and new is not matching because the new builder is changing the original covenants. my understanding is that they have to hand over the HOA to the Homeowners at 80% or by December 2019. with that I have a couple questions

Can they change the covenants with no input/vote from the homeowners? we have been told by the builder when we ask that they follow the covenants and they kindly reply "we will not enforce those covenants" on themselves the builder.
What do the By Laws mean? I have a document with the by laws for the neighborhood but it is talking about having a board, voting rights etc but is that for after the builder hands over the HOA? why do they only have to follow a portion of the by laws i.e. they have to have a yearly meeting but not have a board or voting?
They are taking months to fix things like AC in the clubhouse. what rights do we have?

We are going to have our yearly HOA meeting with them and they are sending someone from the management company that has no say so as to what can be done. essentially he has to go back to the builder to ask/confirm anything. Any guidance there?


What rights do we have? I am getting the feeling none I have searched and searched the current laws and only found documentation on the Georgia Property Association Act and most of it refers to I am assuming after the homeowners take over HOA.

thank you in advance for you help
Jay



You need to look at your State Statutes: https://law.justia.com/codes/georgia/2010/title-44/chapter-3/article-6

For example here is the following section:

§ 44-3-226. Amendment of instrument; presumption of validity in court action
(a) Except to the extent expressly permitted or required by other provisions of this article, the instrument shall be amended only by the agreement of lot owners of lots to which two-thirds of the votes in the association pertain or such larger majority as the instrument may specify; provided, however, that, during any such time as there shall exist an unexpired option to add any additional property to the property owners' association or during any such time as the declarant has the right to control the association under the instrument, the agreement shall be that of the declarant and the lot owners of lots to which two-thirds of the votes in the association pertain, exclusive of any vote or votes appurtenant to any lot or lots then owned by the declarant, or a larger majority as the instrument may specify. Notwithstanding any other provisions of this subsection, during such time as the declarant shall own at least one lot primarily for the purpose of sale of such lot, no amendment shall be made to the instrument without the written agreement of the declarant if such amendment would impose a greater restriction on the use or development by the declarant of the lot or lots owned by the declarant.
(b) No amendment of an instrument shall require approval of lot owners to which more than 80 percent of the association vote pertains and the mortgagees holding 80 percent of the voting interest of mortgaged lots; any property owners' association which exists prior to July 1, 1994, and amends its documents to avail itself of the provisions of this article shall be deemed to have amended the association instrument to conform to this limitation. This subsection shall not be deemed to eliminate or modify any right of the declarant provided for in the instrument to approve amendments to the instrument so long as the declarant owns any lot primarily for the purpose of sale and, furthermore, this Code section shall not be construed as modifying or altering the rights of a mortgagee set forth elsewhere in this article.
(c) Except to the extent expressly permitted or required by other provisions of this article, or agreed upon or permitted by the instrument concerning submission of additional property to this article by the declarant or the association, or agreed upon by all lot owners and the mortgagees of all lots, no amendment to the instrument shall change the boundaries of any lot, the number of votes in the association pertaining thereto, or the liability for common expenses pertaining thereto.
(d) Agreement of the required majority of lot owners to any amendment of the instrument shall be evidenced by their execution of the amendment. In the alternative, provided that the declarant does not then have the right to control the association pursuant to the instrument, the sworn statement of the president, of any vice president, or of the secretary of the association attached to or incorporated in an amendment executed by the association, which sworn statement states unequivocally that agreement of the required majority was otherwise lawfully obtained and that all notices required by this article were properly given, shall be sufficient to evidence the required agreement. Any such amendment of the instrument shall become effective only when recorded or at such later date as may be specified in the amendment itself.
(e) Notwithstanding anything to the contrary in this article or in the instrument, the approval of any proposed amendment by a mortgagee shall be deemed implied and consented to if the mortgagee fails to submit a response to any written proposal for an amendment within 30 days after the mortgagee receives notice of the proposed amendment sent by certified mail or statutory overnight delivery, return receipt requested.
(f) In any court suit or action where the validity of the adoption of an amendment to an instrument is at issue, the adoption of the amendment shall be presumed valid if the suit is commenced more than one year after the recording of the amendment on the public record. In such cases, the burden of proof shall be upon the party challenging the validity of the adoption of the amendment.

The way I read is similar to my state ... while developer is in control to amend the CCR’s would require developer votes and 2/3 of owners other than developer to also agree per the above sentence “the agreement shall be that of the declarant and the lot owners of lots to which two-thirds of the votes in the association pertain”. In my state that is because no entity such as a Developer or any other owner with more than the minimum required vote can single handedly change a contract. To do so would be in violation of a potential criminal statute under the Real Estate Statute of Frauds. Essentially if one entity could single handed change a contract ... then why have a contract at all. One entity cannot defraud other citizens who have purchased in good faith based on a contract along with their Secured Creditors who lend large sums of money also based on what is to be constructed.

In my last HOA we sued the prior and new developer over this same issue when the CCR’s were changed and filed behind our backs and without our proper vote.
JayG5
(Georgia)

Posts:10


07/26/2018 4:49 AM  
So bare with me, I know that I don't know a lot and sometime case law and legal codes get confusing. Is the code saying builder gets 2/3 and the homeowners get a separate 2/3 of the lots? Can the builder add more votes to their lots? Read and listen to the link below. This is what I am worried about it. In my state this developer gave himself 11 votes per lot and then was able to "outvote" the homeowners. Listen to the video from the reporter of what this developer did to his homeowners.


https://www.11alive.com/article/news/investigations/hoas-are-supposed-to-protect-your-home-but-some-homeowners-feel-like-hostages-instead/85-540256136
JayG5
(Georgia)

Posts:10


07/26/2018 4:49 AM  
So bare with me, I know that I don't know a lot and sometime case law and legal codes get confusing. Is the code saying builder gets 2/3 and the homeowners get a separate 2/3 of the lots? Can the builder add more votes to their lots? Read and listen to the link below. This is what I am worried about it. In my state this developer gave himself 11 votes per lot and then was able to "outvote" the homeowners. Listen to the video from the reporter of what this developer did to his homeowners.


https://www.11alive.com/article/news/investigations/hoas-are-supposed-to-protect-your-home-but-some-homeowners-feel-like-hostages-instead/85-540256136
JanetB2
(Colorado)

Posts:4168


07/26/2018 11:00 PM  
I would recommend you consult with 2-3 attorneys. Many will offer a “free” or low cost 20-30 minute consultation and as long as you go in with your ducks in a row can be free or low cost. I had one attorney office who had three of their attorneys discuss my issue for 1-1/2 hours and did not want to charge me anything. Because they have such valuable info I insisted on paying them something for their time.

I viewed the video ... however, keep in mind it is knowing well your documents and laws. I had a number of attorneys in my area tell me that the Developer could do as they pleased because they owned the majority of the property (yep ... those were potentially ones in developers pockets). However, after reading my laws I started questioning items such as in CO the statute notes under 38-33.3-217:

(III) This paragraph (a) shall not apply: (a) is essentially stating that 67% of all owners agree to amend. Also “shall not” is definately in a court and means the same as “will not”, “can not”, “must not”, etc.

(E) To amendments that affect phased communities or declarant-controlled communities The state statute definitions note that a “phased community” is a community under construction and of course “declarant-controlled” means one under the Developer control. Under State Statutes ... definitions can be your friend

Which then means in CO in order for a developer to change items NOT reserved as a right to change and disclosed to consumers and mortgage lenders would need to follow:

(4) (a) Except to the extent expressly permitted or required by other provisions of this article, no amendment may create or increase special declarant rights, increase the number of units, or change the boundaries of any unit or the allocated interests of a unit in the absence of a vote or agreement of unit owners of units to which at least sixty-seven percent of the votes in the association, including sixty-seven percent of the votes allocated to units not owned by a declarant, are allocated or any larger percentage the declaration specifies. The declaration may specify a smaller percentage only if all of the units are restricted exclusively to nonresidential use.
(b) The sixty-seven-percent maximum percentage stated in paragraph (a) of subsection (1) of this section shall not apply to any common interest community in which one unit owner, by virtue of the declaration, bylaws, or other governing documents of the association, is allocated sixty-seven percent or more of the votes in the association.


LOL ... I had a hard time getting an attorney to understand where I was coming from ... but did finally find one who comprehended and was not in the pockets of a developer.

Now the reason the above notes the “SHALL NOT” is because if violate ... the developer can then potentially violate “criminal statutes” such as for example:

2016 Colorado Revised Statutes
Title 38 - Property - Real and Personal
Frauds - Statute of Frauds
Article 10 - Frauds - Statute of Frauds
§ 38-10-103. Conveyance determinable at will of grantor void

Every conveyance or charge of or upon any estate or interest in lands containing any provision for the revocation, determination, or alteration of such estate or interest, or any part thereof, at the will of the grantor shall be void as against subsequent purchasers from such grantor, for a valuable consideration, of any estate or interest so liable to be revoked, determined, or altered by such grantor, by virtue of the power reserved or expressed in such prior conveyance or charge.

What I have found is when Laws note “shall not” then possibly there is a potential “criminal law” which could be violated. As noted above under the CO Real Estate Statute of Frauds a Grantor (a.k.a. Developer) selling real estate to a Grantee (a.k.a. Consumer) cannot change a contract “at will”. And which is why the above CCIOA statute notes that to change items “not reserved” would require both 67% of Developer votes AND 67% of votes NOT Owned by Developer.

Want to guess who ended up paying $ in our lawsuit against the two developers that conspired to change our documents behind our backs without our lawful vote??? I have found in an HOA ... KNOWLEDGE IS POWER ... the more your know very well your governing documents and your State Statutes the better you can protect yourself.




PainintheA


Posts:0


08/04/2018 4:50 AM  
Posted By JayG5 on 07/25/2018 6:00 PM
Can they change the covenants or not enforce them on themselves without a vote?




Theoretically - NO

BUT

Because they have enough votes to make almost any change they desire - in effect, YES



You could, however, after MUCH time, money, and effort get a court order requiring them to hold a vote BEFORE they change anything.

HOWEVER

They WOULD 'win the vote'.



next time:

CAVEAT EMPTOR
JohnC46
(South Carolina)

Posts:8419


08/04/2018 7:52 AM  
Janet argues that the Covenants/Bylaws are basically a contract that cannot change without all parties agreeing.

Yet Covenants/Bylaws have a methodology within them to change them and while under Declarant control, the methodology favors the Declarant usually by giving them more votes than the owners have.

Many BODs/Declarants operate with Benign Neglect.
JayG5
(Georgia)

Posts:10


11/13/2018 2:12 PM  
So interesting turn of events. the builder amended the covenants putting them in charge until 100% of the homes are built. I thought in GA it 80%? can the builder change that to 100%


thank you for your help!
JohnC46
(South Carolina)

Posts:8419


11/13/2018 3:07 PM  
Jay

While the builder typically can change the Covenants as they usually have enough votes to do so, a Covenant cannot that override a law of any type.

In your example, if the State of GA says turnover at 80% that is what must happen.

That said, many states have different laws for Condos, HOA, COOPs, etc so you may have to check deeper.
DouglasK1
(Florida)

Posts:1416


11/13/2018 5:08 PM  
Posted By JayG5 on 11/13/2018 2:12 PM
So interesting turn of events. the builder amended the covenants putting them in charge until 100% of the homes are built. I thought in GA it 80%? can the builder change that to 100%


I did a quick search and did not find any 80% requirement, but you might want to do some research of your own, or even consult a lawyer. I did find this interesting law:
O.C.G.A. § 44-3-232.1
at
https://advance.lexis.com/documentpage/?pdmfid=1000516&crid=c1e3eb5d-49ce-458a-8c5a-7e386fef4bff&nodeid=ABSAAEAAHAAP&nodepath=%2FROOT%2FABS%2FABSAAE%2FABSAAEAAH%2FABSAAEAAHAAP&level=4&haschildren=&populated=false&title=%C2%A7+44-3-232.1.+Right+of+and+procedure+for+certain+property+owners+to+take+control+of+association+when+declarant+fails+to+meet+certain+obligations&config=00JAA1MDBlYzczZi1lYjFlLTQxMTgtYWE3OS02YTgyOGM2NWJlMDYKAFBvZENhdGFsb2feed0oM9qoQOMCSJFX5qkd&pddocfullpath=%2Fshared%2Fdocument%2Fstatutes-legislation%2Furn%3AcontentItem%3A5STN-BJX0-004D-84P8-00008-00&ecomp=-kL8kkk&prid=a3bafaed-8d50-4e2f-8c3d-c38ad30790fa\\

titled: "Right of and procedure for certain property owners to take control of association when declarant fails to meet certain obligations"

Apparently the owners can take over the association if the declarant doesn't follow certain rules:

(a) Notwithstanding and prior to the usual expiration of the period of the declarant's right to control the association pursuant to any property owners' association instruments, the association's articles of incorporation, or the association's bylaws, the right to control may pass to the property owners as provided in this Code section if the declarant fails to do any of the following:
(1) Incorporate or maintain an annual registration pursuant to subsection (a) of Code Section 44-3-227;
(2) Cause the board of directors to be duly appointed and the officers to be elected pursuant to subsection (b) of Code Section 44-3-227;
(3) Maintain and make available to owners, upon written request, a list of the names and business or home addresses of the association's current directors and officers;
(4) Call meetings of the members of the association in accordance with the provisions of the association's bylaws at least annually pursuant to Code Section 44-3-230;
(5) Prepare an annual operating budget, establish the annual assessment, and distribute such budget and notice of assessment to the owners in accordance with the condominium instruments no later than 30 days after the beginning of the association's fiscal year; or
(6) Pay property taxes on common property of the association for two or more years.

Escaped former treasurer and director of a self managed association.
JayG5
(Georgia)

Posts:10


11/13/2018 6:01 PM  
you all are always so helpful. thank you. the information is very helpful
JohnC46
(South Carolina)

Posts:8419


11/13/2018 7:22 PM  
Posted By JohnC46 on 11/13/2018 3:07 PM
Jay

While the builder typically can change the Covenants as they usually have enough votes to do so, a Covenant cannot that override a law of any type.

In your example, if the State of GA says turnover at 80% that is what must happen.

That said, many states have different laws for Condos, HOA, COOPs, etc so you may have to check deeper.




CORRECTION

While the Declarant typically can change the Covenants as they usually have enough votes to do so, a Covenant cannot override a law of any type.

JanetB2
(Colorado)

Posts:4168


11/13/2018 8:17 PM  
Your State Statute notes:

O.C.G.A. 44-3-226 (2010)
44-3-226. Amendment of instrument; presumption of validity in court action

(a) Except to the extent expressly permitted or required by other provisions of this article, the instrument shall be amended only by the agreement of lot owners of lots to which two-thirds of the votes in the association pertain or such larger majority as the instrument may specify; provided, however, that, during any such time as there shall exist an unexpired option to add any additional property to the property owners' association or during any such time as the declarant has the right to control the association under the instrument, the agreement shall be that of the declarant and the lot owners of lots to which two-thirds of the votes in the association pertain, exclusive of any vote or votes appurtenant to any lot or lots then owned by the declarant, or a larger majority as the instrument may specify. Notwithstanding any other provisions of this subsection, during such time as the declarant shall own at least one lot primarily for the purpose of sale of such lot, no amendment shall be made to the instrument without the written agreement of the declarant if such amendment would impose a greater restriction on the use or development by the declarant of the lot or lots owned by the declarant.

(b) No amendment of an instrument shall require approval of lot owners to which more than 80 percent of the association vote pertains and the mortgagees holding 80 percent of the voting interest of mortgaged lots; any property owners' association which exists prior to July 1, 1994, and amends its documents to avail itself of the provisions of this article shall be deemed to have amended the association instrument to conform to this limitation. This subsection shall not be deemed to eliminate or modify any right of the declarant provided for in the instrument to approve amendments to the instrument so long as the declarant owns any lot primarily for the purpose of sale and, furthermore, this Code section shall not be construed as modifying or altering the rights of a mortgagee set forth elsewhere in this article.

(c) Except to the extent expressly permitted or required by other provisions of this article, or agreed upon or permitted by the instrument concerning submission of additional property to this article by the declarant or the association, or agreed upon by all lot owners and the mortgagees of all lots, no amendment to the instrument shall change the boundaries of any lot, the number of votes in the association pertaining thereto, or the liability for common expenses pertaining thereto.

(d) Agreement of the required majority of lot owners to any amendment of the instrument shall be evidenced by their execution of the amendment. In the alternative, provided that the declarant does not then have the right to control the association pursuant to the instrument, the sworn statement of the president, of any vice president, or of the secretary of the association attached to or incorporated in an amendment executed by the association, which sworn statement states unequivocally that agreement of the required majority was otherwise lawfully obtained and that all notices required by this article were properly given, shall be sufficient to evidence the required agreement. Any such amendment of the instrument shall become effective only when recorded or at such later date as may be specified in the amendment itself.

(e) Notwithstanding anything to the contrary in this article or in the instrument, the approval of any proposed amendment by a mortgagee shall be deemed implied and consented to if the mortgagee fails to submit a response to any written proposal for an amendment within 30 days after the mortgagee receives notice of the proposed amendment sent by certified mail or statutory overnight delivery, return receipt requested.

(f) In any court suit or action where the validity of the adoption of an amendment to an instrument is at issue, the adoption of the amendment shall be presumed valid if the suit is commenced more than one year after the recording of the amendment on the public record. In such cases, the burden of proof shall be upon the party challenging the validity of the adoption of the amendment.


O.C.G.A. 44-3-222 (2010)
44-3-222. Creation of property owners' development; affirmative election to be governed by article

A property owners' development shall come into existence upon either the recordation of the declaration pursuant to this article or the amendment of a recorded declaration in accordance with Code Section 44-3-235. Any declaration or amendment intending to bring or avail a development of the benefits and provisions of this article shall state an affirmative election to be so governed. Any original declaration shall be duly executed by or on behalf of all of the owners of the submitted property. Any such amendment to an existing declaration shall be executed in accordance with the terms of the recorded declaration being amended thereby.

My question would be what did your Original CCR’s state regarding Amendments?

In my State a developer cannot unilaterally change the CCR’s after they have sold a lot/home unless they had “Reserved” the right to make any such change in the CCR’s following the law and which had been fully disclosed to the Buyers and Mortgage Lenders. In my state a Grantee (a.k.a. Developer) selling property to a Grantee (a.k.a. Consumer) under the Real Estate Statute of Frauds CANNOT change a contract “at will”.

Think about it ... if a Developer could go around selling properties based on a Contract (a.k.a. CCR’s) and be able to later unilaterally change that Contract later to state anything different than what they had sold the properties for ... would that not essentially be committing fraud??? Both Consumers and Mortgage Lenders purchase and lend large sums of money based on those contracts. If ONE party (a.k.a. Developer) could unilaterally change a contract ... then what is the purpose of even having a contract in the first place???

My recommendation would be for you to have a consultation with 2-3 attorneys. Many will offer a short consultation for free and the reason to consult with more than one is because I have found that not all are the sharpest or brightest crayons in the box. In my last HOA we Owner’s SUED the developers over the exact same issue you are questioning. That is how I now know in my state what you are describing is illegal in my state ... the question ... is it illegal in your state?
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