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Subject: Selling pool memberships without residents knowledge
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SusanS15
(South Carolina)

Posts:9


06/10/2021 1:00 PM  
Our neighborhood will be built out by the end of this year. The developer no longer owns any lots in the development; the last of the remaining lots were sold to the builder in March of this year. Construction is ongoing on those lots and they are on track to build out before the end of 2021. The Association owns all the common areas, which include a pool and a small pool house; Common Areas were deeded over from the developer in 2017.

Near the end of December, when residents hadn't received an assessment notice and budget for 2021, I (and other residents) contacted the property management company to ask why. They said the developer hadn't yet decided on the dues for 2021, but the budget would remain the same from 2020 and would be posted no later than January 15. A couple weeks later, we all received the dues notice, with the amount unchanged from 2020. No updated budget has ever appeared on the website.

Earlier this week, residents discovered that outside pool memberships were being offered for sale for our pool, without our knowledge. HOA funds were used to mail flyers to surrounding neighborhoods. When we inquired, we were told it was a "Board decision" and that it was for "budgetary reasons." The property management company said that unless we raised revenue, we were going to be stuck with a "large deficit" when we take over the HOA. They couldn't provide any numbers. None of the residents were ever supplied with a flyer about the pool memberships, even though a letter concerning the opening of the pool for the year and the rules was sent at the same time as the flyer was mailed. Pool memberships were never mentioned in the pool opening letter.

The Board consists of three officers/owners of the developer. Since April, we have had a resident volunteer Transition team who is supposed to learn the basic workings of our CCRS and by-law so they can assist a new Board when the time comes later this year. They are not to act as the Board in any way during this time.

The developer has been supplying deficit funding for the past couple of years to cover expenses since we are not at full neighborhood build out yet; that is provided for in the CCRs. They also had the option to raise initiation fees and dues a certain percentage without a member vote, but apparently the property management company suggested selling pool memberships and that's the route they took. As of Monday of this week, no memberships have been purchased. Again, we have not yet been supplied any financials for 2021, so we don't know what the numbers actually are. I did manage to get a copy of the pool membership flyer and the membership contract purchasers would have to sign (it was not provided by the management company).

The pool is part of the Common Area, which is defined in the CCRs as "...owned by the Association for the common use and benefit of the Owners..." The Association has rights to charge reasonable fees for maintenance of the Common Areas, suspend voting rights of an Owner for any infraction of published rules and regulations, the right to dedicate or transfer any part of the Common Area to any public agency or authority, and to impose rules and regulations for the use of the Common Area and improvements hereon. The developer was considered the Declarant in the CCRs, but since they are no longer an owner of any lot in the subdivision, the CCRs say the rights of the Declarant pass to the Association. So that leaves "The Board." The by-laws say the Board has power to "adopt and publish rules and regulations governing the use of the Common Area and facilities, including but not limited to the recreational facilities and personal conduct of the Members, their guests thereon, and to establish penalties for the infraction thereof." So is selling pool memberships considered "rules and regulations?"

The residents, and myself, have many concerns, the lack of transparency being the major one. We don't know that the developer, since they no longer own property here, can make unilateral decisions. We don't know that the Board can unilaterally make the decision to sell pool memberships. We don't know how any HOA funds, no matter how small or large, can be used without members knowledge and consent. We don't know how non-residents paying to use our pool affects our insurance. We're concerned that residents don't have any financial information concerning the Association. We haven't had an Association meeting since 2018. Talking with the property management company is useless. We have gone through three managers in the past three years, and the most current one quit a week after meeting with the resident Transition team in April to push to get the pool solicitation flyers out. We effectively do not have a dedicated manager.

So what should we do? Forget about it until December? Go to the property management office and demand answers? Consult with an attorney? No one is happy about any of this, but no one is sure what the next steps should be.



CathyA3
(Ohio)

Posts:2607


06/10/2021 1:34 PM  
I think that the board made a bad and short-sighted decision.

For one, I suspect that doing this would require an amendment to your your governing documents (often referred to as Covenants, Conditions & Restrictions). The board does not have the authority to do this, the amendment has to be approved by a majority of homeowners, often a super-majority of 67% or 75%.

Even assuming you amend your CC&Rs, opening your facilities to outsiders increases liability (which means spending money to beef up the insurance).

Your pool will now be considered public, which means it needs to comply with ADA requirements. If it does not, you can get yourselves sued.

Inviting strangers onto the property can result in increases in the crime rate, among other things.

More usage by outsiders increases wear and tear, increasing maintenance costs, and it also makes it harder for homeowners to use the amenities that

Also in addition, homeowners are required to comply with your governing documents (often referred to as Covenants, Conditions & Restrictions). Outsides are not members of the association and they have no such obligation. This makes enforcement of your rules more difficult (or even impossible).

And this is just what I can think of off the top of my head.

The correct response to needing more money to run the place is to raise the assessments. That will no doubt raise howls, but there is no Magic HOA Money Printing Machine. When your ends won't meet, you raise your income, cut your expenses, or a combination of both. (It's alarming that a relatively new HOA is already having money problems. It suggests the developer set assessments artificially low in order to sell homes, and now it's time to pay the piper.)

Rally your neighbors (and prepare yourself for a tough fight). There is no painless solution to this stuff.

MaxB4
(California)

Posts:1614


06/10/2021 1:48 PM  
It is common that while under developer control, they have the power to amend the governing docs as they see fit, as the board is run by the developer.

In addition, dues are typically held artificially low during the selling period and gradually raised with each phrase. Once turned to the homeowner that dues are finalized and normally raised.

MichaelS56
(Minnesota)

Posts:306


06/10/2021 4:24 PM  
Spot on Max. The Association is at the mercy of the developer until they give up complete control. I sure worry about be left with a debt.
CathyA3
(Ohio)

Posts:2607


06/11/2021 3:52 AM  
I forgot another biggie. Most HOAs are organized as non-for-profit corporations. Creating a money-making profit center inside such a corporation can have tax implications, and you better find out what those are before the IRS finds out for you - in other words, spend more money on a professional.
LetA
(Nevada)

Posts:1469


06/11/2021 6:45 AM  
When do you expect the developer "The Declarant" to complexly turn over the community to the owners? This should occur once the last home closes escrow??

First. Now the HOA is a business and likely won't be eligible for 501(C)3 status with the IRS.

Second. are you planning on becoming a board member? If not my first suggestion is to FIRE the property management company. They were hand picked by the declarant and likely won't have the communities interest at heart.

As mentioned prior, the declarant has their people on the board, they can basically do whatever they want. They are still a business at this point and selling pool memberships are hinky, it just sets the community up for bad repercussions.

My personal suggestion until this mess is cleared up, I highly suggest you call your homeowners insurance agent and add loss assessment coverage to your HO policy. Bad decisions by the board can lead to a terrible tragedy. If someone gets hurt on HOA property and sues for a bundle and wins, every homeowner could lose their home.



Just look what happened here when a HOA board made a bad decision.
https://www.ktnv.com/news/contact-13/homeowners-under-cloud-of-20m-swing-set-verdict-demand-answers-from-hoa
MaxB4
(California)

Posts:1614


06/11/2021 8:49 AM  
HOA's are NOT 501(c)3
AugustinD


Posts:1937


06/11/2021 9:56 AM  
Posted By SusanS15 on 06/10/2021 1:00 PM

The Board consists of three officers/owners of the developer. Since April, we have had a resident volunteer Transition team who is supposed to learn the basic workings of our CCRS and by-law so they can assist a new Board when the time comes later this year. They are not to act as the Board in any way during this time.
Who says the resident yada team are not to act as the board? Why can't the resident volunteer transition team act as the board?

If you quote exactly what your covenants say about transitioning and when the Declarant is no longer in control, this will likely get you better responses here.

[snip] As of Monday of this week, no [non-HOA-member pool] memberships have been purchased.
This is a bit of good news.

Consult with an attorney?

The CCRs are clear that the Association owns the pool and the ground where it sits. When the Declarant is legally no longer in control (and that might be right this instant or sometime in the last several weeks to months), you and your fellow owners are effectively shareholders. When the Declarant is legally no longer in control, each owner has a legal interest in the pool. The Board can make "reasonable rules and regulations" concerning the pool. A rule that says non-resident, non-members may use the pool at a price is not reasonable for many reasons. First, its that much more crowding of the pool. Second, liability concerns arise. Third, I agree with others that say sale of pool memberships likely removes the HOA's status as a non-profit corporation.

Your group should consult with an attorney as soon as possible, before a single membership is sold. Alternatively, your group should write a letter to the Board like the following:

Dear Board of Directors,

As you are aware, within a year the Board will soon consist of directors elected by the HOA members, and even sooner, all directors might be HOA members. We are concerned that the Declarant's sale of pool memberships at this point affects the transition. The pool will be more crowded. Liability concerns arise. Has the Declarant arranged for additional insurance? We are doubtful that pool memberships may be sold to non-HOA members without affecting the HOA's status as a non-profit corporation.

Please stop selling memberships to non-HOA members and non-HOA residents immediately. Please let us know within seven days that you have done so.

Thank you,

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LetA
(Nevada)

Posts:1469


06/11/2021 10:25 AM  
Posted By MaxB4 on 06/11/2021 8:49 AM
HOA's are NOT 501(c)3





C4 sorry fat fingers.
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