New Development Dilemma

At a recent regional conference on homeowner association challenges, the hot topic was developer /declarant problems:  It was more shocking than surprising to see the number of communities lost in limbo.  Too often, the developer's focus is only on building homes, not communities.  A poorly crafted set of governing documents is provided by an attorney that does not specialize in HOAs.  Artificially suppressed assessments are imposed, leaving the community cash-poor.  A transition committee, if it is even provided by the developer, is provided very little guidance or time.  The Board of Directors is inaccessible.  There are no clear lines of communication and authority.

In this mess, homeowners don't know where to look for answers, much less what questions to ask.  Here are a few typical items you need to consider:

Who is in charge?  Each community is a corporation, and must be filed with the Secretary of State - go online to your State government website to quickly locate the officers listed for your community.  These records must be updated yearly.  If your community is shown as inactive, that's a problem.

Doesn't the management company make the decisions?  No.  Only the Board of Directors may do this, with the management company responsible for implementation.  Unfortunately the management company often finds itself walking a thin line.  Its duty is to the Association, but is receiving directives from a developer-installed Board.  Each manager must weigh how much good he hopes to accomplish on behalf of the homeowners within developer defined restraints.  If the developer hamstrings his ability to serve, the manager may decide to sever the agency relationship. 

When does the developer have to give up control?  This is determined both by State law and the governing documents.  It may be 10+ years.  Developer control is nearly absolute during the build-out of a community, so if you believe turnover is required, enlist the aid of a legal professional to review and confirm.  In some instances, homeowners come out-of-pocket for court action to resolve this.

Where do I obtain the governing documents?  These should have been provided at the time you purchased your home.  Although they are filed at the county courthouse, if you are not familiar with the system, rely on a title company or real estate attorney to help you track down all the documents.

What happens at turnover?  The developer must satisfy a series of items on a checklist issued by the County.  Any loan provided by the developer to the community is often forgiven in exchange for the homeowner controlled Association agreeing to not pursue the developer for any future items.  If your community happens to be a homeowners association (not a condominium), negotiate to have your community submitted to the Property Owners Association Act at the time of turnover.  This state statute provides protections for your community.

There are many respectable developers involved in creating homeowner associations.  If things get rocky, enlist the aid of outside counsel to help you clear up communications with the developer and resolve situations before they become a headache.