HOA problems. Advice needed. (sales, insurance, how much)
Raleigh, Durham, Chapel Hill, CaryThe Triangle Area
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Our neighborhood of about 30 potential homes in not yet 51% built. The problem is that our developer owns the hoa until that time. He is not doing any of the landscaping of the common areas and our neighborhood looks terrible. He is also planning to build a house that is smaller than that stated in the bylaws can be built in the neighborhood. Is there any recourse that can be taken? We are thinking of asking him for documentation of where he is spending our dues payments. What can we do if he refused to provide us the data? Our dues are relatively low at 250 per year, but at this point it should be more than enough to mow the grass and pull weeds from small common areas.
I think handoffs from developer-led HOA to homeowner-led HOA tend to be messy and there seems to be little legal standard applied to the developers' management of the HOA while they control it. When my neighborhood HOA was handed off to us by the developer, we had an awful time reconstructing the accounting for the past several years and figuring out what happened with all the money. It was a major dispute with our developer, and sadly it never really went anywhere. We basically ended up starting over again (including building up reserve funds).
I think handoffs from developer-led HOA to homeowner-led HOA tend to be messy and there seems to be little legal standard applied to the developers' management of the HOA while they control it. When my neighborhood HOA was handed off to us by the developer, we had an awful time reconstructing the accounting for the past several years and figuring out what happened with all the money. It was a major dispute with our developer, and sadly it never really went anywhere. We basically ended up starting over again (including building up reserve funds).
I could not agree more. I was involved in my HOA from shortly after the handover, and when I was President three years after that we were still sorting out the mess. I think step 1 would be to ask a lawyer. It seems to me that the developer is acting in some sense like a trustee, and so there may be some legal standard there.
I am surprised your covenant lays out minimum building sizes.
They are still bound by the covenants. Now, most HOA documents allow them to modify the covenants pretty easily but they can't just violate them, they have to go through the process and record them with the county. Now, you would probably have to sue to get them to follow them or at the very least engage legal counsel and have them write some letters. Maybe if you threaten they may play ball, but depends on how shady they want to be.
Carefully read the architectural control documents. They may not be as specific as to house size as you want or give them outs to reduce size and not actually be breaking the covenants.
This is a tricky one, as our association was in a similar boat a few years ago and I've been on the Board since the turnover. Our developer did collect the dues and luckily did keep up the common area, but conveniently "went under" right before the roads were to be completed. That's a story in & of itself. He turned over the HOA to the homeowners with $300 in the bank, $900 of overdue bills, no reserve, and had not collected dues for the following year. Net is it was a mess, but we've cleaned everything up with a lot of hard work over the last 2 years and are getting back on our feet. When we scrubbed through the books we found that the dues level he had set (likely low to attract folks to buy) didn't come close to covering the common area expenses - he must have paid the remainder out of his developer funds instead of out of the HOA, which he legally had the right to do. We ended up having to immediately raise dues just so we could pay the bills.
Your CC&Rs (covenants) should specify how long the "Development Period" of your HOA is - basically, this is the period for which the Declarant (usually the developer) maintains control of the association. Different HOAs have different rules but it's oftentimes after X% of the lots have been built OR a set # of years after the HOA was incorporated (usually 5 or 10 years.) If any of the development-period-end conditions have been met you & your neighbors could take over the HOA from the developer. While the declarant has control of the HOA, the CC&Rs are usually written in such a way to give him almost complete control - the declarant usually gets more than one vote per lot he owns, and most CC&Rs state that any major decision needs to be approved by the declarant in some fashion.... so long as the declarant controls the association it's pretty common for him to do as he pleases until the homeowners can legally take control.
I would strongly recommend getting advice from an attorney who specializes in HOA matters. Also it would be a good idea to familiarize yourself with the NC Planned Community Act which regulates HOAs in NC. This is also commonly referred to as NC State Statute 47F. It can be found here. Chapter 47F
Even during the development period, as per the state law above, any HOA member has the right to review the financials of the HOA. Be sure to ask not just for the expenditures but for the income as well, so you can see if the dues are covering the expenditures or not. This will be your first clue as to how much of a challenge you & your neighbors will face whenever the HOA does get turned over. You'd be surprised how expensive things are - a landscaping contract for an HOA is not cheap, and there are other significant expenses like insurance, tax preparation, electric bills if you have streetlights, etc.
§ 47F‑3‑118. Association records.
(a) The association shall keep financial records sufficiently detailed to enable the association to comply with this Chapter. All financial and other records, including records of meetings of the association and executive board, shall be made reasonably available for examination by any lot owner and the lot owner's authorized agents as required in the bylaws and Chapter 55A of the General Statutes. If the bylaws do not specify particular records to be maintained, the association shall keep accurate records of all cash receipts and expenditures and all assets and liabilities. In addition to any specific information that is required by the bylaws to be assembled and reported to the lot owners at specified times, the association shall make an annual income and expense statement and balance sheet available to all lot owners at no charge and within 75 days after the close of the fiscal year to which the information relates. Notwithstanding the bylaws, a more extensive compilation, review, or audit of the association's books and records for the current or immediately preceding fiscal year may be required by a vote of the majority of the executive board or by the affirmative vote of a majority of the lot owners present and voting in person or by proxy at any annual meeting or any special meeting duly called for that purpose.
In addition, it would be a good idea to read through your HOA's Articles of Incorporation and CC&Rs. It sounds like you have a copy of your bylaws as well but the Articles of Incorporation and CC&Rs are very important to get the complete picture as to what rights you & your neighbors have and to the overall structure of your HOA. Keeping in mind though, that so long as the declarant is in control it is very easy for him to change the bylaws or CC&Rs as your governing documents are likely written in a way to give him the majority of votes to make any changes.
The CC&Rs are filed with the county Register of Deeds. If you're in Wake County, here is a link to the Register of Deeds search site. Books! Online Records Search To find your CC&Rs, type in the name of your association in the "Grantor" field then select the Doc Type as "Decln."
The Articles of Incorporation are kept on file with the NC Secretary of State. North Carolina Secretary of State Then type in the name of your association, and when it brings up the record, open up the item and at the top click on "View Document Filings." The Articles of Incorporation for your HOA will be one of the links.
Hope that helps. Best of luck with everything. I know how frustrating it can be in your situation but there will be a light at the end of the tunnel once the HOA gets turned over to you & your neighbors if you have a first Board that is willing to put in the hard work necessary to get everything straightened out.
They are still bound by the covenants. Now, most HOA documents allow them to modify the covenants pretty easily but they can't just violate them, they have to go through the process and record them with the county. Now, you would probably have to sue to get them to follow them or at the very least engage legal counsel and have them write some letters. Maybe if you threaten they may play ball, but depends on how shady they want to be.
Carefully read the architectural control documents. They may not be as specific as to house size as you want or give them outs to reduce size and not actually be breaking the covenants.
Before anyone bought a house, I suspect they could just change the covenant by filing appropriate paperwork. But after the first house is sold, by changing the covenant they are effectively unilaterally changing the language of a contract. Even if they have some language in the covenant to provide them with some cover for this, a court might set some bounds on what they could do unilaterally.
Covenant provisions have been defeated in court. For instance, covenants that banned dishes covered by the 1996 Telecommunications Act have had those components overturned (this has happened for covenants introduced before AND after the act).
There's a community near us now where the developer went bankrupt. Eventually someone new took it over. We see they're building new homes but wondering what they are going to do about finished the buidout/landscape/pathways on the old homes.
Fortunately the first developer had done the common areas very nicely. The roads now are another thing. Some are paved, some still dirt.
Do you think he's in financial trouble? If so there could be all kinds of odd things. 30 years after our community was started I found out the original owners wanted to save the club house when the developer was in financial trouble so they got together and bought it from him. So somehow they now own it but everyone uses it. But some disagree about this. yada yada. You get the idea.
And...this same builder I'm talking about on the new community. Try to get anyone out just to bring the private road up to grade on his previous community so people can drive on it properly and get it paved. And no money coming from the developer any longer either.
Before anyone bought a house, I suspect they could just change the covenant by filing appropriate paperwork. But after the first house is sold, by changing the covenant they are effectively unilaterally changing the language of a contract. Even if they have some language in the covenant to provide them with some cover for this, a court might set some bounds on what they could do unilaterally.
Covenant provisions have been defeated in court. For instance, covenants that banned dishes covered by the 1996 Telecommunications Act have had those components overturned (this has happened for covenants introduced before AND after the act).
Well, the way it is set up is its not technically unilateral, requiring a vote of the board. But usually the entire board and all the voting rights are held by the developer until the turnover percentage is reached. They do have to keep records of the vote and decision and file the paperwork.
Well, the way it is set up is its not technically unilateral, requiring a vote of the board. But usually the entire board and all the voting rights are held by the developer until the turnover percentage is reached. They do have to keep records of the vote and decision and file the paperwork.
Depends on what it is. Many covenants require more than just board consent for a rules change. It requires actual member consent, and the threshold is often high.
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