From: sullivan@alw.nih.gov (Jim Sullivan)
Subject: Re: HomeOwner's Association handover problems
Organization: National Inst. of Health, DCRT, CSL
Date: Mon, 9 Nov 1992 15:23:37 GMT

+ 25277	HomeOwner's Association handover problems     [42] David Allan Linde   In article <BxB0AG.77H@encore.com>, dlinde@ns.encore.com (David Allan Linde) writes:
|> 
|>    I attended a homeowners meeting last night after receiving notice in
|> the mail of the meeting to nominate new officers.  Apparently, our development
|> is now 75% full and the unit owners should now control the association.
|> 
|>    The meeting was being run by our currently contracted property management
|> group.  The first thing they read to us was a letter of resignation by Centex
|> Homes effective 5:30pm yesterday (the meeting was at 6:30pm).  We were then
|> told that Centex had sent no representative.

Who hired this property management group?  Probably the builder.

In the homeowners association where I lived, the builder was considered
to be the owner of all homes, even those not yet built, until they were
sold.  The homeowners association, though not offically formed, existed
in some form and was managed/controlled by the builder.  When 80% of the 
homes were sold, the homeowners association was formed.  Up to that time
and until all homes were sold, the builder was to pay the homeowners
fees on all homes not yet sold.  In other words, the builder owned the
homes and was treated as a homeowner.  Thus the builder, up until the
homeowners association was formed, was responsible for managing the
funds and paying dues on homes the builder had not yet sold.

|> 
|>     We were told that this meant that unless we nominated and voted in at
|> least the 3 officer (Pres, Secret, and Treas.) there would be no one to 
|> authorized the current property management group to write any checks and
|> carry on our day to day business.

This happened in a nearby HOA.  No one wanted to be on the board.  When the
last members term expired, there was no one to write checks.  So the grass
was not cut, there was no one to approve deck construction, etc... and the
only real problem was that there was no one to collect the dues or hand over
documents to the auditors.  I'm not sure what finally happened but it 
certainly showed to me that an HOA is an unnecessary invention.
|> 
|>     Two CPA from our development blasted the absent developer stating that
|> it is customary during a association handover for the developer to provide
|> all homeowners with balence sheets of the current financial situation and
|> be present to answer any questions.

You should have a set of bylaws or rules and regulations on this association.
In MD, it is required that you receive these before settlement on your home.
In these bylaws, the transition of the association from the builder to the 
homeowners should be outlined.  Of course, in our case anyway, the builder 
write the bylaws.
|> 
|>     The two CPA suggested that we don't nominate anyone and we reject the
|> resignation letter, but we didn't know what rights we actually had.  We
|> plan to just talk to the developer.  

Talk to your state or county legal people or consumer affiars office.  Maryland
has set up a group to handle homeowner association disputes and draft
guidelines for association formations.  
|> 
|> There were a couple of financial sheets which the CPA then looked at and
|> found that the associated is currently 18,000 in debt!!!!!!  Since most
|> people  have already paid their quarterly assessment no new money is expected
|> until Jan. 1993 and there are some bills anticipated in December. 

This is surprising since usually the funds are rarely used due to the funds
being earmarked for maintenance.  In a new development, you rarely need
to fix cracks in the pool or cutting down diseased trees.  Everything is new!
What typically happens is that the funds are increasing so fast that the 
association decides to reduce the dues... then the pool develops a crack, the 
tennis courts need resurfacing, etc... and the money begins to disappear, and 
dues are increased.  This happened to our development in the 7th year.
|> 
|> The property management group admitted that 7,000 dollars were paid to raise
|> the outside wall another 2 foot.  This was done because the city of Plantation
|> had presented Centex with a citation.   The CPAs felt that since this was
|> a building code violation Centex should not have authorized the association
|> to pay it but Centex should have eaten the cost themselves.

I would agree but the homeowner rules and regs are often written so poorly
that the builder, who had control of those funds, might be able to apply
them to "repair" a building.  

|> Has anyone had any similar experiences.  Should we go ahead and elect a
|> board or should be get the financial stuff resolved before we take over.
|> Is this mismanagement?

BE CAREFUL ABOUT GETTING ON AN HOA BOARD!!!!!!!!!!!
You would be amazed if you knew the legal requirements of some board members.
On our board, you could be sued by the homeowners for not "properly" managing
the association.  This is what happens when you get on a board:

-Board members are legally responsible for the management and operation of a
 non-profit group which probably has to pay taxes, be annually audited,
 be legally bonded, somehow enforce the collection of dues and enforce the
 association bylaws and covenants as stated in your homeowners documentation.
 All of this requires money.

-In our case and many cases I hear about, there is one method to enforce
 dues collection; Place a lean against the homeowners house.  For this you
 will require a lawyer.

-To enforce association covenants (No fences, antennas, pink-flamingos, etc..)
 the association rarely has any power except to confront the homeowner.  This
 has almost led to a fist fight on more than one ocassion.

You can get around a lot of this by hiring a management firm, however these are 
expensive and you are still legally bound as a board member for how the firm
runs the association.

Best thing to do is contact the state/county for advice.  Once you get the
financial parts settled, consider disolving the association. IMHO, HOA dues
are taxes which you cannot declair.  Dues pay for such things as roads, parks
and pools which are usually paid for by your state/local taxes.  Look at the
financial sheet and you will see that a lot of your dues are paying for such
things as lawyers, accounting firms, insurance, etc...  None of this would
be required if you lived in an older neighborhood where the state/county took
care of these things.  And you are still paying your normal amount of taxes!

If you live in a condo, the HOA is much more important and IMHO should exist
since most of the dues go toward the building/property which you live in.
But in a neighborhood of single family homes and/or townhomes, the HOA seems
to be no more than a way for the state/county to have communities pay for
services that should be paid for through normal taxes or individuals deciding
to join a pool or club.  The dues are not used on *my* property whereas in 
a condo, the dues pay for maintenance of the building in which you live.

Consider this:  I pay property taxes and state/local taxes yet:
-I cannot paint my home without the association's approval.  
-I cannot have more than two pets.
-I cannot have my grass grow more than 12 inches high or the association will
  cut it themselves and bill me for the cost.  
-Whether I choose to use the pool or not I must pay dues for it's upkeep. 
-I must pay dues for accountants to make sure the money is accounted properly,     for  retaining lawyers, for liability insurance on common property, and for 
 hiring employees who run the association. 
-I must get any outside structure approved by the board (i.e. a deck).
-Some of these rules cannot be changed and others require a high percentage
 of the association to agree.

I have since moved into an older neighborhood.  There is no association but 
it is an incorporated town.  We have parks and streets that the town owns, but
I pay not a dime of dues.  I designate the town on my income taxes as a local
taxing zone.  The state then takes part of my state income tax and gives it to
the town.  This seems fair since the town is paying for the upkeep of streets
and parks that the state normally would.  I pay no more taxes than I would 
living in a "normal" neighborhood.

If you look in the homeowner documents, there should be wording on how the 
association can disolve itself.  I would recommending you and your community 
look into this and look into forming a local town or seperate taxing zone
as most incorporated towns have, or simply disolve the association and request
that the state/county be given ownership of the common areas and streets.
 
-- 
Jim Sullivan 		[ The future ain't what it used to be ]
National Institutes of Health
Bethesda, MD 20892
Phone: (301) 496-5362
FAX: (301) 402-2867
Internet: sullivan@alw.nih.gov
Newsgroups: misc.consumers.house