Investment restrictions during Developer controlled HOA?
October 7, 2014 11:39 AM Subscribe
The developer of my neighborhood (a single individual) built a personal home in the neighborhood and still lives here. He was the HOA's acting president (as the developer) until the development reached 75% capacity and then had 120 days to hold a vote to transition to an Owner based HOA.
The new board has parsed the numbers and I am most concerned with insane "investment" he made to himself with the HOA's money -- resulting in a $15k loss. Can this be legal?
I have searched and searched but I can't find the answer in the Texas Property Code.
Summary:
This HOA is in Texas from 2007 to 2013.
In 2012 the neighborhood reach that magic 75% number. The developer kept pushing out the request for an election citing his busy schedule. Eventually we forced the issue and he was voted out.
1 )This developer started his own company to handle the maintenance and did it without a contract. None of monthly expenses are itemized, mostly just lump payments to HIS company. He over charged the HOA 13k a year for his 'service.' His yearly budgets didn't show this loss.
2) in 2009 He started an LLC to buy properties and try to flip them for profit. He used the HOA's money to "invest" in his new company's venture -- resulting in a $15k loss to the HOA when one of the properties was foreclosed. There is VERY little paperwork on this. The contract he signed as HOA president to his new LLC (with HIM being the director of that LLC) says it is an investment and if not repaid within a year it will be counted as a loss.
3) At the end of his run the HOA's banking account went from $100k to $2k over the span of ~6 years.
The first item is too complicated to ask about here. It just shows how fast and loose he is with the laws. Hard to prove he blatantly lied for a profit -- he could have been completely incompetent.
Is the second item legal? Can the developer use the HOA's money to fund another venture for the developer?? This doesn't seem like it fulfills his fiduciary duty as the president. Are there explicit laws the restrict how the HOA's money is spent during the initial developer controller period for a new HOA?
I have searched and searched but I can't find the answer in the Texas Property Code.
Summary:
This HOA is in Texas from 2007 to 2013.
In 2012 the neighborhood reach that magic 75% number. The developer kept pushing out the request for an election citing his busy schedule. Eventually we forced the issue and he was voted out.
1 )This developer started his own company to handle the maintenance and did it without a contract. None of monthly expenses are itemized, mostly just lump payments to HIS company. He over charged the HOA 13k a year for his 'service.' His yearly budgets didn't show this loss.
2) in 2009 He started an LLC to buy properties and try to flip them for profit. He used the HOA's money to "invest" in his new company's venture -- resulting in a $15k loss to the HOA when one of the properties was foreclosed. There is VERY little paperwork on this. The contract he signed as HOA president to his new LLC (with HIM being the director of that LLC) says it is an investment and if not repaid within a year it will be counted as a loss.
3) At the end of his run the HOA's banking account went from $100k to $2k over the span of ~6 years.
The first item is too complicated to ask about here. It just shows how fast and loose he is with the laws. Hard to prove he blatantly lied for a profit -- he could have been completely incompetent.
Is the second item legal? Can the developer use the HOA's money to fund another venture for the developer?? This doesn't seem like it fulfills his fiduciary duty as the president. Are there explicit laws the restrict how the HOA's money is spent during the initial developer controller period for a new HOA?
this would be considered blatant, actionable self-dealing and breach of fiduciary duty in california, where i was a charter board member, treasurer and general counsel of a HOA for about ten years. you need a texas lawyer with HOA litigation experience to advise you.
posted by bruce at 11:52 AM on October 7, 2014
posted by bruce at 11:52 AM on October 7, 2014
Response by poster: I should have said: "I know you aren't my attorney.. " :)
He left us with $2k in the bank, so funding an attorney is the hard part. Trying to see if we have grounds to get the push the new board in that direction.
posted by LeanGreen at 11:56 AM on October 7, 2014
He left us with $2k in the bank, so funding an attorney is the hard part. Trying to see if we have grounds to get the push the new board in that direction.
posted by LeanGreen at 11:56 AM on October 7, 2014
The correct answer is, "Maybe. Ask a lawyer within your state."
posted by IAmBroom at 12:00 PM on October 7, 2014
posted by IAmBroom at 12:00 PM on October 7, 2014
Best answer: In Florida, HOA boards are strictly regulated. I expect the same is true in Texas. You need a lawyer. If the HOA can not afford it right now, they should assess additional fees on the home owners. They have fiduciary responsibility to get to the bottom of this issue.
If they refuse to do so, then You as an individual can sue the HOA for failure to investigate the previous board. If the current HOA is unwilling to hire a lawyer, I would go after the HOA myself.
Someone in that community is eventually going to lawyer up - and when the shit hits the fan, it is going to look like there were those trying to shine the light on the books and those who were trying to cover it up. The current board could end up being liable for failing to act here.
posted by Flood at 12:03 PM on October 7, 2014 [4 favorites]
If they refuse to do so, then You as an individual can sue the HOA for failure to investigate the previous board. If the current HOA is unwilling to hire a lawyer, I would go after the HOA myself.
Someone in that community is eventually going to lawyer up - and when the shit hits the fan, it is going to look like there were those trying to shine the light on the books and those who were trying to cover it up. The current board could end up being liable for failing to act here.
posted by Flood at 12:03 PM on October 7, 2014 [4 favorites]
Hoo! You need to lawyer up, can you say conflict of interest?
Your condo association needs a lawyer anyway. There are lawyers who specialize in this mess (we used Becker and Poliakoff in Florida)
They may work on contingency, but whoever is on the board needs to get on this YESTERDAY!
And yes, feel free to sue the HOA as a homeowner to force the issue.
A special assessment may need to be done to get the funding to hire a lawyer, but the ball needs to roll now on this. There are statutes of limitations.
posted by Ruthless Bunny at 1:11 PM on October 7, 2014
Your condo association needs a lawyer anyway. There are lawyers who specialize in this mess (we used Becker and Poliakoff in Florida)
They may work on contingency, but whoever is on the board needs to get on this YESTERDAY!
And yes, feel free to sue the HOA as a homeowner to force the issue.
A special assessment may need to be done to get the funding to hire a lawyer, but the ball needs to roll now on this. There are statutes of limitations.
posted by Ruthless Bunny at 1:11 PM on October 7, 2014
And yes, feel free to sue the HOA as a homeowner to force the issue.Not-very-likely hypothetical: if the board were to let the statute of limitations expire, could the original developer, who the OP says built and owns a home within the development, sue the HOA for failure to protect his interests as a homeowner and member of the HOA?
A special assessment may need to be done to get the funding to hire a lawyer, but the ball needs to roll now on this. There are statutes of limitations.
posted by Nerd of the North at 1:57 PM on October 7, 2014
I'm not at all an expert. However, your first step might be to find out if the board has fiduciary insurance to cover the losses. Something similar happened in my grandpa's condo and the fiduciary insurance ended up covering the loss as well as the cost of the lawsuits involved. I think it would be worth your time and your neighbors' time to at least consult with an attorney and learn more about your options.
posted by parakeetdog at 4:33 PM on October 7, 2014
posted by parakeetdog at 4:33 PM on October 7, 2014
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posted by flimflam at 11:41 AM on October 7, 2014 [7 favorites]