Dealing with a Difficult Developer

Q:  The developer of our community is refusing to turn over control of our homeowners’ association (HOA) to the homeowners even though all of the houses are sold. He maintains that he owns the two streets in our small subdivision and has filed paperwork to turn them over to the state of North Carolina, but until that happens he won’t relinquish control of the HOA. The HOA is effectively being run by one person, who is a friend of the developer. He will not show us any bank statements, does not answer e-mails or calls, and will not hold meetings. He is not using our dues to care for the landscaping or to fulfill other HOA obligations, and he told us he has the sole power to make decisions for the subdivision. We can’t understand the motivation of the developer to hang onto our HOA. How can we fix this problem?

A:  I do not know of any legitimate reason why a developer would want to retain control over an HOA under these circumstances, but admittedly I have heard only one side of the story.

I suggest that you start by reviewing your community’s Declaration of Covenants, Conditions and Restrictions (the CCRs). There should be a section that addresses voting classes, voting rights, and establishes the “declarant control period,” which is the period during which the declarant (the legal term for “developer”) retains control over the HOA.

Next, you should check your HOA’s bylaws to determine how the board of directors is elected, who qualifies to serve on the board, and how long the terms are. The original members of the board were probably specified either in the Articles of Incorporation filed with the Secretary of State (which you can easily find online), or in the bylaws.

The CCRs and bylaws often have language that gives the declarant the unilateral authority to appoint the board members during the declarant control period. Even if the declarant has the authority to retain control, the board of directors appointed by the developer still owes the same legal “fiduciary” duties to homeowners that a board elected by the homeowners would. Such duties include holding an annual meeting of members; making board meetings open to members at regular intervals; making annual financial statements available to all members upon request; allowing members access to certain business and financial records of the HOA; and maintaining common areas.

If the declarant is ignoring his fiduciary duty to members of the HOA while in control of the board and refuses to comply with legal requirements, you will need to engage a lawyer familiar with community association law to press your case, and possibly file a lawsuit.

This column was originally published in the Charlotte Observer on July 2, 2017. © All rights reserved.

Author: Mike Hunter
Articles have been Reprinted with permission from the charlotte observer and Mike Hunter.

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