How to create a stealth HOA

By Deborah Goonan, Independent American Communities

retentionpond

Lately I have been reading reports about, and hearing from homeowners, that they purchased their property thinking there was no homeowners association (HOA), only to have the HOA imposed upon them several years later.

Normally, HOAs must be created at the time the subdivision is approved by the local government, before the builder breaks ground for construction. And normally, if, for some reason, a group of owners or a builder decided they actually want a homeowners association later on, the only way that could happen would be to have each and every property owner agree to the HOA in writing. Usually, it is difficult to obtain 100% participation. Sometimes the HOA may even end up being voluntary rather than mandatory.

But it seems as though attorneys, local governments, and builders are finding ways to get around the law, compromising private property rights in the process.

Today I’ll share a real life example of how this might happen.

 

Storm water ponds lead to creation of Stealth HOA

Liberty Heights subdivision, Indiana, has 25 lots for construction of private detached homes, to be built by Randy Hall of Luxor Homes. The builder advertises “no POA fees” and a “6 year tax abatement.” The home buyer might interpret “no POA fees” to mean there is no homeowners (or property owners) association in Liberty Heights. But, as you’ll see, that would be a false assumption.

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Here’s a copy of the plat, obtained from Luxor Home’s website:

 

Note, at the bottom of the plat window, two “outlots” for “private detention.”

It turns out that these two detention lots were added after Liberty Heights was established by a previous builder, who declared bankruptcy. You see, the City of Hobart recently talked the builder of Luxor Homes into purchasing the two “outlots” with detention ponds at a tax sale. The ponds were discussed at the September 7, 2016, board meeting for the City of Hobart. (See here for the complete copy of minutes, scroll down to page 3.) I have added emphasis of important points in bold.

The applicable section of the minutes reads as follows:

Order to Comply: Detention Ponds in Liberty Heights Subdivision: re: Randy Hall, Luxor Homes:
Mr. Hall, registered agent of Liberty Heights HOA was present and stated that when he purchased the lots the detention ponds were not included and someone from the City called and said that the ponds would be sold in a tax sale and asked if he would purchase them for future use. The ponds were purchased and placed in a tax exempt entity for the future HOA once turned over to the residents. Mr. Hall would like to change ownership to the HOA but not sure of the steps to take legally. Attorney DeBonis [City of Hobart attorney] briefly explained the process and noted the Covenants should be referred to for guidance. There was some discussion of who is responsible for the care of the detention ponds. Attorney DeBonis suggested that a letter be sent to the residents explaining the issues and inviting them to a meeting to form a HOA. Mr. Snedecor suggested that Mr. Hall be the facilitator of the meeting and the City could provide the location.

Mr. Hall feels that he can pull together a meeting in the near future in order to set up the HOA. Mr. Gralik suggested that either he or Mr. Kingsland also attend the meeting and explain the stormwater issues to the residents. Mr. Hall agreed to maintain and mow around the ponds until they are handed over to the future HOA. It was agreed that a meeting would be set with Mr. Hall, the City Engineer and the residents of Liberty Heights to begin the process of turning over the homeowners association as the covenants intended.

 

When homeowners purchased their properties, in the eyes of the law, they agreed to the Covenants, Conditions, and Restrictions (CC&Rs) for Liberty Heights. These are posted on Luxor Homes website. Here they are, for reference. Scroll down to page 14, Section 15. Storm Water Retention System.

In rather complex legalese, the CC&Rs leave the door open to create a homeowners association to maintain “that portion of the storm water drainage system lying outside of the designated public right-of-way, specifically outlot A and outlot B.”

On page 15, assessments are created against each lot owner, for the purposes of maintaining the ponds on these two lots. At this point, even without an HOA, each owner is financially liable for payment to maintain these two detention ponds. If homeowners fail to coordinate maintenance among themselves, the City of Hobart has the legal right to assess (by way of property taxes) the cost of any repair and maintenance to each lot.

On page 16, the CC&Rs leave the door open to create a homeowners association “by separate declaration” and the obligation of the HOA to collect assessments as “duly authorized by the majority of Owners of such association.”

Sneaky.

How to create new liabilities for homeowners

The City of Hobart is in the process of cleaning and repairing both neglected ponds, but now insists that homeowners must maintain these ponds and the storm water drainage system in the future. Of course, the City is pushing the establishment of a homeowners association for this purpose.

City to hand off pond maintenance to homeowners

Karen CaffariniPost-Tribune (Nov. 17, 2016)

Hobart city staff are in the process of cleaning up two long neglected detention ponds in the Liberty Heights subdivision, but told its residents that future maintenance will be their responsibility.City engineer Phil Gralik said staff was able to clean up the north pond in the subdivision located off Indiana 51, by Rand Street, but the south pond was still too wet to work on.

He said the project won’t be completed until spring, noting the vegetation won’t be able to grow until then.

“We’ll get the ponds to where they need to be. We’ll correct any serious deficiencies, then we’ll turn them over to the residents,” Gralik told the Board of Public Works and Safety at its regular meeting Wednesday.

He said Randy Hall, of Luxor Homes, who bought a number of vacant lots in the subdivision after the original developer went bankrupt, told him he was holding a meeting with residents at 6 p.m. Nov. 28 at Luxor Homes Model Lot 2 to discuss their forming a homeowners association.

Dues paid to the homeowners association would pay for maintenance of the ponds.

Read more:

http://www.chicagotribune.com/suburbs/post-tribune/news/ct-ptb-hobart-ponds-st-1119-20161117-story.html

 

The way the Covenants are written, homeowners have to pay for maintenance of these two “outlot” detention ponds, no matter what.  But it appears they have a choice – they can pay the City or they can pay the yet-to-be-created HOA.

Homeowners are right to be concerned about creating a homeowners association, with the added expense of an insurance policy to protect owners from liability, should those storm water ponds be connected with flooding, property damage, or personal injury.

This raises some questions. Suppose a majority of homeowners fail to vote in favor of creating the HOA, then what? Can property owners convince the City of Hobart to accept ownership, liability and maintenance after all, agreeing to an adjustment in property taxes? Perhaps the owners can simply give up the tax abatement?

The irony here is that the HOA industry and local governments claim that termination of HOAs is difficult because the local government won’t take over infrastructure like roads or storm water systems unless they are first brought up to current construction standards. Yet local governments often allow the HOA builder to take cost-cutting measures on initial construction. Roads might be built more narrow than City roads, without ample room for street parking. HOA storm water ponds might be constructed without adequate structure to prevent shoreline erosion, “wet” ponds might be created without lining to prevent excess leakage, or “dry” basins might be planted with cheaper vegetation that requires more frequent mowing. 

Well, in this case, according to the Chicago Tribune article, Luxor Homes never had to put a dime into constructing or rehabbing these ponds. A previous owner constructed them and then neglected them. Thus the tax sale. Now the City of Hobart is correcting the deficiencies, but Luxor intends to hand over future costs and liabilities to the HOA led by homeowners.

But, if the City of Hobart is going to use taxpayer funds to bring these ponds up to code, why don’t they just continue to maintain them? Why dump future maintenance burdens and insurance liability on homeowners in one particular subdivision, or seek impose an HOA for that purpose?

 

 

 

 


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