Texas media, Legislators tackle developer control of HOA communities

By Deborah Goonan, Independent American Communities

 

A Texas news station, KXAN, is investigating a very common disadvantage of HOA living – the Developer/Home Builder or “Declarant” controlled community.

It’s about time!

Current and former owners and residents of homes in association-governed communities have been complaining for many years that they have no vote and no voice in managing their communities.

I hear from homeowners on a daily basis, many complaining that their homeowners or condo association fails to respond to their concerns. Yet assessments (fees) continue to rise every year.

When a developer controls the HOA board and association finances, and fails to meet expectations of residents, it becomes virtually impossible for homeowners to improve management or maintenance of their community. (Unless they choose to get involved in a complicated and expensive lawsuit against their HOA and deep-pocketed developer.)

For example, check out Bradshaw Crossing and Colorado Crossing, developed by Lennar in Central Texas.

HOA law loophole leaves some homeowners powerless

By Brian Collister
Published: October 30, 2017, 6:30 pm Updated: October 31, 2017, 5:11 am

AUSTIN (KXAN) — New neighborhoods are popping up across Central Texas at a staggering rate. Many of the new neighborhoods have homeowners associations that offer you amenities and help you preserve your home’s value. However, a KXAN Investigation uncovered there is a loophole in the Texas law that keeps homeowners from having control of their HOA.

Reinna Ortega and her family live in Bradshaw Crossing in south Austin. The mother of two worries her sons, Jonas and Jason, will get hurt when playing in their neighborhood park. “Sometimes when we come to the park and there will be broken bottles or beer tops, condoms,” says Ortega. All of it left over from people hanging out in the park at night when the park is supposed to be closed. Ortega says her husband was attacked earlier this year by a group of teenagers when he told them they couldn’t be there after dark. “As he turns to leave he gets hit on the side of the head with a branch and he goes down.”

Ortega and her neighbors turned to their HOA to ask for lighting to improve safety and to keep out vandals at the park but the HOA did nothing and the park still sits cloaked in darkness as homeowners continue to pay their HOA dues.

Robin Callan has lived in another south Austin neighborhood called Colorado Crossing for nearly a decade. Since January 2016 her HOA increased residents’ dues by 33 percent to pay for an unfinished pool and amenity center. “We don’t have ownership of or control the HOA as homeowners in the community. So in a sense, it’s taxation without representation,” explains Callan.

The builder of both neighborhoods, Lennar, controls the HOAs.

Read more (Video):

http://kxan.com/investigative-story/hoa-law-loophole-leaves-some-homeowners-powerless/

The report brings up several important points.

State laws may allow perpetual developer control

As explained by Attorney Bill Davis, Texas law does not specify if or when Declarant or developer control of HOAs must shift to homeowners. That probably comes as a shock to some homeowners.

But Texas is not unique. Many other states in the U.S. also lack a legal requirement for a developer to turn over control of the HOA board to homeowners.

During the period of Declarant control, the developer or home builder appoints members of the HOA board. Those appointees are business affiliates or co-investors in the developement.

Contrary to industry rhetoric from trade groups such as Community Associations Institute (CAI) and Home Builders trade groups, homeowners do not elect their HOA board unless and until the Declarant gives up control of the association.

I should note that some states, such as Florida and California, specify that a Declarant must gradually give up control of the Association as lots are sold to homeowners. Typically, homeowners cannot elect owners to the HOA board until at least three-quarters of homes are completed and sold. At that point, in some states, homeowners can elect at least one member to the board. But it can take many years, even decades, to reach the threshold for full turnover of control of the Association to homeowners.

It is not uncommon for governing documents of HOAs to permit the Declarant to appoint one or more members to the board, so long as the Declarant continues to own a single parcel or at least one of the common amenities in the community.

 

De Facto Declarant Control

Even in states that eventually force a Delcarant to hand over full control of the HOA to its owners, the developer or affiliates may continue to exert a great deal of political and financial influence over the Association.

After many years of running the community without input from homeowners, it can be difficult to find enough members willing to serve on the HOA board. Therefore, one or several incumbent board members – holdovers originally appointed by the Declarant – continue to serve and vote on administrative and budget resolutions affecting all members of the community, for better or worse.

In some common interest developments, the developer, builder, or an affiliated investor or real estate broker, continues to own and/or manage a golf course, restaurant, clubhouse, marina, or other shared amenity or privately-owned business located within the boundaries of the community. Ownership of amenities – or businesses integrated into the community – entitles these investors to a seat on the board, or the right to approve or veto certain decisions of the homeowner-elected board, or both.

Sometimes the Declarant holds and leases several units, with voting interests for each unit owned. The more units owned by the Declarant (or any investor), the more voting power and control that is exercised over the financial affairs of the HOA.

 

Buyers, homeowners often do not know who controls their HOA

As highlighted in the KXAN investigation, most housing consumers are completely unaware of the concept of Declarant control.

And, by the way, I am not aware of any state law that requires pre-sale disclosure of the fact that a Declarant may still control a homeowners, condominium, or cooperative association.

Consequently, consumers buying a home in an HOA for the first time have no clue that a “Declarant” developer, home builder, investment group, or real estate broker might control the management of their association-governed community at the time of their purchase, and for many years to come.

 

Little support for legislation limiting control of HOAs

Unfortunately, many state Legislators have little appetite for controversial politics surrounding HOAs. In states such as Texas, with thousands of HOAs, elected officials may not want to vote in favor of legislation that reduces power and control of HOAs, especially HOAs controlled by developers. In their minds, alienating real estate developers and investors that finance construction of common interest communities would be like biting the hand that feeds them.

Many misguided state government leaders buy into the promise that building thousands of new communities financed by the private sector contributes to  “economic development,” “smart growth,” and a larger property tax base for local governments.

It’s a short-sighted political agenda that has failed to produce its promise of economic prosperity, eroding democratic control and social harmony in the process.

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