In the life of a homeowners association, there comes a stage when it transfers from the developer’s hands to the owners’. When both developers and owners make the necessary preparations, the shift from developer to board goes smoothly.
To be successful, collaboration and communication are key, combined with respect and integrity. Follow these eight steps for the smoothest transfer possible.
1. Make a Transition Team From the Start
Bylaws generally include benchmarks and timeframes for when an HOA can or when turned over to its members. Forming a committee a year before the HOA’s transition is a good idea. This ensures that the correct personnel is in place during the process.
Members of the board of directors and homeowners should be on the committee. Always include at least one industry expert with experience in development and associations.
The transition does not begin on the day chosen for developers to take a break; it must start at least a year in advance. The committee should consult with an attorney; residents should be on the board and collaborate with the developer.
2. Recognize the HOA Governing Documents (Bylaws, CC&Rs & Articles)
The CC&Rs establish the developer’s duties during the transition and the date for the complete handover. The HOA’s Bylaws outline how the organization governs. A lawyer will also ensure that the transfer is according to state rules.
Moreover, an attorney can assist in preparing a framework of understanding outlining the terms that regulate the transfer of authority from the developer to the homeowners; this is not necessary, but it is a good idea.
3. Hire Professional Management
Every HOA should hire professional management as soon as possible. A good management firm will help the association identify service providers, assist with the nomination and election procedures, and prepare the annual budget.
Management will also greet and interact with new owners, consult with government officials on community issues, and do various other activities (including those listed below) to ensure that the association works successfully.
- Ensure everybody follows the HOAs rules and regulations.
- Follow legal counsel’s interpretation of the Declaration and Bylaws.
- Determine the priority and availability of cash for each project by identifying maintenance initiatives.
- Ensure to maintain owner records and collect monthly maintenance fees.
- Provide owners with escrow information when residences sell.
If the association gets sued, directors’ and officers’ insurance covers defense costs and some damages. Volunteer board members will be more willing to serve if they are not concerned about personal accountability for non-criminal activities.
In order to offer fidelity insurance, arranging the bonding among the board members, directors, and officers insurance is essential. Make sure that the board and management company are covered for fidelity in an amount that equals or exceeds the association’s assets on deposit (this usually necessitates a management rider to the policy).
4. Examine the Project
The board of directors should hire a qualified Reserve Study Specialist, civil engineer, and other associated professionals to thoroughly inspect the project’s common area upgrades. This will assist homeowners in ensuring that shared areas are complete and up to code.
It will also aid in detecting problems in common areas and other frameworks so that the developer can address them before the transition is complete.
Many state laws need the developer to bond; once the HOA takes over, the developer will want the bond released. A third-party evaluation will guarantee the homeowner’s confidence that the common area was appropriately completed.
5. Frequently Communicate With the Transition Team and Developer
Designating one person as the contact between the developer and the transition team is a solid practice to follow. However, copying at least one other person on both sides in any correspondence is essential. Setting up a board email so that more than one person can access this correspondence is wise.
Once a week, the transition committee or new board should meet to evaluate its developer’s regulations. Many developers have the most basic standards to assist in the sale of properties but often need to include rules regarding parking or pets.
6. Examine Documents and Records
The homeowners’ association owns the records of any contracts signed by the developer on behalf of the HOA. In addition, the HOA owns all documentation providing information about the owners, operating records for the individual units, their interactions with the developer, assertions histories, and insurance certificates.
The HOA should always double-check for completeness and accuracy before being copied for the association.
7. Audits Conducted By a Certified Public Accountant (CPA)
A completely independent accountant is essential in assisting the organization in reviewing the developer’s financial records. The accountant will evaluate whether developer-related expenses have been charged to and paid for by the association (which is often the case).
The accountant will also look for financial claims against the developer for misappropriation of cash when in charge of the association. While having an audit completed every year may be prohibitively expensive, it is critical to do so the first year the owners take control of the association.
8. Good Legal Counsel
Because developer-HOA transfers are governed by law, it’s a good idea that both parties engage the services of a competent attorney with a track record in HOA law and construction.
It is critical to ensure that the law firm’s legal team has enough experience to promptly handle the massive amount of paperwork that comes with a developer-HOA transition. Simultaneously, the law firm should allocate partner-level attorneys to the procedure, ensuring that those with the most knowledge are involved in the transition’s day-to-day problems.
Transitioning from a developer-controlled homeowners’ association to an autonomous one is essential to an HOA. There’s a lot to do, but the sooner you create a group with specialists to monitor the transfer, the easier it will be.
Consulting with an HOA management company can help you understand the process better and guide you through each step accordingly. Contact us today for more details about developer transitions.