There comes a time in the life of a homeowners association when a developer hands over the reins to the owners. When proper steps are taken by both developer and owners, and cooperation and communication are exercised with respect and integrity, most transitions are smooth. Of course, the flip side of this coin can be a nightmare. To equip your HOA for the best transition possible, follow these eight steps.
Timeframes and benchmarks for when an HOA can or will be turned over to owners are often enumerated within the HOAs Bylaws. A team can be created as this time approaches so that the right people are in place when it’s go time. FirstService Residential suggests the team include a Board member, community members, and at least one industry professional with experience in associations and development.
Many HOA management companies will be able to assemble necessary expertise for the transition, but make sure the transition team is in agreement. Michigan attorney Joe Wloszek with the law firm Cummings, McClorey, Davis & Acho, P.L.C., recommends the Board of Directors hire a professional, licensed civil engineer or other qualified professional to analyze and inspect all of the common elements of the project including readily apparent construction defects, but also hidden defects like foundation cracks, faulty electrical wiring, premature road failure, and more.
In the course of developing a project, the developer may execute contracts on behalf of the homeowners association. These contracts, as well as owner information and correspondence, maintenance records, insurance certificates and claims history, belong to the association. Therefore, audit them, copy them, and understand them.
The transition team along with a licensed professional engineer should carefully inspect the community and create a punch list for the final transition.
A good rule to follow is to designate one person as the liaison between the transition team, developer, and to copy at least one other individual on both sides in all correspondence.
This is important to do as punch list items are completed and to guide the transition so that an exact date is established as to when the owner-controlled Board will assume maintenance duties.
Michael S. Hunter, attorney, and partner at Horack Talley in Charlotte, N.C., warns of cases when developers hadn’t kept accurate accounting records, so it wasn’t clear which owners had paid their assessments. Hunter also has witnessed trouble down the road after developers had paid expenses out of their own pocket and created unreliable financial expectations for the owner-controlled HOA to manage. A CPA will be able to ask the right questions, audit financial documents, and make sure all monies have been handled properly.
In the middle and, inevitably, near the end of the transition, small details will surface. Transition teams are wise to pay attention to the details–ask questions, expect perfection, and know when things are supposed to happen and who is responsible for each action at all times.