There comes a time in the life of a homeowners’ association when the HOA transitions from the developer’s hands to the owners’. When the proper steps are taken, the transition from developer to the board goes smoothly. Cooperation and communication need to happen with respect and integrity to ensure success. In this article, we’re going to go through the 8 key steps for an HOA to transition smoothly from developer control to an owners’ association.
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When Does The HOA Transition From Developer to Owners?
The HOA’s transition doesn’t happen as one quick break; it happens over time.
It depends on the state you live in when control is transferred from the developer to the owners. The trigger is normally a certain time period after a certain percentage of units have been sold.
For example, in Florida, Chapter 720, Section 720.307 states that 3 months after 90% of parcels in all phases have been sold, the community will start to be operated by the members.
Having said that, the transition doesn’t start on the date set for developers to step back. It needs to begin at least a year before that. A committee made up of residents needs to work closely with the developer and other professionals to ensure they understand what is going on and can run the HOA well.
In this article, we’re going to look at 8 key steps to ensure that this transition happens smoothly.
1. Create a Transition Team Early On
Timeframes and benchmarks for when an HOA can or will be turned over to owners are often set out in the HOA’s bylaws and state laws. A committee should be created at least a year before the HOA’s transition happens. That way, the right people are in place throughout the transition.
Residents need to organize into a committee and keep the developer in the loop. Sometimes the developer will also appoint people to the board to help with the transition of power until homeowners can hold an election for board members. It should also have at least one industry professional with experience in associations and development.
2. Hire Professionals to Help With the HOA’s Transition
Many HOA management companies can assemble the necessary expertise for the transition.
Manager
Make sure the transition team is in agreement, as a certified community manager is an important professional who can support you throughout the process of becoming an independent association. A community association manager with expertise in transition HOAs is a great asset to the committee, helping smooth dealings with the developer and addressing any hurdles you may face.
Engineer
The board should also hire a professional, licensed civil engineer to analyze and inspect all of the common elements of the project. This includes readily apparent construction defects and hidden defects such as foundation cracks, faulty electrical wiring, premature road failure, and more.
Accountant
An accountant can help you to audit the developer’s financial documents. Often, developer-related expenses are paid by the association, so the board should be aware of what’s happening. The accountant will also check if there has been any mismanagement of funds.
Attorney
An attorney can help the board with any legal questions. They can also check contracts, CC&Rs, warranties, and documents. It’s good to have the contact of a reliable attorney to help you with any legal questions.
3. Audit All Documents and Contracts
When 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. The resident committee needs to audit all documents and contracts, have copies of them, and understand them.
Those copies should be safely stored, preferably in a secure system online so that they can’t be lost, as Neigbrs by Vinteum, which allows you to store and share with residents important documents and data.
The board of directors needs to be sure that the contracts are reasonable. If they’re not, then you should be able to withdraw from them if you provide notice, especially after the transition is complete. An attorney can be a great assistance when checking contracts, especially if the HOA wants to get out of them.
As you review the community’s rules and regulations, make sure everyone on the committee is satisfied with them. You may need to add new sections and amend them to help the association, not just the developer. Again, an attorney or manager can help you with this.
4. Tour the Project With an Engineer
The transition team engineer should carefully inspect the community with a licensed professional and create a punch list for the final transition. This is called a transition study; the engineer will inspect the new community’s common areas. After that, they provide you with a list of alleged and discovered construction defects. That way, they are the developer’s responsibility, and the association won’t have to pay for issues in the future.
It will also provide the board with information on warranties, permits, and utility line locations, which helps them run the community. The sooner you conduct a transition study, the better, to ensure the developer responds to any issues and can’t claim they began after they handed over the association and that they aren’t responsible.
5. Set Up Regular Meetings For Clear Communication
A good rule to follow is to designate one person as the liaison between the transition team and the developer. Then, copy at least one other individual on both sides in all correspondence. It’s a good idea to set up a board email so that more than one person has access to this correspondence.
The new board or transition committee should meet once a week to address all issues and maintain open, transparent communication. Many developers have the most basic rules to help sell properties, and don’t include rules on pets or parking.
You should also speak to the developer to get important documents:
- Articles of Incorporation,
- Owners’ contact information,
- Meeting minutes,
- Financial statements,
- Tax returns
- Insurance policies,
- Contractors’ contracts,
You need to ensure they have those documents and that the board receives copies. You should then store copies securely online.
6. Execute and Record Maintenance Items
It’s important to record what was fixed to help guide the transition. There should also be an exact date established for the owner-controlled Board to assume maintenance duties.
Starting to deal with maintenance issues helps the board to be prepared for life post-transition. It also helps to know your rights and responsibilities during the transition process, which a community manager and lawyer can help you with.
Try to start communicating with residents who have moved into the association to make sure they know who to contact if they have questions. You can do this by setting up a welcome wagon, or by a board member popping around to introduce themselves. This helps when they have to turn to the board with questions or concerns.
You could also start a newsletter, which helps to put a friendly face to their governing body and keeps residents in the loop. It’s a great project for residents to get involved in, and it’s a useful way to share community news.
7. Get finances under the board’s control
The board should check the developer’s accounting records to ensure that what has been paid is documented. This will give you a realistic picture of your HOA’s financial situation.
A Certified Public Accountant (or CPA) will be able to ask the right questions, audit financial documents, and ensure all funds are handled properly. A CPA can be invaluable to new boards, ensuring that the developer has handled funds correctly and that the board knows how to use the money in the future.
To help the board maintain control over income and expenses, we created a calculator specifically for HOAs. You can include HOA dues and all the expenses, as well as any reserves that you may require.
8. Wrap up loose ends
Throughout the transition process, details will surface, such as:
Registered Agent
You should read your association’s CC&Rs and your state’s rules to make sure you’re taking the right steps. An important detail that can’t be forgotten is appointing a new registered agent so that if your association gets sued you’ll know. A registered agent receives the service of process if legal action is taken.
Have clear responsibilities in the team
Transition teams need to be detail-oriented. You need to ask questions, expect perfection, and know when things are supposed to happen and who is responsible for each action at all times.
To help you be in charge and organized, using a checklist can help everyone work together. It helps to know who is doing what and when important deadlines are. Our penalizable transition checklist allows the whole team to work more efficiently.
Hire software
The other project for a new board to think about is hiring software. You can post those important documents to a secure portal, and communicate with residents. Most companies also provide a public website, so you can announce your existence to the world. Having software can help boards manage their community without getting bogged down with manual processes.
Frequently Asked Questions (FAQ)
1. What is an HOA transition from developer to owners?
It is the process where control of the homeowners association moves from the developer to a board elected by homeowners. After the transition, residents take responsibility for managing the community, finances, rules, and operations.
2. When does an HOA transition from developer to homeowners?
The transition usually happens after a certain percentage of units are sold or after a specific time defined by state law and the association’s governing documents. For example, some states trigger the transition when most parcels in the community have been sold.
3. What professionals should help during an HOA transition?
Associations often hire a community association manager, engineer, accountant, and attorney. These professionals help inspect the property, review finances, check contracts, and ensure the transition follows legal requirements.
4. What documents should the HOA review during the transition?
The board should audit contracts, financial records, insurance policies, meeting minutes, tax returns, maintenance records, and owner information. Reviewing these documents helps the new board understand how the association has been managed.
5. What should the board do after taking control from the developer?
After the transition, the board should organize finances, review contracts, establish maintenance responsibilities, and improve communication with residents. Many associations also adopt management software to handle documents, communication, and operations more efficiently.
Wrapping up: HOA transition from developer to owner-controlled
Transitioning from being developer-controlled to being an independent homeowners’ association is an important part of the life of an HOA. There’s a lot to be done, but the sooner you have a committee to oversee the transition with experts, the easier it will be.
After that, you need to start auditing documents, and the project, and communicating with the developer and residents. When you have all the documents and understand the financial situation, you’re almost there.
Once the board has control over the HOA, having software helps you communicate with owners, manage your community association, and make repetitive, time-consuming tasks easier. Schedule your free demo with our award-winning communication software made for HOAs, and find out how we can help you help your community.
