Can a HOA Member Also Act as a Developer for the Development?

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“We bought a lot on a lake in a subdivision in Texas about 5 years ago. The developers, Randy and Kim, were friends of ours. Some people who lived in the development claimed the lake leaked and sued Randy. (Kim and Randy are no longer in business together. They each accuse each other of stealing money.) From what I understand the geologist who was testing the lake had to do an expensive test to determine whether or not the lake actually leaked. So, the litigants settled with Randy’s insurance company for $100,000 and drained the lake. The estimate for fixing the lake would be close to $1,000,000. Meanwhile, Randy goes bankrupt and Bob comes in and buys a home in the neighborhood and the remaining lots (18 out of 44). It also come with the common areas (lake included) which Bob has put in a holding company. The board wants to put three ponds back there now and assess all the lots $5,500 per lot. Bob and Kim are on the POA board along with myself and two others. Kim has since gone into business building houses for Bob. They have built one house in the neighborhood which they have not been able to sell so far. (The lake is a messy mud hole). Our CC&R’s state that in passing a special assessment they need to do it with a 3/4 majority vote of the owners. Bob is giving himself one vote per lot, or 18 out of 44 votes. Can he do this? He only needs a small number of votes to get a 3/4 majority. Also apparently now he is selling his lots and telling people that they won’t have to pay the assessment. He says that he’ll do it in exchange for their proxy at the POA meeting. Can he do that? Also he has put out a proposal which I am attaching in the email so you can see what he proposes. Does he need a simple majority vote or a 3/4 vote to pass this (our CC&R’s state nothing about proposals)? Can he vote on something in which he has a significant financial interest? Is he really a developer in disguise? It seems to me, when he bought the neighborhood he is now the developer and the cost of redeveloping the lake should be on his shoulders not mine, since I already paid for a lot on a lake. Also, they are proposing to take out a $25,000 loan from a bank and another $20,000 from Bob (at 9% interest). Bob wants the park area as collateral and the liens on the houses from the unpaid assessments. (There was also recently a street assessment of $745). I do not have $5500 just sitting around. Is there any help out there for us?

[NOTE: Articles and answers on DearEsq., while written and published by lawyers, do not constitute legal advice, and no attorney-client relationship is formed by your reading of this information. You should always consult with an attorney for any legal situations.]

From: [elided]

Creek Place POA Members,

The RP POA Board members met on July 23 to discuss the proposed RP lake improvements via a telecom with Mr Jerry Miller, the current project engineer. We ask Mr Miller to proceed with a first draft contract to go out for bids as soon as possible. The contract will include his proposal of two lakes, erosion control, and walkways discussed at the June 11 POA meeting. Mr. Miller said he could have a copy ready in 30-45 days, at which time we will ask for bids from 3-4 contractors with a suspense of 2 weeks for reply. We are looking for a full member POA meeting 30 days after the bids come back from the contractors–hopefully in October.

Additionally, Mr Bob Smith drafted the following resolution to go for a full member vote at our next meeting.

Resolu tion by Creek Place POA

1. Reserve tract (common area with playground and boat launch) will be sold with restrictions added, easement reserved, but “building setbacks” flexible.

2. Special assessment for re-development of lake area–amount not to exceed $TBD. Contract will be signed and when 30 lot owners (out of 44) have paid, work will begin.

3. Dam will be substantially torn down and with no dam, the dam easement on tract 14A is to be released.

4. When lake-recreational area is substantially completed with walking trails, the Board, at its sole discretion, may re-dedicate adjoining lot owners “excess” land so that POA’s cost of maintenance is reduced.

5. Board is authorized to borrow $25,000 from First National Bank using the Reserve Tract as collateral. Terms are 9% interest, interest only 1st year, then a 5 year amortization. Two board members are guaranteeing a portion of the loan to the extent of $5,000 each.

6. Board is authorized to borrow $20,000 from one of the board members using unpaid lake assessment liens as collateral. Terms are 6 year note, 9% interest, interest only the first year and then a 5 year amortization. (The terms are identical to the First National Bank discussion, except they refused to make a loan without individual guarantees of all board members.)

If all goes on schedule, we should have our next POA meeting in October.

As a reminder, if you have not paid your $420 RPPOA dues for 2006, or our road special assessment ($775), please pay Bob Smith no later than September 15.


Christopher Rollins Board Secretary”

These are not questions that can be answered without a detailed analysis of your CC&Rs, HOA rules, and the applicable laws of your state. While $5,500 may not be worth suing over, you can certainly consult with an attorney and get a better idea of where you stand.

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