Keepers of the covenants

When developers turn over control of a homeowners' association, homeowners find there's a lot of responsibility involved in keeping the community running.

Article Courtesy of The Jacksonville Times-Union
Published February 20, 2006

Vernon Gwynne got lucky.

The 78-year-old businessman, who gives financial service seminars, headed up a committee to transfer control of a homeowners' association from the developer to the homeowners which, so far, has gone off without a hitch.

Gwynne will give up his seat as chair of the transition committee for the Hammock Grove condominium complex in Arlington on Tuesday, when the developer hands control of the homeowners' association to the newly elected board.

Although the association's regulations call for five board members, only three people from the community's 250 units volunteered, said Gwynne, who said he has served on associations throughout the Southeast.

"They have a lot on their plate," he said. "Everybody expects the board to do everything immediately. If there's a Coca-Cola bottle left in a driveway, they want it removed immediately. Other people are really suspicious."

Once a transition does occur, new association members often struggle to pick up where the developer left off and sometimes don't understand the immense responsibility that can go along with trying to keep home values up, he said.

The transition from developer control to homeowner control isn't easy. Several factors can slowdown the transfer and, sometimes, developers might try to delay the handover as long as possible, according to industry experts.

Homeowners are also often not prepared for the immense responsibility and expense that running a new community entails. Running an association can be similar to running a business, with fees for insurance, management, and maintenance. Thus, taking the reins of a development requires financial and legal expertise that might be lacking in communities that choose not to hire a management company.

The challenge is widespread. About 54 million Americans live in 274,000 associations nationwide, according to the Community Associations Institute, an educational membership organization designed to help associations run smoothly. The number of association-governed communities has risen 23 percent since 2000 and more than doubled since 1990.

In most new communities, the developer forms the association and its regulations. During the first phases of construction, the company will collect member dues and hire a management company to enforce the covenants.

Once most homes in the neighborhood are built or sold, the developer must begin to make arrangements to transfer control of the association to the homeowners, often forming a transition committee to help take care of final preparations before maintenance issues become the owners' responsibility.

Florida statutes stipulate that the homeowners must be able to elect the majority of the association board three months after 90 percent of the homes to be run by the association are sold. A board member can represent the developer as long as at least 5 percent of the community's parcels are still for sale.

In reality, the transfer of control does not always go smoothly.

Melissa Kleinsmith, who bought a home in Rolling River Estates near the intersection of Dunn Avenue and New Kings Road on the Northside, said that she has been unhappy with the developer's handling of the community since she moved in. She said that she did not start receiving bills for homeowners' association fees until, worried that a lien would be placed on the home, she called the management company to inquire.

Although the developer, Earthmark Companies, hired a management company to maintain the neighborhood's common areas and enforce association convenants, Kleinsmith said that the community is rife with problems, including one homeowner who regularly parks an 18-wheel truck along the side of the road.

Covenant conditions

When you buy a house in a new subdivision or planned unit development, you will likely be subject to a host of rules and regulations -- called covenants, conditions, and restrictions (CC&Rs) -- set by the homeowners' association.

Many covenants cover:

1. Color you may paint your house, types of shingles and trim.

2. Clotheslines, which may be considered an eyesore.

3. Children's toys left in the yard.

4. Certain breeds, species or quantities of pets.

5. Kinds of fences that can be put up outside -- many restrict homeowners to wooden fences, and do not allow chain-link in the front yard.

6. Visible construction materials.

7. Garbage cans and litter, which would be required to be removed from the street promptly.

8. Noise and children's activities.

9. The height of grass, kinds of flowers, and other landscaping details.

10. The kinds of vehicles that can be parked outside.

Source: www.nolo.com

Kleinsmith said that several homeowners want to take control of the association and feel that they have the right to, but that they've had trouble striking a dialogue with the developer.

Earthmark, for its part, is in the process of transferring association control to the homeowners, said Chief Financial Officer Doug Cordello. Cordello said that the company is awaiting final inspection of the community by the St. Johns River Water Management District compliance department.

Once those permits are earned, the developer will turn control over to the association, he said. He said he has submitted all the necessary paperwork to the department, but he said inspectors will probably not arrive for two to three weeks.

He declined to comment on specific issues brought up by the homeowners.

Once a transfer does occur, homeowners must decide whether or not they want to keep a management company to collect dues and handle the day-to-day clean-ups and legal issues that can bog down association members.

"If you're not a managed community, you're an unhappy community," said Scott Steffen, vice president of Property Management Systems Inc, a Yulee-based property management company that maintains several communities in northeast Florida.

Steffen said that homeowners need management companies to act as a buffer between individual homeowners and the board. If there's a problem in the community, a management company can keep neighbors from personal confrontation.

But for communties of fewer than 100 units, hiring the company might not make financial sense, he said.

Homeowners of the Confederate Crossing II subdivision, a new community of 90 homes near Whitehouse on the Westside whose first board was elected late last year, decided that hiring a management company was simply too expensive, said Tod Wood, the association's first president. Management companies gave the board estimates that ranged from $3,600 to $6,000 per year, a cost that could be defrayed if the board was willing to take on additional responsibilities.

None of the board's new members had ever served on an association before, and when Walter Williams, the developer, completed the association's turnover on Oct. 29, board members picked the brains of executives from management companies for advice, he said.

"You think that when a homeowners' association is turned over that everything is set up," Wood said. "There were a lot of things that we didn't think about -- like getting insured or a business address -- that we found out quickly we had to do."

Members of new associations may be luckier than they think.

Sometimes, builders are motivated not to release an association to the homeowners at all, said Ellen Hirsch de Haan, a past president of the Community Associations Institute and a Tampa Bay-area attorney who represents several homeowners' associations.

"They don't want a community to turn around and change things that might impact sales," she said. "Associations could not allow construction trucks or put limits on pets or a lot of other things that might hurt construction or slow down sales."

Once the turnover does occur, the new association can face a litany of problems, said Richard Roll, president of the American Homeowners Association, a national homeowner advocacy group.

Developers, sometimes keep homeowners association fees artificially low while they are in control, he said. Once the homeowners have sole power, they find that the costs of maintaining the community are much higher than they are accustomed to paying.

"The builder has one motivation, and that is to sell the properties," he said. "It's a big challenge for both the builder and the homeowner. Sometimes the transition works. But sometimes, it can seem like nobody's minding the store."