HOA turnover occurs at some point in every association’s lifespan, typically near the beginning. Developers build the community, draft initial governing documents, and establish financial arrangements. Once the requirements that would trigger the move are met, developers must transfer control of the association to the homeowners. To ensure boards don’t miss a thing, it is essential to follow a guide.
When Does HOA Turnover Happen?
An HOA turnover refers to the formal transition of control from the developer to the homeowners. It involves the legal transfer of assets and management responsibilities to the association, as led by a board of directors.
Upon turnover, the association’s board must consist of elected homeowners rather than developer-appointed members.
Developer turnover to HOA occurs when a specific requirement is triggered. For most, it happens when a certain percentage of units are sold. Others rely on a timeframe instead, seeing a turnover after a set time has passed.
The trigger depends on two things: state laws and the governing documents. In Texas, the law allows for a period of declarant control in accordance with the CC&Rs. That said, there is no specific trigger that developers must follow in Texas.
Still, Section 209.00591 provides some safeguards to ensure homeowners have a say in the operations. According to this section:
- Developer control can’t last forever. Upon the sale of 75 percent of the homes or lots in the community, the rules must change. Within 120 days after the 75 percent sales mark, at least one-third of the board seats must be filled by homeowners who are not connected to the developer.
- If the governing documents don’t specify the number of lots in the community, homeowners must fill at least one-third of the board positions no later than 10 years after the declaration is recorded.
Your Complete HOA Turnover Checklist
The transition to homeowner control doesn’t happen in the blink of an eye. The developer must provide certain access and documents to ensure homeowners have everything they need to run the community.
At the HOA turnover meeting, boards must receive all association-related documents from the developer. These include the following:
1. Governing Documents and Legal Records
Every association relies on its governing documents for legal authority, procedures, and requirements. Boards must ask for the complete set of these documents, including any amendments.
These include the community plat, Articles of Incorporation, Declaration of Covenants, Conditions, and Restrictions (CC&Rs), bylaws, and operating rules.
In addition to these documents, boards must also ask for all legal records. Meeting minutes provide insight into what has been done or decided previously. Developers must turn over all meeting minutes, board or membership materials to the new board. Board members must also receive the association’s TIN, tax returns, and information on any pending litigation.
2. Financial Records and Accounts
Board members must obtain all financial records and accounts. These documents will help guide the board when planning and projecting costs. They also give the board an idea of the association’s financial health.
Here are the financial records to ask for:
- All bank statements and account sign-in/ownership transfer
- Current and past budgets
- Operating and reserve fund balances
- Accounts receivable (delinquency report) and payable
- Financial audits, reviews, and compilations
- All reserve studies and updates
- Detailed owner roster with contact details and account balances
3. Property and Maintenance
Upon transition, the new HOA board will be responsible for ensuring proper maintenance and repairs. To aid with planning, scheduling, and response, the board should obtain the following documents:
- Third-party vendor contracts
- Warranties for common element equipment and building components
- Keys, access codes, and security systems for common areas
- Independent, professional engineer inspection of common properties
- Inventory of all HOA-owned property
4. Administrative and Operations
All other documents related to the administration or operation of the community must also be handed over. Board members must check for the following:
- Insurance policies (master policies, D&O insurance, general liability, fidelity bond, etc.)
- List of all current homeowners and their contact information
- Permits, licenses, and certificates of occupancy
- Transition of management company or self-management systems
5. Final Steps
To finalize everything, the association must hold a formal meeting for the turnover. At this meeting, documents are transferred and signed. It is important to record the meeting as well by taking accurate minutes.
Since the new board will be taking over, any developer-appointed board members must formally resign. Any access codes or keys must be surrendered. If the association uses computer software, accounts or passwords must be changed.
Lastly, the new board must acknowledge the transition with a formal letter of acceptance of documents. Boards must cross-check the list against the documents on hand and sign off on each line item. This will help ensure the board doesn’t miss anything.
How Long Does HOA Turnover Take?
While it depends on the community, the entire turnover process should take about 15 to 60 days after the new board is elected. Preparations may take time, as developers must gather all documents and ensure there are no issues with legal ownership. The process should also involve a turnover meeting, followed by the transfer of records, funds, and assets.
Best Practices for a Smooth HOA Developer Turnover
Turnover marks a significant change in an association’s management, so it’s understandable for some to feel worried. But by adopting the right practices, the developer transition can be seamless and hassle-free.
1. Conduct a Physical Inspection
While documents serve as proper records and evidence, they don’t give the board the full picture. It is important to inspect all common areas for any deficiencies or problems. This way, the board can point them out to the developer before the turnover is complete. Relying solely on paperwork is a bad move.
2. Practice Safe Record Keeping
Beyond ensuring that every document is accounted for, the board must also ensure that these records are stored in a secure place. Physical copies should be kept in a safe location where they are not at risk of damage. It is also a good idea to make digital copies of these records as a backup.
3. Hire Professionals
Transitioning from developer control can be complex and time-consuming. Boards can ensure a smoother process by enlisting the help of professionals.
Hire an accountant to conduct a financial audit and verify that all financial records are present. An engineer can inspect the property. An attorney can also help review documents. Finally, an HOA management company can oversee the entire operation, coordinate with the developer and other experts, and guide the new board.
A Cooperative Effort
HOA turnover plays an essential role in establishing a community for a bright future. After the election, board members must ensure that every aspect of the transition goes smoothly. As for developers, it is important to support turnover as best they can, eliminating hindrances along the way.
Graham Management offers exceptional HOA management services to Houston communities. Call us today at (713) 334-8000, request a proposal, or contact us online to learn more!
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