A property management company claims to be in contract to manage our HOA with our developer who says we have NOT formed an HOA yet and the property management wants homeowners to pay working capital?

Answer 1

If the property management company claims to be in contract to manage your HOA, they should have a written agreement with your developer or some kind of proof of the contract. It is important to verify the information with your developer regarding the formation of the HOA. If the developer confirms that the HOA has not been formed yet, it is advisable not to pay any working capital until the HOA is established.

Answer 2

Read your governing documents to determine the phase that your HOA is in, in the development process.

Your governing documents -- typically a Public Offering Statement (POS) -- may specify that at the time of sale, a contribution equal to a few months' worth of estimated assessments is to be paid by buyers -- usually as working capital. Unless this expense has been collected from all buyers equitably, it is unreasonable that an individual owner should be expected to simply 'pay it' at some future date.

Generally, if no association board has either been appointed by the developer or elected by owners, as an owner, there is no legal entity to whom you can pay your assessments because there is no legal entity established to collect them.

(Property managers can only collect assessments from shareholders on behalf of legal corporations formed to accommodate ownership of real estate assets in common. Assessments require some kind of budget base, either as developed in the POS as a draft or sample, or ratified by the membership.)

Prior to the establishment of the association, an ethical developer will pay costs incurred to operate the property -- including property management fees, since the benefit derived by unsold properties passes to the developer. (The developer's objective is to sell units, to recapture the investment.)

Until the association is formed, owners may be required to pay their own utilities and other expenses, including landscaping, trash services, and so forth until the association is formed and these expenses are included in assessments.