Homeowners vs Developers: The fight for HOA control in North Carolina

One HOA Board has ben under developer control 20+ years while other HOA’s come saddled with money problems.
Many Homeowners associations are still controlled by developers, long after the development has been built.
Published: Feb. 16, 2023 at 8:27 PM EST
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CHARLOTTE, N.C. (WBTV) - A drive down Grand Palisades Parkway supplies 20-years worth of the subdivision’s history in just three miles. There are new apartments, older homes, construction of single-family subdivisions and zoning changes planned for even more development.

After two decades one thing hasn’t changed: the developer has always maintained control of the Homeowner Association Board.

The WBTV Investigates Team is uncovering the scope and impact of developer-controlled associations, called declarant control. It allows developers to profit off the sale of new homes while simultaneously appointing HOA board members to manage the homeowner fees.

There is no North Carolina law that limits how long declarant control can last.

Enforcement of the statutes that require open board meetings and financial transparency is virtually non-existent.

No state or local agency has the responsibility of investigating homeowner complaints.

That’s why homeowners at communities like The Palisades, Waterfront and Lake Walk have all reached out to WBTV for help.

“I find myself flabbergasted because of this experience in the development,” Lake Walk resident Alan Stopko said.

“More and more homeowners are running into the same problem. This is systemic.”

Residents of one Charlotte neighborhood are concerned about their developer-controlled HOA.

Show me my money!

At The Palisades, homeowners are concerned about how their HOA fees are being managed.

WBTV interviewed a group of Palisades residents who are demanding answers from the developer, Lennar Carolinas.

“I’m a firm believer of follow the money,” Anthony Bucci said.

“If you’re telling the truth, you have nothing to hide.”

Bucci and other owners say the developer-appointed board is opaque and withholding information. No issue looms on the horizon more than the future of Grand Palisades Parkway.

Newly constructed streets in subdivisions start out as private roads but most are eventually turned over to the state or a local municipality to become public roads maintained by taxpayer dollars. For that to happen, the developer must build the roads to the minimum standards of the North Carolina Department of Transportation or government entity.

That hasn’t happened at the Palisades. In a statement emailed to WBTV, a spokesperson from Lennar wrote that the company will “continue to work with the city and residents to complete the dedication of the road to the HOA.”

That’s exactly what residents are worried about.

“When it does come time to get transferred over, you’re not going to have full knowledge of what’s going on because they have kept this stuff hidden,” Chris Comas said.

The biggest unanswered question is how much it would cost to bring Grand Palisades Parkway up to NCDOT’s standards. Even NCDOT doesn’t know and is urging clarity and cooperation.

“We’re willing to keep working with Lennar and the citizens and we’re willing to work with an engineering group that Lennar might bring on board to see what it takes to meet our standards,” NCDOT Engineer Brett Canipe told WBTV.

Palisades residents tell WBTV an engineering report has been commissioned but Lennar did not answer WBTV’s question of whether it had been completed yet.

A reserve study commissioned by the board estimates the Parkway will cost $1.6 million to replace. But the report says the estimate is an “assumption” since details of the road’s condition “were not available for review.”

Homeowners are worried they’ll bear the brunt of the cost.

At Lake Walk in Mooresville, homeowners have a similar concern about infrastructure that hasn’t been completed yet while HOA fees recently skyrocketed.

“The dues went up by 25 percent on our side of the development without an explanation,” Bob Lenard said.

Like The Palisades, Lake Walk residents have pushed for an engineering report to determine how much it will cost to complete roads, streetlights, retaining walls and more.

An attorney emailing on behalf of Lake Walk developer Bluefields of LKN, which state business records show is connected to Nest, wrote that “infrastructure development for this development is largely complete” and what remains has to be completed for bonds to be released.

The attorney wrote the transition of the association to homeowners is underway and election of a new board is scheduled for June.

Time for the transfer

At The Palisades, Lake Walk and Waterfront, homeowners who have been calling for declarants to transfer the HOA are now cautious about what they might find once the developer hands them the books and liability.

A transition committee of homeowners at The Palisades was set up to begin the transfer process but a former member of that committee told WBTV he stepped down from the position because progress seemed impossible.

“By the Fall of last year, we were supposed to be having an election,” Peter Kitzerow said.

“I found it frustrating and getting nowhere.”

Attorney James Galvin has represented homeowners in HOA cases involving declarants and says the associations left for residents to inherit can be costly and dangerous, like in the cases of the Surfside Condominium collapse in Florida.

“That is closely attributable to declarant control and reserves. Just having a perpetual state of an underfunded reserve account,” Galvin said.

The Palisades has its own emergency scenario that makes the condition of the Parkway critical to peoples’ safety.

More than a thousand families live off Grand Palisades Parkway and kids go to elementary school on the road. The Parkway leads to Laky Wylie and a striking view of the Catawba Nuclear Station on the other shore.

The Palisades is so close to the plant that the Parkway is part of the planned evacuation route shown on Duke Energy maps and emergency plans.

But not every property owner living off the Parkway is paying the same amount to the association that maintains the Parkway.

As Lennar kept developing subdivisions within the Palisades, new homeowner associations were created.

Those associations are designed to contribute money to the Palisades Master Association, which is the only entity that will pay for Parkway repairs and replacements. But reserve studies and audits show not all associations are contributing the same amounts per household.

“They don’t pay anything for the landscaping, the waterfall, the irrigation, the flowers,” Jeanne Frazier said about one apartment complex in The Palisades.

While less revenue from fees might make maintaining the Parkway and other services harder, it also makes selling new homes and apartments easier.

Attorney James Galvin says the two roles occupied by the developer create a conflict of interest.

“One hat is the developer, who is trying to develop and sell and make as much profit as possible in that community. The other hat that they’re wearing is a nonprofit hat, and you might be able to guess which hat they like better,” Galvin said.

Lennar did not answer WBTV’s questions about the different fees for associations.

A spokesperson wrote “Lennar is making certain repairs and improvements to the road, at its own significant expense. Reserve budget projections already include ongoing road maintenance and do not forecast additional costs to homeowners. Lennar will continue to work with the city and residents to complete the dedication of the road to the HOA.”

The Palisades’ original CCR’s drafted by a different developer show the Parkway was intended to be “accepted for maintenance by the North Carolina Department of Transportation or other governmental authority.”

After 20 years, homeowners at The Palisades are finally preparing to take control of an association that has a nuclear evacuation route and an unclear price tag to lift it to state minimum standards.

Nowhere to turn

Homeowners in these communities have tried searching for help from nearly every state and local agency. So far, it hasn’t yielded any results.

North Carolina’s Planned Community Act has barely changed since 1998. The other statute that applies to HOA’s is the Nonprofit Corporation Act, which attorneys tell WBTV is not tailored to HOA situations. No state government entity is charged with oversight of HOA’s.

Homeowner emails and records sent to WBTV show declarants and community management companies not complying with homeowner requests for financial records, board meetings and other association records that are required to be released.

Homeowners say even when the antiquated statutes are on their side, the law rarely makes a difference.

They’re calling on state legislators to step up.

“We would like some help,” Bob Lenard said.

“There should be some protections because right now we have none.”

Attorney James Galvin says homeowners catching on to finance issues prior to the declarant transferring control is usually a best-case scenario. More often, he says homeowners only realize the extent of their financial pit well after the developer has walked away.

“The state’s not going to be able to help me right now that’s stacked against me. The developer’s stacked against me. The management company has to take its direction from the developer so I can’t get any response,” Alan Stopko said.

“It’s like this game where snake eyes is the result every time.”

If you’re in an HOA struggling for transparency from the declarant/developer contact your state lawmakers and WBTV for help.

Find Your Legislators - https://www.ncleg.gov/findyourlegislators

Email WBTVInvestigates@wbtv.com