HOA turnover happens when the developer hands over the reins of the community to the homeowners. It marks a significant point in the community’s development, but the process can be confusing to those who have never gone through it before. There are several variables and items to consider, and missing just one of them can be detrimental.
What is an HOA Turnover?
Also known as an HOA or developer transition, an HOA turnover refers to the transfer of authority from the developer to the homeowners. This happens once certain conditions are met.
At the beginning of every development, the developer starts out with all the control. Little by little, the developer will get homeowners involved until, eventually, they will take complete control.
The turnover is not just a symbolic handoff. It is a legal requirement and a practical shift. Once turnover happens, the homeowners, through their elected board, will be the ones in charge of everything. This includes the budget, the rules, maintenance, and everything else that affects the community.
That said, until turnover takes place, the developer retains the power to make decisions. These decisions may not always align with what the homeowners want. Fortunately, the transition offers them a chance to set things the way they wish.
When Should an HOA Transition From Developer to Homeowners?
The timing of an HOA turnover depends partly on state laws and partly on the community’s governing documents. Different states set their own rules.
In Maryland, the Maryland Homeowners Association Act (Section 11B-106.1) and the Maryland Condominium Act (Section 11-109) both deal with turnover. For HOAs, turnover must happen within 60 days after 75% of the lots are sold. For condos, turnover must happen within 60 days after half of the units (50%) have been sold. Both statutes in Maryland allow for a lower percentage if the bylaws set it.
That said, the governing documents of the community can set forth extra requirements or give more details on the timeline. This means the board must check its declaration, bylaws, and articles of incorporation.
What to do if the Developer Refuses HOA Turnover
Sometimes, even when the law or the governing documents say it is time, the developer refuses to hand over control. This often results in frustration for the homeowners. Fortunately, there are some actions homeowners can take to force an HOA turnover.
The first step is to send a written request, pointing out the law or the section of the governing documents that says turnover is required. If that fails, the board can escalate.
Legal action might be necessary. In some cases, owners can file a complaint with the state agency that oversees associations. It might not be simple, and litigation is never anyone’s first choice. That said, the board can’t just sit back while the developer ignores the rules. Doing so will only leave the homeowners powerless in their own community.
The HOA Turnover Process
The HOA turnover for developers is not just one meeting or one date. It is an entire process with stages. There is the preparation before the turnover, the actual turnover itself, and then the follow-up afterward. Let’s discuss each stage below.
Pre-Turnover Stage
Pre-transition is all about laying the groundwork for the next stage. The board must make sure the community is ready for turnover. This means checking the financials, reviewing contracts, and inspecting the property. An audit can confirm whether the developer collected dues properly and spent the money the right way.
The board must also look at reserves. If the developer failed to fund the reserves correctly, the community will face a problem down the line. It is also integral to review insurance policies to ensure the association has adequate coverage.
Additionally, associations should consider hiring professional HOA management. Many communities realize at this stage that self-management won’t be enough. A management company can provide the systems and expertise that a new board of volunteers might not have.
Pre-transition tasks include:
- Reviewing financial records, ledgers, and bank accounts
- Performing an independent audit of the association’s finances
- Inspecting reserves and commissioning a reserve study if one does not exist
- Reviewing all insurance policies and coverage limits
- Assessing the need for professional HOA management services
- Inspecting common areas to ensure the developer fulfilled obligations
Turnover Proper
The transition proper is the moment where things officially change, often through what is called an HOA turnover meeting. At this meeting, the developer hands over control, and the homeowners elect their first board of directors. The developer must also provide all the association’s records, contracts, and governing documents.
In Maryland, developers must provide notice that the threshold has been met. This notice should also include details on the date, time, and place of the first election meeting. Any appointed directors will then lose their seats 10 days later.
Furthermore, within 30 days after the election, the developer must provide the new board with the following:
- All required documents,
- Condo funds (bank accounts),
- Deeds to all physical properties the condo owns, and
- A roster of the current owners with their contact information.
The HOA turnover meeting is not just a formality. It is when authority passes to the homeowners. From that day forward, the board must take charge of governance.
Post-Turnover Stage
The turnover process doesn’t end after the turnover meeting. For the next 90 days, the developer or a representative must still attend board meetings to answer questions and explain past decisions. This overlap helps the new board transition more smoothly.
At the same time, the new board must start asserting its authority. It must review contracts, take control of bank accounts, establish communication with owners, and begin planning. This can also be the time when the association forms committees or hires a management company. The goal is to move from developer oversight to complete homeowner control without leaving gaps.
What to Include in an HOA Developer Turnover Checklist
The best way for a new board to make sure it misses nothing is to use a checklist. An HOA turnover checklist must cover all the essentials that the developer must hand over. These include the following:
- Governing documents (articles of incorporation, declaration, bylaws, operating rules, resolutions, and amendments)
- Recorded plats, maps, and plans
- Homeowner roster with names and contact details
- Financial records, budgets, ledgers, and bank statements
- Reserve fund information and reserve study reports
- All insurance policies and claims history
- Vendor and service provider contracts
- Warranties for buildings, equipment, and common elements
- Minutes of developer-controlled board meetings
- Information on pending litigation or disputes
- Keys, access codes, and security details for common areas
With this checklist, the new board can confirm it has everything it needs to start operating the community without being left in the dark.
In Virginia, the law even provides a comprehensive list of documents that the developer must hand over once control transfers to homeowners. This can be found under Section 55.1-1804 of the Virginia Property Owners’ Association Act.
Integral to the Operation
HOA turnover is a milestone that moves a community from developer control to homeowner control. It involves a lot of moving parts, and navigating laws and the inner workings of the transition can feel overwhelming. That said, it remains essential, so developers and boards should do their best to ensure a smooth turnover.
Keymont Community Management offers expert management services, including legal compliance, to associations in Virginia, Maryland, and Washington, DC. Call us today at 703.752.8300 or request a proposal to get started!
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