Once the first home in a new community development is sold, its homeowner association is activated. And from that moment on, the association has to fulfill its obligations to the community and its residents.
At the start of the process, the developer has a controlling interest in the community and gradually transfers power to the homeowners. How this is done can be key to starting off a new community with a well informed, prepared board of directors and happy residents.
Building a Board in Three Phases
When a community is built, the developer establishes the association and controls it as well. As units are purchased, the homeowners are added to the association. New Jersey's Planned Real Estate Development Full Disclosure Act (PREDFDA) dictates that, once formed, an association must be turned over to the homeowners in gradual steps. All of the state's residential real estate developments are governed by PREDFDA, which mandates that certain information about a development must be made available to a potential purchaser so that an informed purchase is made. For example, PREDFDA requires a developer to register their planned community with the Department of Community Affairs (DCA), provide a public offering statement with specific details about the project, and spell out how the association will eventually be governed and managed after the transition period.
First, sixty days after the first 25 percent of the homes have been sold, no fewer than 25 percent of the board members must be elected by the owners.
"If you have a five-member board and you have 100 homes in the community, once 25 percent of them have been sold from the developer to homeowners, you have to have an election," says Dan Murphy of Greenbaum, Rowe, Smith & Davis, PC, a law firm based in Woodbridge. "If you have a five-member board, they elect two homeowner representatives to the board." At this stage, the developer holds the other three seats.