Zooming HOA fees spark battle with builder

The cases reflect how tough economic times for builders and homeowners have ratcheted up tensions within some HOAs. Many builders who remain in control of HOAs have raised fees, often to make up for those that have gone unpaid by struggling families, while those paying get suspicious about where the money is going as home budgets get tighter.

At Riverwood, Pearson hiked yearly fees from $475 in 2007 to $1,500 this year, and the HOA budget ballooned from $130,000 to $289,000.

Payments to Pearson’s company for managing the HOA jumped from $8,100 in 2008 to $70,000, and he is repaying himself for $172,000 in loans he made to the HOA earlier for operating costs and taxes, according to its budgets. At the same time, homeowners say maintenance of the pool and common areas has lagged, with residents cutting grass themselves.

In Bartow’s Mountainbrook neighborhood, which has about 50 homes, Henry and Roxanne DeLaune are fighting a lawsuit by Pearson to collect dues that jumped from $650 a year to $1,250, plus a special assessment of $1,000. The street lights were turned off and common areas not maintained, they say, and Pearson is also repaying himself $141,000 that budgets say are for his past payments of HOA expenses.

His management fees at Mountainbrook climbed from $16,250 in 2007 to $30,000 now, according to HOA budgets.

“He’s charging $30,000 to manage a neighborhood of near 50 homes. It’s just an outrageous issue,” DeLaune attorney John Mroczko said.

Pearson denies the allegations of wrongdoing in his reply to the suit by Riverwood residents.

He did not return multiple calls over eleven days, and Karen Smiley Focia, the attorney for the Riverwood and Mountainbrook HOAs, said she tried unsuccessfully to get his permission to speak. Friday, Mroczko received a court notice that Focia was requesting to withdraw from the case.

Court and HOA documents say Pearson’s costs to operate the HOA’s have risen, and the crash in the building industry has hindered him. David Pearson Communities has four active subdivisions and two planned in northwest metro Atlanta, according to its website.

Payments to lawyers to collect fees from homeowners -- and for the litigation involving homeowners -- boost costs. The 2010 budget for legal fees for Mountainbrook’s HOA shot up from $24,000 in 2009 to $60,000 this year.

Roxanne Plummer, a manager at David Pearson Communities, cited those factors in a letter to homeowners in late 2009.

“The unfortunate result is that the responsible paying members are forced to subsidize expenses for those who do not pay their dues, at least until the attorneys are able to collect from delinquent owners,” she wrote.

She said Pearson had subsidized the cost of running the HOA in past years, adding, “We are no longer able to do so because of current market conditions.”

According to a new survey by the Community Associations Institute in Virginia, an organization for homeowners associations, the economic strain and nonpayment of HOA fees are among reasons 36 percent of HOAs nationwide have increased fees.

The institute says there are about 306,600 HOAs in the United States and estimates 62 million Americans live in homes covered by one.

HOAs set rules on what homeowners can do with their property, and buyers must agree to abide by the rules and pay fees. Usually HOAs are initially run by developers, then turned over to homeowners at a set time or after most lots are sold.

The housing bust has left some developers in charge of HOAs longer than anyone expected.

“Lately, homeowners will suspect that a developer is taking money out of the association, though that is certainly not always true,” said Randall Lipschutz, an Atlanta lawyer who specializes in HOA law. “But it may not always be clear where the money has gone.”

Riverwood resident David Heald saw no worrisome signs when he moved into Riverwood in 2006. He had lived in two other neighborhoods with HOAs without problems, he said. HOAs protect property values by making sure people maintain their properties, and they enable neighbors to pay equally for amenities, Heald said.

He was surprised when the HOA fee rose from $475 to $650 in 2007, but he paid it. The boost to $1,500 this year, coupled with lack of maintenance in common areas, prompted Heald and others to take a stand.

Homeowner Glenn Davis asked the HOA for financial documents. He said what he got was incomplete.

“A lot of money is still unaccounted for. And you know it wasn’t spent on pine straw or flowers or anything else,” Davis said.

At the neighborhood playground, rain and time washed away pine straw ground cover long ago. Rubber swing seats are broken and disintegrating, walking trails are eroding and the tennis court lights don’t work. The swimming pool was open last summer but often unusable, residents said.

Chad Henderson, the attorney for Riverwood plaintiffs said Pearson has offered no supporting documents for the loans he said he made to the HOA. Henderson believes the costs were Pearson’s development expenses and should not be paid from HOA funds.

Ed Mistach, another Riverwood resident, said, “He has done absolutely nothing but take homeowners money and done nothing else. That is why homeowners are suing.”

The homeowners’ suit seeks control of the HOA and punitive damages.

The suit was filed last winter in Paulding County, and it asked that Pearson not be allowed to put liens against homes for nonpayment. The plaintiffs deposited $75,000 in HOA fees with the court registry as an act of good faith, while suspending payments to Pearson.

Pearson had the case moved to Cobb County and filed $3,700 liens on each nonpayer’s home.

Heald said he is committed to see the case to its end, even if he is paying his attorney fees and risks paying those of Pearson through the HOA as well.

“And even if we do lose, I won’t pay the lien on my house,” Heald vowed.