Before HOA Turnover: What to Ask the Builder and Check

The best time to find out what a builder is leaving behind is before the builder leaves. Once the developer's appointees resign and the owner board takes the seats, the people who know where the warranty binders are, which contractor poured the retaining wall and why the pond overflows every spring are already on the next project. This guide is the pre-turnover checklist: what to ask for, what to inspect and when, and where an attorney earns the fee. It is written for a homeowner transition committee in a community of roughly 100 to 500 homes built by a regional or national builder, but the questions apply to a 20-unit condominium too.

It is deliberately state-neutral. The deadlines, the list of documents a declarant must hand over and the rules for ending a declarant's contracts are all set by state law and by your declaration, and they differ. Where we use a state as an example, we say so and cite the section. Read your own state's common interest community or condominium act, or ask your association's attorney, before relying on a date. Our developer-to-HOA transition guide covers the turnover meeting itself and the first 90 days after it; this page covers the months before.

Start a Transition Committee Six to Twelve Months Out

Turnover is usually triggered by a sales threshold or a date written into the declaration, so it can be predicted. Find your trigger in the declaration and in your state's act, check the builder's closing count (the county recorder's deed records are public), and form a small committee as soon as the date is in sight. Three to five owners is enough: someone comfortable with numbers, someone who can read a construction drawing or knows who can, and someone who will keep the request log. If your state requires owner seats on the board before full turnover, those owner directors are the natural core.

• Ask the builder for a transition contact and a schedule. National builders run turnovers routinely and usually have a division-level person who handles them. Ask in writing for the expected turnover date, the list of what they intend to deliver and when the common areas will be complete.
• Keep a request log. Every request, the date sent, the date answered and what came back. If a dispute ever reaches an attorney, this log is the first thing they will ask for.
• Do not sign a release. Some turnover packages include an acknowledgement that the association "accepts" the common areas as complete. Do not sign anything of that kind before your engineer and your attorney have read it.

Documents to Ask the Builder For

Many state acts list documents the declarant must deliver at turnover (see the Delaware example below), but you do not need to wait for turnover to ask. Request these early, so the gaps show up while the builder still has staff on site:

• Governing documents as recorded: the declaration, plats or plans, every amendment and supplement, the bylaws, articles of incorporation, rules, and the association's state corporate filings, with the registered agent named.
• Financial records since the first sale: annual budgets, monthly financial statements, general ledger, bank statements for every account, the assessment roll showing what each lot has been charged and has paid, any audits or reviews, and every federal and state tax return filed for the association.
• The builder's own contributions: any subsidy or "deficit funding" agreement (where the builder pays operating shortfalls instead of assessments on unsold lots), what the builder has paid on the lots it owns, and any working capital or initial contribution collected from buyers at closing and where it went.
• The reserve study, if one exists, with the component list and the assumptions behind it.
• Plans and specifications: as-built drawings for common-area structures, roads, storm water ponds and drainage, utilities, pools, clubhouses, retaining walls and entry features, plus permits, inspection sign-offs and certificates of occupancy or completion.
• Warranties: every manufacturer and contractor warranty on common-area components (roofs, pool equipment, playgrounds, irrigation, paving, lighting), with the start date and the contact.
• Insurance: current policies naming the association, the declarations pages and the claims history.
• Contracts and leases: landscaping, snow removal, pool, trash, management, cable or internet, and any lease of amenity space or equipment, with term, price and termination clauses.
• Bond and permit obligations: any performance bond or letter of credit the builder posted with the county or municipality for roads, storm water or other improvements, and what has to happen for it to be released.
• Owner and property records: the current list of owners and lots, architectural approvals granted during the builder period, and any open violations.
• Minutes and resolutions of every board and member meeting held during declarant control.

Inspect Before the Warranties Run Out

Two clocks matter here: the builder's and manufacturers' warranty periods on common-area components, and your state's time limits for construction claims. Both can start running before the owners control the board. Schedule the inspections so their reports arrive while there is still time to ask the builder to fix things.

• A transition or property condition inspection. Hire an engineer or architect who works for the association, not the builder, to inspect the common elements against the plans and the building code: roofs and envelopes in a condominium; roads, sidewalks, curbs, storm water ponds, drainage, retaining walls and amenities in a planned community. Ask for findings ranked by cost and by whether they are a builder issue or ordinary maintenance.
• An independent reserve study. Commission your own, from a firm the builder did not hire. A builder's study priced to keep starting assessments low is the most common source of a funding gap after turnover. Ask for a full study with a site visit, and ask the firm to note components that look defective rather than worn, because a defect is the builder's cost, not the reserve fund's. Our reserve study guide explains what a complete study contains, and how to choose a reserve study company covers who to hire.
• A walk-through with the builder's staff, with the inspection report in hand, to agree a punch list in writing with a completion date for each item.
• Roads and storm water. In many planned communities the roads and ponds are either accepted by the municipality or left with the association. Ask which, in writing. If the association keeps them, they belong in the reserve study and the insurance schedule.

Bank Accounts and the Money

Before turnover, make sure the association's money is in accounts in the association's name, under its own tax ID, and not commingled with the builder's operating accounts. Then plan the handover of signing authority.

• List every account: operating, reserve, any money market or CD, and any account the management company holds for the association. Get a statement for each as of the turnover date.
• Change signers on turnover day. The new board should pass a resolution naming its signers and take it to the bank immediately. Remove builder employees from every account and every online banking login.
• Reconcile the assessment roll. Check that what owners were charged matches the budget, that the builder paid what it owed on its own lots (or what its subsidy agreement required), and that working capital collected at closings reached the association's accounts.
• Ask for a closing financial statement. Some states require an audit or review of the declarant period. Even where none is required, a CPA review of the final declarant-period statements is worth asking for, and worth paying for if the builder refuses. Our HOA financial audit guide explains the difference between an audit, a review and a compilation, and the HOA bank accounts guide covers how to set up operating and reserve accounts.

Insurance

Ask the builder's insurance broker for the association's current schedule of policies, then have an independent broker quote the association's own program to start on the turnover date. Check:

• Property coverage for every common-area structure the association will own, at replacement cost, and, in a condominium, for whatever the declaration says the association insures.
• General liability for the common areas, roads and amenities.
• Directors and officers liability for the new owner board, in place from the day they take office.
• Crime or fidelity coverage for anyone who handles association money, including a management company.
• The claims history during the builder period, and whether any open claim stays with the builder's policy.

Our HOA insurance requirements guide covers each policy and typical limits.

Contracts the Builder Signed

During declarant control, the builder's appointees sign the association's contracts. Some will be ordinary and fairly priced. Some will run for years, renew automatically, or go to a company related to the builder. Read every one before turnover and sort them into keep, rebid and end.

• Management agreement. Many builders bring in a management company for the declarant period. Decide whether to keep it, and check the notice period for ending it.
• Long-term service contracts: landscaping, cable or internet bulk agreements, trash, amenity operation. Note the term, renewal and price escalators.
• Leases of equipment, amenity space or land, and any easement or cost-sharing agreement with a neighboring community or the builder's future phases.
• The right to end some of them. Several state acts let the owner-controlled association end certain contracts the declarant signed, within a set period after turnover and on short notice. The Delaware example below shows one version. Find out if your state has such a rule before you renew anything.

Our common area maintenance guide covers rebidding contracts once you hold them.

Example: What Delaware's Act Says

This section is an example, not a rule for your state. Delaware's Uniform Common Interest Ownership Act (Title 25, Chapter 81 of the Delaware Code) applies in full to common interest communities created in Delaware after September 30, 2009 (25 Del. C. § 81-116). A community created before then is covered only by the sections listed in § 81-119, and a community of 20 or fewer units, or a planned community whose declaration keeps average annual common expenses at $500 or less per unit during declarant control (adjusted under the statute), is largely outside it (§§ 81-117, 81-118). Check which one you are before relying on anything below.

• When declarant control ends (§ 81-303(c)): no later than the earliest of 60 days after 75 percent of the units that may be created are conveyed to owners other than a declarant; two years after all declarants stop offering residential units for sale in the ordinary course of business; two years after any right to add new residential units was last exercised; or the day the declarant records a voluntary surrender of control. The declaration can set an earlier date.
• Owner seats before turnover (§ 81-303(d)): within 60 days after 25 percent of the units are conveyed to non-declarant owners, at least one board member and at least 25 percent of the board must be elected by those owners; within 60 days after 50 percent, at least 33⅓ percent.
• An audit at the declarant's cost (§ 81-303(g)): by the end of declarant control, the declarant must provide, at its own expense, an audit by a CPA not affiliated with it of all expenditures made with funds collected from owners not affiliated with the declarant, with a list of items paid from association funds that benefited only the declarant's units. Delaware's Act does not contain the longer list of turnover documents found in some other states, which is one more reason to ask for the documents above in writing.
• Ending declarant-era contracts (§ 81-305): after the owner-elected board takes office, the association may end without penalty, on at least 90 days' notice, a management contract, employment contract or lease of recreational or parking facilities, any other contract or lease with the declarant or an affiliate, and any contract or lease that was not bona fide or was unconscionable when made, if it was entered into before that board took office. § 81-305 is not on the § 81-119 list, so it does not reach a community created before September 30, 2009.
• Warranty claims (§ 81-416): an action for breach of the Act's express or implied warranties of quality must be brought within any applicable limitation period, and in all events within six years after the claim accrues; for a common element, that is generally when the element is completed or, if later, when the first unit is conveyed to a bona fide purchaser. A six-year outer limit that can start before the owners control the board is why the inspection belongs before turnover.
• Notice before a construction-defect suit (§ 81-321): before the association starts litigation, arbitration or an administrative proceeding against a declarant over a construction defect, it must give written notice of the claims, and it generally may not file for 90 days afterward.
• Help from the state: Delaware's Common Interest Community Ombudsperson, in the Department of Justice, offers education for associations, boards and owners, and mediation (29 Del. C. § 2544). It is not the association's attorney.

Delaware condominiums also have a reserve rule, covered on our Delaware reserve study requirements page. Other states differ on every point above: Washington's act ends declarant control no later than 60 days after 75 percent of the units are conveyed (RCW 64.90.415), and Oregon sets its own turnover meeting rule for planned communities (ORS 94.609), both summarized in the transition guide.

Questions to Put to the Builder in Writing

• On what date and by what trigger will declarant control end?
• Which common areas are complete, which are not, and when will each be finished?
• Which roads, ponds and utilities will be dedicated to the municipality, and which stay with the association?
• What bonds or letters of credit are posted for common improvements, and what must happen for their release?
• What has the builder paid in assessments or subsidy on the lots it owns, and is anything unpaid?
• Where did each working capital contribution collected at closing go?
• Who prepared the reserve study, and what was the reserve contribution based on?
• What warranties are in force on common components, and when does each expire?
• Is there any open insurance claim, lawsuit, code violation or permit condition involving the association?
• Which contracts and leases did the association sign during the builder period, and with whom? Are any with companies related to the builder?
• Will the builder keep any rights after turnover, such as the right to add phases, approve architecture on its unsold lots or use common areas for marketing?

When to Involve an Attorney

Many boards bring in a community association attorney before turnover rather than after, because the decisions that matter most are made in the last months of builder control. Talk to one:

• Before you sign anything the builder offers at turnover, especially an acceptance of the common areas, a release or a settlement of punch-list items.
• When the inspection or reserve study finds builder-caused defects, because claims have time limits and some states require notice to the builder and a chance to repair before a suit can be filed.
• When documents are missing after a written request, or the money does not reconcile.
• When a contract looks above market, long or related to the builder, and you want to know whether the association can end it.
• When the builder delays turnover past what the declaration or the statute allows.

Ask the attorney about the limitation periods for warranty and construction claims in your state at the first meeting, so the inspection schedule can be set around them.

After Turnover Day

When the owner board takes office, the work changes from asking to running: signers changed, insurance bound, contracts sorted, and a budget that reflects the independent reserve study rather than the builder's. The developer-to-HOA transition guide walks through the turnover meeting and the first 90 days, and the first 90 days as a board member guide covers the habits that keep a new board out of trouble. If the builder ran the books in its management company's system, plan where they will live next. Effortless HOA's accounting gives a new board its own general ledger, budget versus actual and reports it can download and print, and the free reserve fund calculator turns your independent study's component list into an annual contribution.