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When the developer of a common interest development serves on the board of a homeowner association, or otherwise controls the board, the developer owes a fiduciary duty to the association and its members. This means the developer must:
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Place the interest of the association and its
members above his own interests; |
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Be absolutely loyal to the association; |
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Establish a separate HOA operating account and
reserve account on or before the date the first
escrow closes; |
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Pay assessments into the HOA operating
account, before the delinquency date, for all
unsold units or lots; |
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Use association funds (assessments) only for
association purposes which does not include paying
costs to cure defects or other non - association
related expenses; |
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Provide the association
(corporation) with copies of those documents set
forth in Regulation 2792.23 of the Real Estate
Commissioner of California; |
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Avoid or disclose any actual or potential
conflicts of interest; and |
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Repair any construction defects properly and
timely utilizing his own funds. |
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The failure of the developer, acting as a board member, to place the interests of the association and its members above his own interests can lead to a legal claim by the association or its members for monetary damages, including
punitive damages.
Developers sometimes breach in their fiduciary duty to
the association and its members by signing contracts on
behalf of the association with management companies and
other service providers with which the developer has a
special relationship. New board members taking over from a
developer controlled board should investigate all existing
contractual relationships to make certain they are arms -
length agreements.
There will be no charge for the initial consultation.
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