Rescind and Replace

Posted by Herb James

There are several reasons why the subsidy agreement (i.e., Lease and Management Agreement) between the SGCC and the HOA needs to be rescinded and replaced.

One reason is the de-valuation of our property caused by:  (1) Liens and (2) Uncertainty

1.)  Liens

This agreement has encumbered all of our properties with over a $6,000,000.00 lien (collectively).  We are obligated to pay this lien for the benefit of approximately 172 owners of a private golf club.  This was not a voluntary lien placed against our properties, it was levied without our knowledge or consent.  Normally, a lien is granted or agreed to by the property owner, such as a mortgage or HOA fees (at time of purchase).  Not in this case.  In this case, Party #1 (a private golf club) negotiated with Party #2 (builder-controlled board) to force Party #3 (property owners) to pay Party #1 over $6,000,000.00 without Party #3’s knowledge or consent.  This is a clear violation of the CC&R’s.   Our property values have diminished, because we are now responsible for subsidizing the operational deficit of an insolvent, private golf club through this lien.

This de-valuation is exacerbated, because this $6,000,000.00+ lien may only be the first lien placed against our properties for the benefit of a private golf club.  In the funding section of the “trigger event” (page 8 section IV, subsection 10 of the Lease Agreement) is a requirement that the amount of money the HOA pays the golf club will increase, if the golf club looses members.  (The “trigger event” is the building of a clubhouse, which the club members will own.)  For example, if 20 members leave the club, the HOA is required to increase its’ payment to the club by approximately $29,000.00+ per year (a potential increase of $87,000.00+ over 3 years) just to cover construction costs.  The requirement that property owners pay more to the golf club, if club membership decreases, is currently limited to construction costs.  However, a linkage or obligation has been created, for the first time, which causes a financial burden to accrue to the property owners, if membership in this private golf club decreases.  This action, on the part of the board, is consistent with the obligation, again for the first time, that property owners must subsidize the operational deficit and construction costs of this private golf club.  As with any forced subsidizing, subsidies only increase.

2.)   Uncertainty

There are no restrictions preventing the board and the golf club from colluding a second time to increase our original payments of $36,000.00+/month, if the club continues to lose members.  They have removed this restriction, again without our knowledge.  This contract requirement and the board’s propensity to ignore the CC&R’s raises important concerns, such as, what additional liens will be placed against our property, for what purposes and for what amounts on behalf of the golf club?  All implemented like the first lien, without our knowledge.

When the members took ownership of the golf club, about 2 years ago, the club had approximately 220 members.  Currently, there are approximately 172 owners.  What happens if the club looses an additional 50 members?  Will property owners be required to make up for the lost revenue of over $310,000.00+ per year?  Will the board and the club claim the club is “too important to fail”, therefore, the property owners will be required to increase their subsidy to the golf club?  We do not have any assurance or protection that our subsidy for the golf club will not be increased in order to replace lost revenue from a reduction in membership.  And we do not have any assurance our subsidy payments will not increase, if the golf club unilaterally decides to improve the course or for any other reason.  This subsidy agreement renders the CC&R’s meaningless.

The current lien and possible future liens must be disclosed when selling our property.  Because we cannot put an accurate figure to any additional liens, a potential buyer is taking a wild guess as to how much he/she will have to pay to a golf club he/she does not belong to.  Thus, home prices are diminished.

Uncertainty is further increased because the rules (CC&R’s, by-laws and state laws) governing HOA’s decisions, methods and procedures were not followed and agreements were unilaterally violated.  This disregard for the rules raises concerns the HOA board will make additional changes, again in secret that will be harmful to our property values and the Del Web/Somersett development.

We were all informed, by real estate agents, builders, and Town Center marketing people, that property owners were not required to subsidize this private golf club, because they were two separate, mutually exclusive entities.  We were told by a variety of sources, the golf club was private and not the financial responsibility of the HOA.  It was a private business that was responsible for funding its’ own operations.  According to Article VII, section 6 (No Right To Use) of the CC&R’s, property ownership shall not confer an ownership interest in the golf club, therefore, property owners are not responsible for funding the operation of the golf course.  How many homes were purchased with this understanding?  Because of this change, are builders, real estate agents, marketers and home sellers subject to lawsuits over this $6,000,000.00+ lien and any future liens levied to benefit the golf club?

Solution:  These 2 consequences of this subsidy agreement, liens and uncertainty, have created a significant liability against our properties that cannot be ignored.  These consequences demand this subsidy agreement be rescinded and replaced in order to restore our property values and save the golf course.  If there is a legitimate financial problem with the operation of the golf club, a solution must be reached in an open and honest manner involving all parties and based on established rules, method and procedures.

The de-valuation of our properties, is only one reason for rescinding and replacing this subsidy agreement.  The worst reason is yet to be recognized. To return to the blog, click here