lawnjocky
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# Posted: 11 May 2009 10:41am
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Often rural real estate is part of a development. A development usually is a larger tract of land that was purchased by a developer and then sub-divided into smaller properties. These smaller parcels are sold to people like you and I. In order to divide the property the developer normally has to jump through a bunch of hoops so each gov agency gets its pound of flesh. The developer also likes to retain as much control over the project as long as he feels he needs to protect his investment.
To accomplish the above stated two objectives covenants are often recorded on the property. Most consumers don't pay much attention to the covenants and that is a big mistake. Covenants are extremely important and you should read them carefully before you ever go look at the property and fall in love with it. Not only should you read the covenants on the property you are interested in but you should read them for all developments in the area you are interested in. Before you close your deal you should have your attorney read them and advise you on them too.
The covenants will include the regulatory restrictions imposed by the gov agencies that had to sign off on the development and there isn't much you can do about them. Usually they are fairly similar for a given area.
The covenants imposed by the developer can vary greatly and can put you at the whim of the developer. A few of the developer scams are included below.
Inflated voting rights held by developer. Here a developer retains ten times the votes for each acre held by a buyer. Thus if a vote is given for each acre and there are a thousand acres in the development and the developer still owns a hundred, the developer controls any vote and can thereby impose "improvements" that greatly benefit him while he only pays a small portion of the costs. Think about things like paving streets and you can see how expensive this can get.
Amount of votes needed to amend the covenants. Here you want to see an overwhelming amount of total votes being needed for an amendment. This is the basic protection you have as a buyer that you will be able to do what could with your property when you bought it in the future. If a small group can amend they can change the rules on you down the road and you won't be able to build your dream cabin, put in a septic tank, etc. The list of possible abuses is endless.
The role of the association (HOA). People who get involved in HOAs are the type of people who like to tell others what to do but couldn't get a petty gov job. Sometimes it is because they are too dumb (hard to believe if you look at the average gov worker) or it is the result of some sort of personality disorder (likely). Either way they are like flies to feces, they like to buzz around and bother people. The best thing to do is avoid involvement in the HOA at all possible times. To do this you must understand your covenants and not give the HOA any reason to make you their pet project. Also keep your mouth shut. That way they won't know who's side you are on when they have their in fighting as they always do. They will also think you are smarter than you are because you haven't showed them you are not. Voting isn't a good idea unless it is to get rid of the HOA. Voting lets the board of the HOA know where you stand. Almost everything the board proposes somehow limits your use of property or costs you money. By not voting you are voting no but you are not saying no. Furthermore you can undermine the process by not helping them establish a quorum. Never underestimate the damage that can be done by an energetic HOA board.
Continuing role of the developer. Usually the covenants have the developer retaining certain rights like being able to name a set of board members or the right to modify the covenants. These are dangerous things but usually, at some defined point, the developer rights end. You need to understand how this happens and if it has happened. Often there is a transition letter to the HOA and this often isn't recorded. You should ask about an such documents because there is a big difference between the developer's rights being extinguished (a good thing) or assigned to the HOA (a bad thing).
Board and officer indemnification. Here you want to see director or officer misconduct excluded from indemnification. That way when they really go off the reservation the insurance carrier can refuse to pay their lawyer costs. When people have to pay their own attorneys they magically get more reasonable.
The above should give you an idea as to how important covenants are. Read them and don't believe anything your realtor says about them.
Jacko
The all seeing lawn jocky
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