A Riverwood Athletic Club resident who once worked for the neighborhood’s developer wants to know how that developer is spending his homeowners’ association fees.
The answer to that question likely lies in the financial records of his former employer, the Fred Smith Company, which collects fees from residents and manages the HOA. But the company’s founder, Fred Smith, said while residents have a legal right to HOA documents, they aren’t entitled to his see private company’s books.
The back and forth highlights the hierarchy of power in developer-managed subdivisions and puts emphasis on the neighborhood covenants that home buyers have the option to read before leaving the closing table.
In this case, the concerned homeowner, Todd Ward, first asked to see his HOA’s records in October, after he said he noticed unkempt landscaping, leaves on walking trails and bare common areas throughout the neighborhood. After not hearing back from the HOA, Ward asked a judge to force the association to hand over documents.
In December, just before a January court hearing, the HOA provided the documents, but the records did not detail revenue or spending from HOA dues. That’s because Smith’s company collects the association fees through an agreement between the Fred Smith Company and the HOA, the Riverwood Athletic Club Community Association. The agreement allows the Fred Smith Company to manage the neighborhood while requiring it to maintain the common areas.
Because the Fred Smith Company collects HOA dues from residents, only the company knows how much revenue the HOA takes in and how the company spends that money. However, records released by the HOA show about 950 current members, who pay a base HOA fee of $35 a month. Assuming all members pay that fee, total revenue is at least $33,250 a month. It is likely more because homeowners have the option of paying more each month for access to Fred Smith Company pools, tennis courts and golf courses.
“I would like to see the documents produced that honestly show the cash receipts of the HOA – what they bring in from their members and how that money is disbursed,” Ward said. “That includes how much money is allocated to the Fred Smith Company each year.”
During the January court hearing, an attorney for the HOA said the homeowners’ group had given Ward everything on file.
In an interview, Smith said the HOA dues his company collects from Riverwood Athletic Club homeowners go into a big pot of money that is spent not only in Riverwood but in all of the company’s residential communities. Other Fred Smith communities include LionsGate in Clayton, Mingo Creek in Knightdale, Tralee in Wilson’s Mills and Hedingham in Raleigh.
“That’s what creates our efficiency,” Smith said.
Smith said his company’s model has always been to develop raw land into communities, build amenities and then manage those neighborhoods. By keeping everything in house, he said, the company is able to keep costs down for residents.
For instance, Smith said, a “Bronze” member of the Riverwood Athletic Club pays $58 a month and has access to four golf clubs, five outdoor pools, one indoor pool, four gyms and a playground across the company’s collection of communities.
“I don’t think anybody else in this community delivers the value we do, and we do that by being vertically integrated,” Smith said.
How the company specifically spends HOA money is private, Smith said.
State law allows homeowners to review the records of HOA corporations. However, the statutes don’t specifically grant access to documents held by third-party managers.
During the Jan. 15 court hearing, Judge Robert Floyd dismissed Ward’s request for additional documents, finding that the HOA had fulfilled Ward’s request to hand over all of its records. However, Floyd said he did think the HOA has a duty to show what money goes to the Fred Smith Company each year to manage the neighborhood.
The Riverwood Athletic Club bylaws say the HOA can hire the developer or the developer’s appointee to manage the neighborhood but cannot delegate certain duties, including the collecting of homeowner dues. Smith said he’s hired an attorney to audit his company’s books and policies. He said the company might have to change how it collects fees in the future, asking that homeowners first write checks to the HOA, which would then write a check to his company.
Developer controls HOA
In 2011, Brent Wood, then a Riverwood HOA board member, signed the agreement that allows the Fred Smith Company to collect HOA fees and manage the neighborhood. At the time, Wood also served as director of legal affairs for the Fred Smith Company.
In Riverwood Athletic Club, the developer, Smith’s Riverwood on the Neuse, appoints a majority of the board members to the homeowners’ association. Wood was one of those.
Riverwood on the Neuse LLC has control over the HOA board until 2026 or until 75 percent of the homes in the neighborhood’s master plan are occupied.
The current HOA board includes Smith’s son, Reid Smith, who said he is not employed by the Fred Smith Company but still works closely with his father. Reid Smith, who operates his own development company, One27 Homes, does not live in Riverwood Athletic Club.
The HOA board also includes Tye Butler, a developer appointee who works with Reid Smith at One27 Homes. Butler, who once worked as a golf professional at Riverwood Golf and Athletic Club, does live in the neighborhood.
The third member of the HOA board is Riverwood Athletic Club resident Mike Langston, who was elected by his fellow residents.
Fred Smith said the rules governing the HOA board’s makeup and how his company collects fees are clearly laid out in the covenants, which are public documents.
“It spells out in there that it’s not a conflict of interest,” Fred Smith said.
“No one has to live in Riverwood,” he added. “These are the rules. We have to provide a community that people are willing to buy in. We have to provide a great product to do it.”
When asked about Ward’s request to see more documents, Reid Smith said the HOA board had provided Ward with everything it has.
“It is a shame we are having to do this,” Reid Smith said. “It’s not good for the community.”
Ward, who has lived in Riverwood Athletic Club since 2010, worked for the Fred Smith Company until he resigned in 2011. Ward said he worked for the company for more than two years, originally as director of beautification at the golf course and athletic clubs, then as director of community services.
Ward said he resigned after the company restructured several positions and other staff started sharing some of his duties.
Fred Smith said he would not talk about Ward’s resignation.
While he said he had not talked to Ward about his request for documents, Fred Smith said he’s willing to resolve the matter through the dispute-resolution process laid out in the covenants.
“Everybody is willing to do that,” Fred Smith said. “He won’t do that and is trying to use other pressure and not follow the rules.”
But Ward, whose home is for sale, said his request is of the HOA, not the Fred Smith Company. As the judge alluded to during the court hearing Jan. 15, Ward could file another lawsuit asking to review HOA records and naming the Fred Smith Company as a defendant. However, a settlement agreement Ward signed with the Fred Smith Company when he resigned could make that tricky.
In addition to providing Ward with six months of severance pay, the settlement agreement from May 2011 says Ward cannot “commence or maintain any suit, claim or complaint ... against Fred Smith Company entities.” The agreement also says Ward can’t disparage the company’s name.
When asked if he harbors any ill-will toward the company, Ward said he did not.
“This is not an issue of a former employee of the Fred Smith Company and the Fred Smith Company,” Ward said. “This is an issue of me having a legal right as a resident of an HOA that is called Riverwood Athletic Club Community Association.
“As many members out here and other members have tried to do, they want to know how their money is being spent.”