Rise of the ‘Zombie HOA’: What Happens When Developers Fail To Hand Over Control to Residents

Homeowner associations are more common than ever, but when developers are unwilling or unable to hand over control to residents, troubling issues can arise.

The share of homes for sale in the U.S. that were subject to HOA fees reached 43.6% in 2025, up from 34.3% in 2019, according to recent data from Realtor.com®. The median HOA fee was $135, up from $108 in 2019. 

But with more HOAs come more potential nightmares—like the one homeowners in North Charleston, SC, are currently grappling with.

Residents of Magnolia Pointe, a 54-home subdivision, told The Post and Courier that they have been denied access to financial records by their HOA, and that repeated requests to review annual budgets have gone unanswered.

Resident Meghan Kane tells The Post and Courier that dues have increased each year— from $390 per lot in 2021 to $435 in 2026—but she hasn't seen significant upgrades to the neighborhood.

Scott Cooke, the communications director at South Carolina's Department of Consumer Affairs, which collects HOA complaints, tells Realtor.com, "The Nonprofit Corporations Act requires an HOA to maintain appropriate accounting records, including financial statements furnished for the last three years, and shall make them available for inspection by a member upon a reasonable request."

Magnolia Pointe’s HOA is run by the developer, but several homeowners are advocating for the transition of HOA control to a resident-led board—a move that the neighborhood’s governing documents indicate is overdue.

Attorney Paul B. Ferrara III, who is the Magnolia Pointe president, told Realtor.com: "An annual meeting was called in 2024; however, no residents stepped forward to assume officer roles at that time. A subsequent meeting was called in 2025, but insufficient homeowner attendance prevented a quorum from being established."

The Post and Courier reported that Magnolia Pointe’s bylaws stipulated control would transfer five years after their establishment—placing the transition date at Feb. 21, 2026.

Ferrara says, "An annual meeting is currently scheduled for May 1, at which time officer elections are expected to be addressed."

Not an isolated incident

A similar situation is playing out in North Carolina.

Homeowners in the Waterfront at Langtree development in Mooresville told The Charlotte Observer that the HOA has remained under developer control for more than five years. During that time, residents say they have been unable to elect their own board, select an HOA president, or vote on most decisions affecting the community.

North Carolina law does not impose a specific deadline for developers to hand over control of a homeowners association to residents. Instead, the timing of that transition is primarily dictated by each community’s covenants and governing documents.

JRN Development told The Charlotte Observer the neighborhood is being developed in two phases, and that control of the HOA will be turned over to homeowners after Phase 2 is completed and road construction is finished.

Legal recourse

Attorney Chad D. Cummings of Cummings & Cummings Law in Florida and Texas tells Realtor.com: "The developer turnover process fails more often than most people realize. This was a major problem during the 2008-09 downturn when many developers went bankrupt, creating zombie HOAs, and the issue is starting to rear its head again."

According to Cummings, CC&Rs and state law typically require the developer to transfer board control after a fixed period or sales threshold.

"The process breaks down when the developer retains unsold lots with inflated voting power and uses that leverage to block elections or ignore the deadline," says Cummings. "Most buyers do not read the CC&Rs before closing. If they did, no rational person would purchase in an HOA or COA community because developers often grant themselves supermajority voting rights and unilateral amendment power over governing documents."

When the developer turnover process fails, Cummings says homeowners need to seek an equitable order from a court compelling turnover of the association. "But that can take months or even years in extreme cases, and can cost tens of thousands of dollars or more," he explains.

According to Cummings, state laws provide far less protection for homeowners than many homeowners assume, and tend to favor HOAs and developers. He says most states mandate HOA access to financial records, but those laws often lack strong enforcement.

"Homeowners must file suit at their own expense to compel production," explains Cummings. "In my Florida and Texas practice, I counsel clients that the statutory right to inspect books means nothing without the willingness to spend $15,000 to $30,000 on litigation to enforce it."

When the developer turnover process breaks down, Cummings says the obvious risk is the effect on property values.

"Whenever we are dealing with a zombie HOA, property values will take a hit," he warns. "Knowledgeable buyers will run in the other direction, and when a seller fails to respond to requests by a prospective purchaser to furnish information on the HOA or provides false or misleading information on the HOA, the buyer may have a legal cause of action against the seller for fraud. Once word gets out, the community can become almost unsellable."