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CDD Defaults More Prevalent; Understand Community Development District Operations

Developers Often Use Community Development Districts (CDD) to Fund Community Infrastructure and Amenities.

Newspapers are filled with advertisements for homes in neighborhoods that have wonderful community amenities.  The streets are lined with sidewalks, beautiful trees tower above medians, there are neighborhood parks and tot-lots, lakes, maybe even a clubhouse with an exercise facility and meeting rooms.  At the sales office you learn that these facilities are solely for the use of the owners within the community.  It is not unreasonable to think that all of these features were built by the developer, at its expense, in order to justify the price of the homes and to encourage sales.

Well, the latter may be true, but if the property is located within a Community Development District purchasing a home is likely to include a long-term obligation to fund the initial construction of those amenities.

Community Development Districts (CDD) are not new in Florida but use of this mechanism to fund infrastructure and recreational amenities has increased exponentially in recent times.  A CDD is a special-purpose unit created primarily for the purpose of financing and then operating and maintaining community-wide improvements in new communities.  A landowner (usually a developer) petitions the local government to create a CDD with broad powers that enables the CDD to generate revenue.  Bonds are typically issued and payable by the land-owners (purchasers of homes and other properties) in the district over a period of time – up to thirty (30) years.  Additional revenue is generated through special assessments and other fees paid by the property owners in the district.

It is not unusual for a developer, through the use of a CDD, to fund development and construction of the roads, the surface water management systems, parks, clubhouses and other community facilities such as entry features and the like with the initial lump-sum of revenue obtained from the issuance of bonds.  The CDD maintains, operates and administers the property and improvements subject to its control and establishes the fees or other financial obligations of the land owners.

Chapter 190, Florida Statutes became effective in 1980, but CDD’s were not very popular in the early years.  Approximately 100 CDDs were created in Florida during the 1990s and then over 200 new CDDs came into existence between 2000 and 2005.  There are currently close to 600 CDDs active in Florida at the present time according to the website maintained by the Department of Community Affairs.

While the Board of Supervisors for each CDD is elected by the landowners, the exercise of the powers and duties of the district, as well as the use of revenue produced by the special assessments and fees, has often come into question.  The developer of the Cory Lake Isles community in Hillsborough County reportedly controlled CDD operations for 18 years.  Residents complained that the developer mismanaged the district’s finances and spent CDD money on the developer’s personal projects.  When CDD meetings became tumultuous, it hired off-duty police officers to keep the peace, as a CDD expense.   Residents in Cory Lakes have had to pay higher fees, but now have control of the District.

Defaults associated with CDDs have increased, presumably as a result of the downturn in the housing market.  An Orlando based Firm indicated that more than 10% of the CDDs in Florida did not fulfill their obligations.   Defaults may mean even more of the costs will be passed on to homeowners.

Home buyers need to read the ‘fine print’ before purchasing a home in a Community Development District.

 

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1 Comment
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    Patricia Caldwell
    May 25, 2010

    What is the legal difference between a POA and HOA in Florida?
    RESPONSE: The terms are often used interchangeably. If the corporation qualifies as a Homeowners’ Association, as that term is defined in Section 720.301(9), F.S. it is governed by the statute. Community development districts are not HOAs.