A service of:
Community123.com
Professional websites for HOAs & condos, since 2004
🎁 1st year FREE for HOATalk members! →
← Return to Topics List

Failure of a HOA

Started by TimK1 • 12 replies • 1921 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in

TimK1 (Maryland)
Posts: 1
Posted:
Our HOA is small, only 9 members, but because we are a "cluster subdivision" with HOA-owned common property, local zoning law requires us to have a governing HOA. Getting people to serve as officers of the corporation is sometimes difficult. What would happen if we simply failed to elect directors, officers, or contribute to expenses?

One person tells me "the court" would appoint someone to take charge of our affairs, we lot owners would be taxed to pay for this custodian as well as the necessary expenses. It this so?
BruceF1 (Connecticut)
Posts: 2,535
Posted:
I've heard of such a thing.

However, if all the homeowners feel strongly about not having an HOA, then maybe you should check your documents (CCRs, deed restrictions) to see if the HOA can be dissolved and take the necessary steps to do so. You would have to figure out what to do with any property held in common.
TimB4 (Tennessee)
Posts: 21,059
Posted:
It's called receivership. If this happens, the members typically have little to no say until the receiver is replaced by a governing board. This is not the way to handle the issue.

You might want to look into hiring a property manager or management company or even independent contractors to perform some of the basic tasks that might be keeping people from serving. If there are other HOA's nearby, you might even negotiate being merged with them.

Hope this helps
MelissaP1 (Alabama)
Posts: 13,836
Posted:
Your answer is in your documentation. If our HOA was ever to disband, it would have to be turned over to a management company. Which isn't necessarily a good thing for the owners if they want any kind of control. It's not the same sitatuation where a HOA hires a managment company to handle their bills/business items. It's where the actual management company has the say so and you pay them the amount that covers their salary and costs. It just depends on how the owner feel in the level of involvement before either choice will work for them.
Former HOA President
LarryB13 (Arizona)
Posts: 4,099
Posted:
It sounds like if you let your HOA go dormant that the courts could appoint a receiver at your expense.

On the other hand, if you amend your CC&R's to remove the provisions for the association you might have the problem licked, depending on your state laws. In Arizona, for example, a person cannot be forced to join a non-profit corporation. If the corporation has been dissolved then there is no lawful basis for the appointment of a receiver.

The sticking point in this is the HOA-owned common property you mentioned. You need to somehow decide what to do with it. Driveways, for example can be dealt with by deeding portions of them to each lot with non-exclusive easements. A swimming pool, however, would be more of a problem.

An alternative to all the above is to amend your CC&R's to simplify them. Limit the HOA's authority to regulate only the use and maintenance of HOA property. Reduce the number of directors to just one (if state law allows that).
BradP (Kansas)
Posts: 2,640
Posted:
Tim...as much as dibanding might sound appealing not sure if that is your answering if your able to do it. You need to think about common property and what will happen to it? Who will take care of it, you now will have no liability insurance coverage on your common areas. Not sure what other "assets" you may have but I would think strongly about that.

To me it sounds like your first step may be to hire a management company to see if this solves your volunteer issue.
BruceF1 (Connecticut)
Posts: 2,535
Posted:
I'm not sure hiring a management company for only 9 homes would be very cost effective. Usually, there's economy in numbers.
PetunkaM (Florida)
Posts: 1,009
Posted:
Tim,

Even if you hire MC you still need the Board and as Bruce said, it could prove to be expensive. Dissolving the Association is also a possibility but then you need to think about the property values. Do MD zoning laws dictate the type of ownership such as condominium vs. mandatory HOA vs. non-mandatory HOA? Or, am I misreading something? Also, what does ’cluster subdivision’ mean?

PS: Could you get away with three BOD members and perhaps a part time handyman?
BruceF1 (Connecticut)
Posts: 2,535
Posted:
Quote:
Posted By PetunkaM on 09/27/2011 7:52 AM
Tim,

Even if you hire MC you still need the Board and as Bruce said, it could prove to be expensive. Dissolving the Association is also a possibility but then you need to think about the property values. Do MD zoning laws dictate the type of ownership such as condominium vs. mandatory HOA vs. non-mandatory HOA? Or, am I misreading something? Also, what does ’cluster subdivision’ mean?

PS: Could you get away with three BOD members and perhaps a part time handyman?

Petunka,

I agree. You still need a BOD. Who would be responsible for hiring and authorizing the payment to a management company? And, if they're incorporated, state law most likely requires a BOD.
MichaelK11 (Texas)
Posts: 432
Posted:
I don't know your actual situation, but isn't receivership usually invoked by Bankruptcy Court? If you don't file bankruptcy (and if no one sues you for -- what would you call it; failure to operate), then I don't see how it would cause a problem.

If someone (and this would probably have to be one of your 9 homeowners) actually had a problem, the first step would be to ask the neighborhood do something about it. Is anyone complaining or threatening to take action about anything?

Because you mention zoning, it's probably a Municipal requirement. I suspect the City's main interest is having some entity responsible for the Common Areas, to own and maintain them.

It sounds like your main issue is how to get the Common Areas mowed and watered. Maybe it's just getting everyone to pitch in for the cost (meaning pay their dues). You should also have liability insurance.

One option would be to turn the Common Areas over to the City. Then there would be no assets or responsibilities for the HOA, and the City will probably not care, anymore. That would effectively disband the HOA more than any official organizational dissolution. It would probably require all 9 Homeowners sign off. However, that would mean also anyone can use the Common Areas -- not just your 9 homeowners. Is that a problem for any of you?

Hope this helps.
SteveM9 (Massachusetts)
Posts: 3,699
Posted:
I would be more worried about common areas and insurance. Without a HOA paying an insurance company, each homeowner would be liable in a lawsuit. Say someone got hurt in the common area and he sued all 9 homeowners for $1 million because he lost use of his legs and won a suit. Each homeowner would owe this person $111,000.

Think about that..........
BradP (Kansas)
Posts: 2,640
Posted:
Quote:
Posted By SteveM9 on 09/27/2011 4:51 PM
I would be more worried about common areas and insurance. Without a HOA paying an insurance company, each homeowner would be liable in a lawsuit. Say someone got hurt in the common area and he sued all 9 homeowners for $1 million because he lost use of his legs and won a suit. Each homeowner would owe this person $111,000.

Think about that..........

Steve...a good lawyer could probably get you 10 million for losing a leg!

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

  • ✓ Ask follow-up questions
  • ✓ Share your experience
  • ✓ Get expert advice
  • ✓ Access 350,000 discussions
Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here

Terms of Use and Privacy Statement