Bankrupt Developer/Declarant

Started by JeffG8 • 2 replies • 1756 views

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JeffG8 (Ohio)
Posts: 9

Posted:

BACKGROUND: I am a homeowner in a private 50 unit Ohio condo development which opened in 2004. Currently only 20 units have been constructed of which 10 are homeowner occupied. The developer/declarant has remained in control of the HOA because the 75% occupancy requirement has never been met. The developer/declarant missed the window of opportunity to build out the development due to bad management, poor marketing/prospecting and weak customer service. In the meantime, the real estate market collapsed, the developer/declarant began cutting back on services and subsequently filed for Chapter 11 bankruptcy protection in 2010. Now it appears that the developer/declarant will reorganize and emerge as a new corporation with most of his assets intact and remain in control of the HOA.
The developer/declarant has hinted at either: a) eliminating some or all of the restrictions (e.g. 50+ age requirement, no pets, prohibition on renting, etc.) to make the property more marketable, b) significantly raising the HOA fees to cover operating costs or c) terminating he condo docs.

QUESTIONS:

1. In the event the developer/declarant wants to amend or terminate the condo docs, do the current homeowners have any leverage in the matter since it appears that the developer/declarant has 80% voting control?

2. If the developer/declarant terminates the condominium, he will either sell the remaining lots or try to develop without any condo restriction which will likely negatively affect property values. In addition, current homeowners have an undivided interest in all of the common areas within the development (including a pool, clubhouse, pond and green space). Would homeowners have any reasonable claim for damages resulting from the termination?

3. The developer/declarant has significantly under performed as the HOA service agent, not provided a fence as advertised and violated the no renting policy which has negatively impacted the marketability of the development. Could homeowners have any reasonable claim here as well? Or has the bankruptcy protection shielded the developer/declarant from liability?

I know these are primarily legal questions, but any input would be appreciated. Thanks in advance.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Jeff,

Thanks for acknowledging that these are legal questions. I am not an attorney and do not work within the legal profession. With that said, I'll offer the following:

Quote:

Posted By JeffG8 on 03/28/2012 6:59 PM

1. In the event the developer/declarant wants to amend or terminate the condo docs, do the current homeowners have any leverage in the matter since it appears that the developer/declarant has 80% voting control?

Technically, the documents may be amended as authorized within the documents.

However, since the current owners purchased their property partially because the property was marketed as an older persons community, there is probably something that would present a legal argument. It will cost money and you will need to consult an attorney. It's possible that the builder won't take you seriously unless there is something sent from an attorney.

As for terminating/abolishing the all the deed restrictions to eliminate it being a condominium, I don't think that can be accomplished. You will need to check your Stats condo laws.

Quote:

Posted By JeffG8 on 03/28/2012 6:59 PM

2. If the developer/declarant terminates the condominium, he will either sell the remaining lots or try to develop without any condo restriction which will likely negatively affect property values. In addition, current homeowners have an undivided interest in all of the common areas within the development (including a pool, clubhouse, pond and green space). Would homeowners have any reasonable claim for damages resulting from the termination?

If the developer wanted to terminate condominium documents on unsold lots that might be possible. It would be no different than having a development that has some single family homes, some town homes and some condos. Typically when this happens, there are separate associations for each section and one master association to oversee and maintain the elements common to all (clubhouse, pool, etc.).

Providing the existing owners don't lose access to any of the amenities, this could be possible.

Quote:

Posted By JeffG8 on 03/28/2012 6:59 PM

3. The developer/declarant has significantly under performed as the HOA service agent, not provided a fence as advertised and violated the no renting policy which has negatively impacted the marketability of the development. Could homeowners have any reasonable claim here as well? Or has the bankruptcy protection shielded the developer/declarant from liability?

Any homeowner may enforce the covenants. To do so, you will need to consult an attorney and file for an injunction through the courts.

Most states require a performance bond when the plans are submitted. The membership will need to contact the county to see how to get access to this bond so the community can be finished. However, you probably can't do that until the Association is turned over to the membership.

I would recommend that all (or as many as possible)members get together, discuss concerns and then contact an attorney. Your best bet might be to gain control of the Association (which will require legal action).

Hope this helps,

Tim

JeffG8 (Ohio)
Posts: 9

Posted:

Tim, thanks for your input. We have assembled a homeowners committee to deal with the issues we're facing. We realize that we'll need to engage an attorney to help us. We were just casting a net to see if there were any other homeowners or HOAs who may have experienced a similar situation. Jeff

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