Very Distressed HOA - Need Advice?

Wow!!, suggest you run, not walk away. Seriously, I think some money spent on an Attorney that specializes in these matters would be a good investment, good luck.

Paul T

You need to read the governing documents to see what is required to amend.

Typically, the CC&Rs require 2/3 of the membership vote.
The Bylaws may or may not be able to be rewritten by the Board.

For the Board to take any action, meetings must be held and a quorum met. Quorums are typically a majority of the Board. If your governing documents require 3 board members than a quorum would be 2. (5 would be 3, 6&7 would be 4, etc.).

The Association must comply with applicable laws. The main laws many Associations forget to follow are the corporate laws (which are applicable if the Association is incorporated (most are)).


Providing you follow the procedures outlined in your governing documents and applicable foreclosure laws, then yes.

Note: Just because the Association forecloses doesn't always mean that the Association owns the unit as the mortgage will need to be satisfied (typically by the bank taking possession of the unit). Until the Bank takes possession, the Association may be able to rent the unit out providing they first go through the process of evicting the previous owner, cleaning the unit, making necessary repairs, etc.

I would suggest consulting with an attorney.


Typically, NO. This is because the Bank holds the 1st lien.

Again, you need to check with an attorney.


Typically only if you (or a group) own 100% of the units.

Consult an attorney.

Can I rewrite the byelaws as the only active member of the 'board'?
No

Can I foreclose on the remaining non-paying owners and acquire their units for the HOA?
Yes. But the bank will still have a lien, and someday it will foreclose on the HOA.

Can I sell off the foreclosed units or individual buildings which consist of a group of 8 units?
No, the properties will still have a 1st lien holder, the bank. Its likely more is owed to the bank than the value of the unit.

Can I dissolve the condo association and turn the building into a apartment community?
No, not unless you buy all of them

Unless you can buy all the units, dont do it.

Sov,

Taking control of a condo complex is much more difficult than rehabing an apartment because of the multitude of owners.

It is not clear what percentage of the units you would own if you purchased those that are being offered to you.

In addition to all other laws, you would need to comply with your state's non-profit laws (assuming that the association is incorporated as a non-profit) by holding elections and having open meetings. It sounds, however, that you might be the only owner casting ballots and so you can take control of the board. Depending upon state law and the existing bylaws, you may be able to amend the bylaws to facilitate some of what you wish to do.

Your biggest problem will be the declaration, which typically takes the approval of 2/3 or more of the owners to amend. All of those other units have owners somewhere and you would have to track down enough of them to amend the declaration.

Foreclosing for unpaid assessments is not always as simple as it may sound. Depending on state law, the courts may not allow you to foreclose if you cannot serve process on the legal owner because you cannot find him. If you do foreclose, you face the possibility of someone bidding at the foreclosure auction meaning that either you get into a bidding war or you have a new owner to deal with. But if you foreclose and there are no bidders then the association can take title to the property. If you control the association then you (personally) could purchase the units from the association.

You can sell off anything you own but it will still be subject to the declaration until you have the needed owner approval to amend.

Condo associations can be dissolved and turned into apartments. The person doing so needs to acquire enough of the units to amend the declaration or have the consent of the required percentage of owners. Those units that are still owned can be forced to sell to the majority owner.

As others have already stated, you need the advice of a really good real estate lawyer.

Sov,

Taking control of the HOA may not be easy. In any event, you would have to comply with the association documents (Declaration or CCRs, Articles of Incorporation, Bylaws) in addition to any applicable state laws.

If the bylaws require a 3-member, 5-member, etc. board size, you cannot be the sole board member. The board must have the number of members specified in the documents.

You will need to get enough votes from other owners in the association in addition to your own votes to get yourself elected to the board (typically, there is one vote per unit).

To control the board, you will need to get enough other members elected to the board who see things your way and will go along with what you want to do. Most board actions typically require a majority of the board in favor, but there may be some actions that require a 2/3 of the board members to approve.

Assume the board can re-write the bylaws. If the bylaws currently require a 5-member board, you cannot re-write the bylaws yourself. You would have to get four other people elected to the board and together you could re-write the bylaws. But then, your bylaws cannot conflict with state law. If state law requires there by at least three officers and prohibits the same individual from holding two positions, then you would still need a partner.

You need to do some homework and check your state laws and the association's documents.

However, it would have to be for fair market value and not just what the Association dues were. Otherwise, you could end up defending yourself in court for failure to perform your fiduciary duty to the Association.

Tim,

I was operating on the premise that at this point Sov would be in control of the association due to total apathy of the remaining owners. The foreclosure auction is a public sale and if no bids were recieved that is a pretty good indication that the market considers the property worth less than the amount owed. If Sov, acting as the board of directors, sold the property to himself in his personal capacity for $1 his defense against breach of fiduciary duty would be to ask his accusers where they were when the property went up for auction? The burden would be on his accusers to prove that the property was worth more than $1 when it failed to bring a single bid at a foreclosure auction.

Forget the quorum, from what you posted, I think that's meaningless because you need 60% of the owners in number and in value. I think it's the "number" criteria that may stop you. Assume, as you say, that you manage to own 67% of the units. Assuming they all have the same value, you then hold 67% of value.
But, there is at least one owner who owns the other 33% of units. If there is only one other owner besides yourself, you represent only 50% of the owners in number. Chances are, though, that there are more, so you will likely own considerably less than the required 60% of owners "in number" needed to change the bylaws. My interpretation of what you posted is, you're out of luck as far as being able to change the bylaws yourself is concerned. Furthermore, changing the bylaws does not dissolve the association. You will need to read your Declaration (CCRs) to see how to do that. It's not the same as amending the bylaws.

My best advice to you is to consult an attorney before you waste your money. You're obviously expecting to invest thousands in this venture, so spending a few hundred dollars for a consultation with an attorney is certainly money well spent, even if you're advised not to go ahead with the deal.

Bruce thank you for your points.

I guess I was wrong, as I interpreted to be 60% to the refer to the number and value of the condos. However, if it is based on the number of owners and looking through the records I will need to buy properties using 7 different entities so the entire group then has over 60% of the number of owners and over 60% of the value of the condos.

It's unlikely any of the owners want anything to do with the units and there is little value to them and they are highly likely to go the tax sale auction, if the HOA doesn't foreclosure. But I the rules must be strictly followed in any event.

John, Bruce, Larry, Tim - I fully intend to go to an attorney before I commit to any such deal. I'm merely here to seek opinions and knowledge from folks who are in the field and may have direct experience for dealing the severe HOA issues.

SovE,

Don't forget that you will need to pay assessments on each unit you own.
Therefore, if you own 65% of the development, you will be paying 65% of the Assessments.

Kelly brings up a good point. A $1 foreclosure sale is NOT a $1 house. You still have to secure a loan for the amount still owed on the home if there is any. Plus it could be the dollar added onto the amount they are foreclosing for. There is the right to redemption issue. In Alabama that is 1 year. It differs in each state.

My earlier statement about making this managed property and not an HOA still stands. If you owned a majority of the property, you could then dissolve the HOA. Our documents actually allow for us to dissolve as long as we are turned over to a management company. I'd read the documents to find out what it takes to dissolve.

The concept of a HOA does go beyond just a sales tool now. However, it is still just a club of home/property owners who pay dues to be said members. It is mandatory to be a member. (Unless volunteer HOA setup). The setup of this specific 7 unit setup doesn't sound it fits into HOA scenerio. Something sounds fishy to me for it to fit into the HOA setup. I am not sure what is off but I am not sure I would trust the person who has this all set up. Sounds like they got in over their heads by trying to be so "smart"...

I'd read the existing HOA documents to see what the setup is. Is it non-profit? What does it take to dissolve it? Who is referenced as being in control? Is it the owners or the developer? There are details here missing that a little more research is needed...A HOA foreclosing does the work of the bank. So I'd even check out with the bank the situation of the tenant/owner. ALOT of details that need to be worked out first before trying to buy up this place....

Actually i'm buying some of these units for $1. Obviously, i'm taking over the outstanding water bills and tax bills and responsiblity for the repairs

Bruce,

I think you and several others misunderstood parts of this thread.

Sov described this condo complex as being in extremely poor condition, with many units abandoned. Three of seven buildings have no electricity (non-payment) and none of the units have a mortgage. Units have unpaid taxes and unpaid water bills. Sov is looking at buying 46% of the units outright and wishes to acquire the rest of the units to turn the place into apartments. From what I understand, nearly all of the remaining 54% of the units have paid no assessments in years. The current condo association is run by the owner of the units that Sov is about to purchase and no other owners seem to be involved with the association.

If he buys, Sov will be the largest single property owner and apparently the only one interested in the condo association. Given the apathy and/or absence of the other owners, he should be able to legally take control of the association. Please note that I do not advocate steamrollering other owners, but this place sounds like it is generally abandoned and that many of the units are occupied by squatters.

Once Sov has control of the association, the association can begin to foreclose on those units that have paid no assessments. Sov stated that there are no mortgages on any of the units so there are no liens superior to the association's, except tax liens.

Part of the foreclosure process is a public auction conducted by the sheriff under the supervision of the court. The minimum bid is normally the sum of the debt plus all the costs in bringing the case to court. This could easily top $15,000. If no one places a bid at the foreclosure auction, title goes to the association. The failure to obtain any bids at a public foreclosure auction is a pretty good indication that the market says the unit is worth less than the minimum bid.

Once the association has title, it may sell the unit for whatever it wishes to whomever will buy it. While there is a fiduciary duty for the association to get top dollar, the only persons who have standing to object to a sweetheart deal would be other members, of which there seem to be none. The association, under Sov's control, could sell the foreclosed units to him at $1 each. Do not overlook the fact that someone will have to bankroll the foreclosure actions and that someone, as the only member paying an assessment, will be Sov himself.

As far as market value goes, what I understood was that Sov is considering purchasing 26 units for $1 each. It's pretty hard to argue that the remaining units are worth tens of thousands of dollars when almost half the units just sold for $26 for the lot of them.

Sov will definitely pay more than $1 per unit. He already acknowledged that he will have to pay water bills, taxes, and repairs on the units he is purchasing now. Anything he is able to obtain through foreclosures will also cost him a few thousand dollars to get through the court proceedings. And he will likely have taxes, water bills, and repairs on those units, also.

Sov's objective should not be to amend the bylaws but to dissolve the CC&R's that create the whole condo regime.

As far as the bylaws, though, the only persons with any real standing to challenge what the association does are other members. I suspect that somewhere in the bylaws voting is restricted to members in good standing, so Sov himself may very well be 100% of the members in good standing.

When estimating rehab expenses remember the city is going to make you bring it up to code. The large scale units are a pain to deal with code enforcement. With large multi unit buildings, safety is very important. Especially fire related things like sprinklers, fire escapes, etc. This can get very, very expensive. Sometimes not even worth it.

Talk to a business attorney or someone who is legally trained in real estate. This does not seem like a good investment.

I have also obtained a breach in Jan to remove fresh weeds. The conformity date was mid Feb and the yard was completly free of weeds. If anyone else has face same type of situation or any such defaulter information, please share your experience.