HOA bankruptcy title insurance

Started by DannyR3 • 6 replies • 954 views

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DannyR3 (Texas)
Posts: 3

Posted:

Our HOA is very close to bankruptcy due to mismanagement of funds. If we file chapter 11 bankruptcy or are forced into it by creditors. Is it a true statement, that if someone is purchasing a home in this community that they can not get title insurance due to the HOA being in bankruptcy?

TimB4 (Tennessee)
Posts: 21,059

Posted:

I wouldn't think so.

Title insurance should have zero to do with common area. It is based on researching who has a claim to the property the title insurance is purchased for.

Bankruptcy may or may not hinder sales because nobody (the buyer or the lender) knows what will happen within the Association financially and the potential of a special assessment may be in the future.

An Association in my area had to declare bankruptcy because of a court case they lost.
The bankruptcy court actually placed some of the common area up for sale.
It took several years, but the area is again having sales comparable to others in the area.

If you can avoid bankruptcy you should.
If you can't, then sales may slump for awhile but will pick back up overtime.

LetA (Nevada)
Posts: 2,679

Posted:

Question!

Can the members sue the HOA and have the D&O insurance pay the settlement and use the settlement to make the HOA fluid again?

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By LetA on 02/07/2018 11:55 AM
Question!

Can the members sue the HOA and have the D&O insurance pay the settlement and use the settlement to make the HOA fluid again?

Doesn't really make sense.

You need a reason to bring legal action and need to show personal damages.
Any D&O payment would be made to individuals.

What makes you think the individuals, after paying their legal bills, will want to turn the money back to the Association?

JanetB2 (Colorado)
Posts: 4,219

Posted:

Quote:

Posted By LetA on 02/07/2018 11:55 AM
Question!

Can the members sue the HOA and have the D&O insurance pay the settlement and use the settlement to make the HOA fluid again?

Sue the HOA for what???

D&O Insurance is potentially only to cover the Directors and Officers regarding a lawsuit ... essentially covering their potential attorney and court fees if ever needed. Rarely is there a settlement unless gross negligence.

IF ... and big IF ... there was a large settlement due to excessive gross negligence ... potentially yes depending on where money is paid per Judge for any lawsuit there might be a minor possibility to your scenario. However, you would be assuming settlement is made to the HOA and NOT to Individual Owners. Generally when Directors or HOA is sued it is an Owner who files any such lawsuit.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Danny ... I am with Tim. However, to make sure I would recommend you call a Title Insurance Company to make sure. I would not think they could deny insurance; however, they would have to note anything filed with your County Records against the Title of the property and which could include any Bankruptcy filings.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

The only effect I have ever heard was higher refi rates and less offering of certain loan packages. FHA or other government based type road may not offer their mortgages. Other banks may but at a higher rate. Which usually effects new homeowners the most.

Not sure why title insurance would be involved in this process unless there is more ties to the HOA than we know. Does the HOA own the property? The seller having issues? Something is wrong here and not sure on whose end.

Former HOA President

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