Our HOA is broke and is not paying bills.

Started by RobertV2 • 17 replies • 1907 views

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RobertV2 (California)
Posts: 4

Posted:

Im am a board rep. and just found out that due to low occupancy in our condo community our HOA has stopped paying all bills and we are starting to get notices of utility shut off notices. What can we do?

BrianB (California)
Posts: 2,820

Posted:

i suggest a nice dinner, some pleasant music, perhaps a wine (or an Irish Cream in my case), just really overdo it, and enjoy yourself immensely.

Cause you are going to get taken to the cleaners very soon... you might as well enjoy your last meal.

As a board, you need a deep soul searching to see why your budget numbers were so bad, and you will almost have to have a special assessment to raise money, or at least an immediate raise in dues, if they are coming in monthly. It is possible to borrow money, but it would take a very liberal banker to loan an HOA money in these times when they have proven incapable of managing a basic utility budget.

good luck!

RobertV2 (California)
Posts: 4

Posted:

Can we get sued over this type of mismanagement?

BrianB (California)
Posts: 2,820

Posted:

sued by whom?

the owners? Sure, but do they realize, if they win a lawsuit, that the money to pay for it comes from: ta-da! a special assessment against all the owners!

RobertV2 (California)
Posts: 4

Posted:

So we're off the hook then? :-)

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By RobertV2 on 04/02/2008 5:33 PM
So we're off the hook then? :-)

Who knows? I mean, for real. Who really knows.

The HOA didn't "mismanage" occupancy, did they?

On the other hand, SOMEONE has to own those units, so SOMEONE should be paying SOMETHING.

It would be in the board's best interest to contact some sort of collection expert and determine how much of whatever budget you have left you can use to get some revenue in the coffers.

Best of luck to you. That's gotta be tough.

RobertV2 (California)
Posts: 4

Posted:

The developer has not paid hoa fees for the unsold condos, should they?

BrianB (California)
Posts: 2,820

Posted:

not by my simple math calculations.

let's say there are three of us in a group. I sue the group, and get awarded 6 million dollars from the group. So, the group goes and says "Okay, we lost, each of us must fork over 2 million dollars to pay this fine." we all do, so I am out 2 million, you are out 2 million, and terry is out 2 million.

then i cash the 6 million dollar check, and suddenly, I am ahead 4 million.

So, is it stupid to sue the HOA you belong to? Potentially, yes. Can it be done? Absolutely. Is it wise? Profitable? Maybe...

regardless, everyone will lose in this situation, just some folks will lose more than others.

GlenL (Ohio)
Posts: 5,491

Posted:

IMO no you're not off the hook. The BOD allowed the problem to get to this point by seemingly ignoring it until it became a crisis. The D&O insurance may cover you on this if the H/O's sue or not depending on whether or not the board deliberately failed to act in order to keep their own assessments low. Do you have reserves you can borrow from?

Studies show that 5 out of 4 people have problems with fractions

MaryA1 (Arizona)
Posts: 7,043

Posted:

In answer to Roberts question: "04/03/2008 1:38 AM Quote Reply
The developer has not paid hoa fees for the unsold condos, should they? "

Look for the answer in your gov. docs. Developers are notorious for exempting themselves from all the rules!

It appears a raise in assessments is long overdue, which may be much easier than getting the membership to vote in a special assessments. Again, you will need to thoroughly check your gov. docs and state law, if any. Some docs only allow one assessment to be set per year. If raising the assessments cannot be undertaken at this time, then a letter to all the residents thoroughly explaining the situation is imperative. You must impress upon them how critical it is to get some $$$ in the treasury to meet your monthly expenses. I just wonder how the assn got to this point. Sure smacks of mismanagement to me! Sorry, but this just does not happen overnight.

DJ1 (Ontario)
Posts: 798

Posted:

BrianB, don't forget I understand in some cases the judge orders that the plaintiff doesn't have to pay the costs so he gets 6 million and doesn't have to pay the 2 million.

VERY profitable and your argument is one that I have made when one poster in particular kept harping on about using the HOA is suing yourself without mentioning the person suing at worst will only pay their prorated portion of any settlement!

RobertG (Arizona)
Posts: 505

Posted:

Quote:

Posted By DJ1 on 04/03/2008 6:33 AM
BrianB, don't forget I understand in some cases the judge orders that the plaintiff doesn't have to pay the costs so he gets 6 million and doesn't have to pay the 2 million.

But you forgot the payment to lawyer who might have taken on this case as a contingency fee based and charged only 10-30% of the 6 million. Who is winning now?

DJ1 (Ontario)
Posts: 798

Posted:

Quote:

Posted By RobertG on 04/03/2008 8:33 AM

But you forgot the payment to lawyer who might have taken on this case as a contingency fee based and charged only 10-30% of the 6 million. Who is winning now?

6 million less 30% still leaves 4.2million and even if he has to pay 2 million he's still ahead 2.2 million, 4.2 if he doesn't. But it isn't unusual to also claim to recover some attorney fees.

He's still winning hehehe.

GlenL (Ohio)
Posts: 5,491

Posted:

DJ & RobertG you're getting a little off post here don't you think. The OP has a serious problem and legitimate concerns.

Studies show that 5 out of 4 people have problems with fractions

RobertR1 (South Carolina)
Posts: 5,164

Posted:

I agree Glen,
I would also imagine there is a line of venders, etc having outstanding bills against the association not to mention insurance, management fees, utilities, to name just a few and when they sue they attach property.

If this is all a real situation, I would think the owners would be looking for a way to isolate the property from the law suits. That is what the judge can charge the Board with; failure to protect the Real Property. You need a lawyer to stop all this stuff and get you some breathing room. As a Board member, if you can't convince the Board to do this, I would make sure your concerns are noted on the association records and go hire a personal lawyer to protect yourselve. You are looking down a deep hole, and it will get deeper if any criminal or illegal intent is ccharged.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Robert, you have not mentioned that your Board called an Emergency Meeting to discuss this crisis, or anything about your Board. Do you have a Treasurer? Were there warnings from her/him that there was no money to pay accounts payable.

What steps has the Board been taking to rectify this situation?

Does this Board know that this is its MAIN responsibility??!!

DonN (Michigan)
Posts: 357

Posted:

I am interested in anyone's experience in which an HOA went into, or was forced into, bankruptcy. My expectation is that a bankruptcy court would order an assessment of current owners to pay the bills. The court also might order a receiver, to be paid by the owners, to get the HOA's affairs back in order.

Don Nordeen
Governance of Property Owners Associations

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Don,
I also suspect the Judge might order a receiver appointed to get an audit done and collect documents, then have them come back to the court for his ruling on bankruptcy.

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