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Subject: HOA Bankruptcy?
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Author Messages
MarkB14
(New Hampshire)

Posts:6


10/14/2011 4:42 AM  
I recently heard that certain actions (owners option?)were taken in recently passed years that prevented the HOA I live in from going into bankruptcy. When I heard this my mind went immediately to the question. "What happens to a HOA if it goes bankrupt; what are all the known repercussions from such a legal claim?"
TimB4
(Virginia)

Posts:9436


10/14/2011 4:55 AM  
Mark,

Having never gone through it, I can't say for sure.

There have been discussions on here about the developer going bankrupt and the interest is sold to another developer. However, I've never seen any discussion about what happens if the Association itself goes bankrupt.

I expect that one option would be for the Court to mandate a special assessment on the membership to pay some if not all of the bills.

MelissaP1
(Alabama)

Posts:4900


10/14/2011 5:14 AM  
I believe the HOA can go into "Conservationship". Which means the court would probably assign a manager for the HOA. It would depend on how the HOA is setup and the how it shares it's common property. Some HOA's share no common property and can just disband according to their documents. However, our HOA documents say if we choose to disband, we would have to be turned over to a property management company. Which means we lose ALL our voting rights and pay whatever amount the PM wants/needs to charge. We'd have no control on our community anymore.

A HOA is ONLY funded by it's members FOR it's members. That means the HOA can raise it's dues or have a special assessment to avoid bankruptsy if necessary. Fines aren't really fund raisers. Remember a HOA is ALL the owners and bankruptsy wouldn't effect you personally, but it would effect much of the value of your homes..

Former HOA President
SteveM9
(Massachusetts)

Posts:2924


10/14/2011 6:46 AM  
Typically, an association doesn't go bankrupt, the owners do.

What are we talking about? An association that has huge loans and cant meet the payments and is thinking of bankruptcy OR an association that no one wants to deal with?
MarkB14
(New Hampshire)

Posts:6


10/14/2011 7:29 AM  
I am not a lawyer and I am new to "associations"

A few years ago (before I bough in here) we switched from a condo association to a homeowners association. This switch brought a transfer of responsibility. This switch also brought a new management company at about the same time. It has been suggested that the previous management company has not completed nor ever did even attempt to complete a large number of pre-switch work orders. This caused the new HOA to require that we the homeowners upgrade our now "homes" to meet association standards as if they did not the association would have gone bankrupt in paying for the repairs out of association funds. Now many of the homeowners are faced with HUGE repair bills for what amounts to neglectful repair/maintenance practices by the previous management company.

PetunkaM
(Florida)

Posts:958


10/14/2011 8:06 AM  
Mark,

Well, well. Something does not compute here at all. You just do not ‘switch’ from a condominium to HOA. These are totally different types of ‘legal ownership’ as recorded on your Warrantee Deed. Such a ‘switch’ would be legally quite complicated and involve at the very least new property survey, rewriting all deeds changing all Association documents and possibly even starting new corporation. I am not even sure it can be done. Are you talking townhouses? It may be in your best interest to find out what happened, exactly.
SteveM9
(Massachusetts)

Posts:2924


10/14/2011 8:22 AM  
Is this condo --> HOA switch through the state of NH?
Who is requiring this pre-switch work? town? state? I've never heard of this.
Is this a condo, town house, or single family homes?


Now many of the homeowners are faced with HUGE repair bills for what amounts to neglectful repair/maintenance practices by the previous management company.


The management company works for the association. If there was neglect, it was the association officers/board of directors fault, not the management company.
PetunkaM
(Florida)

Posts:958


10/14/2011 8:52 AM  
‘Now many of the homeowners are faced with HUGE repair bills for what amounts to neglectful repair/maintenance practices by the previous management company.’

Mark,
If the ‘old’ Management Company did not comply with the contract and/ or did something funny and it can be proved you may have a case. Also, please check your ‘Employee Dishonesty Insurance’ to see if it covers a management company.. it should. It may not be a bad idea to check your insurance policies anyway to determine if you are insured as a condominium or HOA.
BradP
(Kansas)

Posts:2640


10/14/2011 8:52 AM  
Back on topic, i would be curious to know how, if and what chapter your HOA could file under? Technically being a corporation could they file Chapter 11? Interesting question
TonyA2
(Maryland)

Posts:7


10/14/2011 11:01 AM  
Being a bankruptcy attorney in MD, I see nothing that would preclude an incorporated HOA from filing a bankruptcy under Federal law, be it a 7 or 11. Of course different ownership interests, assets, liabilities, revenues etc... would impact each case filing differently and be case specific, an incorporated HOA would have the right to reorganize in 11, or liquidate in 7, although would not have the right as an individual for a discharge of debt.

Interestingly, however, if the HOA was record owner of say common land, and say several acres, could a 7 Trustee force the sale of common land in apparent contravention of whatever local ordinances or deed covenants exists? I would say not, but that's not 100 % without the review of the relevant documents. I would think if the HOA could not dispose of common land then, neither could a trustee, since a trustee in bankruptcy steps into the shoes of the corporate debtor. But there still could be other assets involved that could be liquidated for the benefit of the HOA's creditors. Since no discharge could be entered, a 7 would simply be used to tidly satisfy creditors from existing HOA assets and put an end to creditor inquiry and the constant haranguing of the HOA's officers.

11 could be used to strike deals with the HOA's creditors and reorganize a debt laden HOA.

Any bankruptcy action would have to be approved by a resolution of the Board of Directors of course.

Regardless, rules may differ from state to state. You should always seek local counsel's advice of whether or not Bankruptcy is right for an HOA. You should not interpret this post to mean anything other than a general comment on the eligibility of an incorporated HOA in filing for bankruptcy.



Tony Aquia
410-234-0100
aaquia@bwhlaw.com
Maryland




BrianB
(California)

Posts:2803


10/14/2011 1:17 PM  
Not a lawyer, but I would think:

An HOA is a corporation. If it declares bankruptcy, it would be dealt with the same way any other company would be: a listing of assets, a division of said assets among creditors, etc..
FredB4
(Ohio)

Posts:360


10/14/2011 1:43 PM  
I am not an attorney but my understanding is that a COA/ HOA can't go "bankrupt" because owners, by law, are responsible for the financiang of the association regardless of the cost. With owners owning seperate units and the common areas owned as a whole, how do you seperate the two ? All owners wouldn't qualify for bankruptcy.
Bad management is no excuse because the board is there to supervise the management company, approve budgets and to protect the finiancial interets of the association.If a previous board didn't do their job and the owners didn't pay attention to what was going on then you have learned a very valuable and difficult lesson about owning in a HOA.
I agree with Melissa that an option might be to place the association under conservatorship. That would be a last resort and should be considered only if the association simply can't get the finances in shape. Placing the asssociation in conservatorship would put a third party in control.
I think consulting a lawyer knowledgable in HOA/ COA law would be a good idea.
PetunkaM
(Florida)

Posts:958


10/14/2011 2:31 PM  
Tony,

Your explanation is clear as a bell but it seems to me that Mark only implied there is not enough money in the reserves to pay for repairs. I think the question what "What happens to a HOA if it goes bankrupt?’ was more or less rhetorical. If the HOA owns money to someone that of course is a different story but so far it does not seem to be the case. It is unclear what the issue really is.
MarkB14
(New Hampshire)

Posts:6


10/15/2011 3:53 PM  
We are a home owners association, we were a condominium association. We did switch. New covenants were registered with the state on January 2nd 2009. We are detached condominiums that are now called "homes." That is exactly what happened.
PetunkaM
(Florida)

Posts:958


10/15/2011 3:59 PM  
We are detached condominiums that are now called "homes."

Mark,

Nope, am not buying thany of that. Plus it does not compute. It is quite possible you switched the maintenance responsibilities but not 'legal ownership'.

MarkB14
(New Hampshire)

Posts:6


10/15/2011 4:01 PM  
Pre-switch, "Condo" owners submitted work orders to the old management company. These work orders were not completed before the switch over to a HOA. Now, "home owners" are owners of the homes from the exterior of the wood to the remainder of the home. When these were "condos" the owners were only owners from the interior paint and in. The old management company is gone and the new one is here. The association does not have enough money to repair all of these homes. The owners feel they are entitled to have the work work done that orders were submitted for before the switch. No money? Bankruptcy.
MarkB14
(New Hampshire)

Posts:6


10/15/2011 4:02 PM  
You are a lot of help. Thank you.
Believe it or not there are things in this world that, despite you not understanding them, exist anyway.
PetunkaM
(Florida)

Posts:958


10/15/2011 4:22 PM  
Not enough of money in the reserve funds does not mean ‘bankruptcy’. Also, NO management company, even with the owner’s consent, can change the legal ownership of the units. ou may be misinformed. The only way we can be of help, if at all, is to compare the original covenants with amendments. What do you mean by ‘these work orders were not completed?’ What in the world is 'work order'?

FredB4
(Ohio)

Posts:360


10/15/2011 4:23 PM  
The association has as much money as it needs either through regular fees or special assesments shared equally by all owners. Owners are the association. Maybe if all owners declared personal bankruptcy but the association is not independent of the owners.
MarkB14
(New Hampshire)

Posts:6


10/15/2011 4:26 PM  
PetunkaM if you do not know what I am talking about, how do you feel you can help me? I mean no disrespect and this is not trying to be snarky but what I have said here is what has and is happening with my HOA so if something so trivial as a "work order" needs an explanation for you I feel my problem might be out of your range. Thank you for your concern.
PetunkaM
(Florida)

Posts:958


10/15/2011 5:02 PM  
Posted By MarkB14 on 10/15/2011 4:26 PM
PetunkaM if you do not know what I am talking about, how do you feel you can help me? I mean no disrespect and this is not trying to be snarky but what I have said here is what has and is happening with my HOA so if something so trivial as a "work order" needs an explanation for you I feel my problem might be out of your range. Thank you for your concern.




Mark,

Am sorry but actually I have no clue what something as ‘trivial as work order’ means. I have never heard of it. Perhaps others will beof help to. Sorry again.

JeffR7
(California)

Posts:251


10/15/2011 5:16 PM  
Mark, it seems like there are several issues we are trying to deal with here. I don't understand how you could switch from Condo to SFH or any other form without actually rewriting all the deeds of trusts. What happened to common elements that were previously owned by all owners? Who owns them now?

But as far as bankruptcy goes - why would you consider doing it? You normally file a bankruptcy to protect yourself and possible some assets from creditors. What are you trying to protect your HOA from? Lets say someone want's to collect money from the HOA? if you don't have money - you don't pay. They may chose to go to court but it will do them no good as HOA doesn't have any assets that can be taken. If there are no money it doesn't matter what judgment one might have - there is still no money to collect.

EllieD
(Vermont)

Posts:373


10/15/2011 7:39 PM  
MarkB14,

Just interested and not answering your question. I was able to find the New Hampshire State "Condominium Act". But I was not able to find the New Hampshire “Act or Statute” that applies to a Home Owners Association.

Since you wrote that “New Covenants were registered with the State” – would you be willing to post the law or statute that you are now organized under, that makes you a Home Owners Association.

I assume that in order to “change” from a Condominium Association there had to be 100% agreement of all Owners. Assuming that to be true – but maybe not – how, why, would anyone vote to do that until or unless all exterior wood repairs on all homes were completed while still a Condominium Association.

Do you know what prompted the Owners to want to “change” from Condominium to HOA?
MelissaP1
(Alabama)

Posts:4900


10/15/2011 8:21 PM  
A HOA is funded by it's owner's FOR it's owners. If it doesn't have enough money, then it cuts out expenses, raises dues, or has a special assessment. You want to pay for a project then ALL pay for the project. No need to file bankruptsy unless you are being pursued by a debt. Don't create debt won't be a debt. Create a debt (work order) raise the money to pay for it.

A HOA works much like a poker "kitty". All put in, but the whiner takes all...

Former HOA President
SteveM9
(Massachusetts)

Posts:2924


10/16/2011 6:24 PM  
I get it. You have single family homes and it was a "condo" and was switched to a "hoa"

So this pre-switch work...... was this supposed to come out of the bank accounts? Or were homeowners going to have to come up with the cost of doing the work, whatever it may be?
BrianB
(California)

Posts:2803


10/16/2011 9:32 PM  
Petuna,

typically, a work order is an authorization (form) used by a company to direct a certain work activity. Many companies run on work orders... without one, not even a light bulb gets changed. In the basic form, it is a written request, signed by someone with authority to do so, to commit funds/personnel/equipment to do an activity.

PetunkaM
(Florida)

Posts:958


10/17/2011 6:53 AM  
Posted By BrianB on 10/16/2011 9:32 PM
Petuna,

typically, a work order is an authorization (form) used by a company to direct a certain work activity. Many companies run on work orders... without one, not even a light bulb gets changed. In the basic form, it is a written request, signed by someone with authority to do so, to commit funds/personnel/equipment to do an activity.





Thank you, Brian. Yes, I can imagine some car service company using work orders for the mechanics to know what to do. But, does it mean the BOD must issue ‘work order’ to a management company every time some work/service to be done? Do you do that? I was doodling over the following statement thinking what pre-switch work orders mean?

‘It has been suggested that the previous management company has not completed nor ever did even attempt to complete a large number of pre-switch work orders. This caused the new HOA to require that we the homeowners upgrade our now "homes" to meet association standards as if they did not the association would have gone bankrupt in paying for the repairs out of association funds. Now many of the homeowners are faced with HUGE repair bills for what amounts to neglectful repair/maintenance practices by the previous management company.’

Is the ex-management company in a violation? Or, they could not complete the work because there were no funds? Anyway, it does not matter.
BradP
(Kansas)

Posts:2640


10/17/2011 7:04 AM  
Petunka:

work orders are more prevalent that what you might imagine. Especially in companies/situations where budgets are thin it is a way of prioritizing what is truly important and needs to be done as opposed to what can wait or doesn't need to be done. We use them, basically any employee with an issue contacts my department, upon investigation if we feel it needs to be done and we can't do it we issue a work order to a third party. We are the only ones authorized to issue orders and the third party knows if it doesn't come from us and they do the work then they work for free.
PetunkaM
(Florida)

Posts:958


10/17/2011 7:24 AM  
Brad,
Now I know. But please would you tell if work order must be issued by the BOD to a Management Company before any work can begin?
BradP
(Kansas)

Posts:2640


10/17/2011 7:51 AM  
Posted By PetunkaM on 10/17/2011 7:24 AM
Brad,
Now I know. But please would you tell if work order must be issued by the BOD to a Management Company before any work can begin?




Depends on how your contract is written and the size of your association and all the ins and outs of it. It is another layer that could be viewed as unnecessary but also could be viewed as practical.
EllieD
(Vermont)

Posts:373


10/17/2011 8:50 AM  
MarkB14,

It is possible that the answers you are looking for could be in the “termination agreement” when the Condominium form of ownership was terminated or dissolved.

You said that was before you purchased. Have you seen, or do you know of, any sort of Condominium termination document?
FredB4
(Ohio)

Posts:360


10/17/2011 1:58 PM  
For us the BOD tells the MC what they want done and the PM issues a work order to their maintenance staff with specifics and they come and perform the work according to the work order, or if it is a large job we get bids and work orders are not involved.
FredB4
(Ohio)

Posts:360


10/18/2011 5:53 AM  
I stand corrected.A HOA can file for bankruptcy. Please see the following link.
http://real-estate.lawyers.com/homeowners-association-law/When-HOAs-are-Bankrupt-or-in-Foreclosure.html
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