Indiana developer dissolves nine-home HOA

By Deborah Goonan, Independent American Communities

Property does not have rights People do


People tend to think of homeowners associations as neighborhoods with dozens or hundreds of homes, or large planned communities with thousands of homes.

But did you know that many thousands of homeowners and condo associations have fewer than 20 units or homes?

For instance, I once lived across the street from a townhouse HOA with only 18 residences. In cities such as Boston, Washington DC, and Chicago, it’s common to see old Brownstones or Victorian homes divided into two or three condos that make up the entire association! And today’s featured news report is all about a recently dissolved HOA in Indiana with only nine lots.

Owners concerned about land sale with covenants gone

By Ben Kibbey –
12/27/16 2:33 PM
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Owners of three properties in a neighborhood off Town Hill Road were surprised in late November to learn that their homeowner’s association had been dissolved.

Phyllis Beck, who owned six of the nine lots in the Southridge Trail subdivision which borders Brown County State Park, notified the homeowners by mail that she had dissolved the association as a condition for selling those lots.

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There are several interesting points about this example of a very small HOA in Brown County, Indiana.

Developer has retained control for roughly 20 years

Though construction of Southridge Trail reportedly began in the 1990s, the original landowner, Phyllis Beck, has never relinquished control of the Association to owners, because, to this day, most of the lots remain vacant. Only three of the nine lots were ever sold. Beck and her husband owned the unsold lots, and when he died several years ago, she became the sole owner of six lots.

According to the report, the recent buyer of those lots would only purchase on the condition that the HOA was dissolved. You see, there are plenty of buyers who have no interest in dealing with an HOA.


The private road is now in limbo

With only nine lots, Southridge Trail subdivision has a private, unpaved, gravel road. Beck says she has been paying to maintain it for nearly twenty years, but now the owners of those nine lots will have to start paying to maintain their own road, without any HOA in place and, presumably, very little HOA assessment money returned to three owners who have been paying up until the recent sale. The local municipality or county will not be interested in taking over maintenance of an unpaved road, so the lot owners may have an immediate significant expense if they ever expect to build new homes and live in Southridge Trail with a paved road. Or they may have to agree among themselves to keep maintaining a private gravel road.


It’s all about voting interests

Of course, it was very simple for Beck to sell the lots and dissolve the HOA without any notice or consent from owners of three homes! Here’s a real life example of the fundamental flaw of allocating voting interests or “rights” to the property owned, not the people who own property or reside on the property. As the article says, Beck had six votes, and the other owners had only three votes – one vote apiece.

And since Beck no longer wants to develop the land or pay to take care of the road, she has literally sold out her small “community.” Who can blame her?


Will the new lot owners buy out the remaining three lot owners?

And, who knows? The new owners of those six lots might just decide to buy out the remaining three lot owners. I wonder what they’ll be willing to pay? Do you think the remaining three lot owners will get offers that will exceed their purchase prices? I wouldn’t count on it.


HOAs, Deed restrictions (CC&Rs), and property values: How are they related?

One other point involves the concerns of current lot owners that the dissolution of the HOA has now wiped out any and all protection for their property values.

Apparently, the lot owners don’t understand the truth. The existence of an HOA never protected their property values. On the contrary, it apparently made two-thirds of their association’s lots less desirable to buyers. And, ultimately, the HOA transformed their properties into disposable commodities that could easily be devalued or sold on the open market at a moment’s notice.

Brown County, IN, does have zoning laws and a planning commission that will ultimately decide the future use of the land recently purchased from Phyllis Beck. Unless they, too, plan to sell, the minority group of three lot owners needs to begin to discuss this matter with their local zoning and planning officials. Otherwise, if the land is rezoned, they may end up with a lumber mill in their future back yards.

That said, it’s possible that the deed restrictions placed upon each individual lot still remain in place, even if there is no longer an HOA to enforce them or to collect assessments for road maintenance. Deed restrictions don’t always expire or disappear just because the HOA dissolves. The report does not mention whether the owners actually voted to amend the Covenants, Conditions, & Restrictions (CC&Rs).

Were the CC&Rs officially amended or revoked without notice or a formal vote, too? The title of the article seems to indicate that’s what has occurred. But the reader needs to recognize that the HOA was merely the governance entity of Southridge Trail, and that covenants can and do sometimes exist in the absence of a homeowners association.

That’s where a good real estate attorney might be of help to the remaining three lot owners. As long as deed restrictions remain active, homeowners can still protect and defend their property rights through civil court system. They might also be able to legally object to the complete lack of notice involved in dissolution of the HOA and/or amendment or revocation of the covenants.

Of course, that legal battle would come at considerable cost, perhaps exceeding the value of their properties.

Ultimately, it seems three lot owners have been duped by the myth that HOAs protect property values.






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