Dissolving an HOA – is it possible?

 

By Deborah Goonan, Independent American Communities

What happens when a homeowners’ association no longer serves its intended purpose? Can it still collect annual assessments?

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Homeowners of Inwood Forest Village, located in Acres Homes subdivision outside of Houston, recently discovered that their homeowners’ association has been “administratively dissolved” as of 2007.

But what does that mean?

Apparently, the HOA allowed its corporate registration to expire. According to homeowners interviewed by KHOU,  the last HOA meeting happened at least a decade ago.

Inwood’s community swimming pool is dry — abandoned and unused for at least 10 years. At one time, the community used to have private security, but no more. And no one enforces the covenants and restrictions or monitors trash pickup anymore.

Incredibly, many Inwood Forest Village homeowners kept paying annual dues, as high as $275 last year. KHOU investigative reporter, Cheryl Mercedes, tried to contact the owner of HOA’s management company, Ronald Cochran of Tejas Capital Management.

But the business no longer exists, and Cochran wouldn’t answer his door or phone calls.

So, where’s the money? Homeowners want to know.

 

Residents discover they’re paying fees to defunct HOA

When KHOU Investigates checked the status of the Inwood Forest Village HOA, we discovered it was involuntarily dissolved in July of 2007.

Author: Cheryl Mercedes
Published: 10:26 PM CDT April 16, 2019
Updated: 12:02 PM CDT April 17, 2019

Residents discover they’re paying fees to defunct HOA

KHOU also consulted an expert, HOA attorney Sarah Gerdes.

Being a member of HOA industry trade group Community Associations Institute (CAI), Gerdes reportedly advised the small group of concerned homeowners to “request copies of financial records, create a new board of directors and then hire a new management team.”

Of course she did.

But that’s a bit like taking your rusty old 1990s car, the one that’s sat idle for months, the one that won’t start, with 170,000 miles on it, to a mechanic instead of the junk yard.

You’ll pay more to fix the old beater than you can get for its scrap value. But, hey, it might run for a few more months before it’s completely dead. And your mechanic makes a few bucks.

At this point, what real purpose would an HOA serve for residents of Inwood Forest Village?

For at least 10 years, the HOA hasn’t maintained the swimming pool — and it’s probably beyond repair. The HOA hasn’t contracted for private security services. It hasn’t been maintaining anything for at least ten years.

No one is enforcing the covenants and restrictions.

And yet, Inwood Forest Village survives.

And since almost no one in the 400-plus home community seems interested in serving on the board, fixing the pool, or examining annual budgets and financial records, maybe there’s a more practical solution.

Why not simply get rid of the HOA — once and for all?

 

Can homeowners get rid of their HOA?

The issue of terminating or dissolving existing HOAs has been discussed at length on various attorney web pages, blogs, and news articles. Just do a Google search on “HOA dissolution.”

I am not an attorney, but, over the past five years, I’ve  reviewed many publicly available attorney summaries, and have participated in several discussion forums on this topic.

So the short answer is yes, it’s theoretically possible to put an end to your HOA. But, don’t get me wrong. The process is not easy, nor is it straightforward.

 

The basics of HOA dissolution

Generally, in order to officially terminate your HOA, all affected lot owners and other interested stakeholders must agree to do so by way of voting.

Start the process by reading your governing documents (Covenants, Conditions, & Restrictions; Bylaws; and Articles of Incorporation, if applicable). These document should give you a general overview of the dissolution process, including the percentage of votes required to eliminate the HOA. While you’re at it, you should also read up on how to amend the CC&Rs, in case you don’t want to completely eliminate them.

Some HOA governing documents will require unanimous consent for dissolution, and others might require a majority or super majority (80% is fairly typical).

If you and neighbors think you’d like to dissolve your HOA, you’ll need legal assistance from an attorney with expertise and experience in real estate, land use, corporate law, and state laws applicable to your community association.

In some cases, governing documents for the Association require the consent of developers, landowners, and/or lien holders. When that’s the case, you can be sure that other stakeholders will be represented by their own legal counsel.

 

 

HOAs and CC&Rs — not the same thing

This is a good time to remind readers that CC&Rs and HOAs do not always coexist. Your CC&Rs is a document — essentially a legal contract among owners. It’s a set of ideas about how homeowners can and should use their private property. It spells out mutual obligations to maintain private property and manage the common property.

An HOA is a “private” method of governing and managing common property. It’s a form of community government, with power vested a small group of people who theoretically serve as fiduciaries. That means that your HOA board is supposed to serve the best interest of all association members, just as your City Council or County Commission is elected to represent all of its residents.

In a mandatory membership HOA, the board’s job is to collect assessments and fees from all lot owners, and then use that money wisely, to provide community services. (Obviously, that’s not happening at Inwood Forest Village.) Many HOA services are essential to maintaining the common areas, as well as keeping the community safe, clean, and functional.

In addition, most HOAs have the power to enforce all kinds of rules that regulate the appearance and usage of common and private property in the community. Think of your HOA as Code Enforcement on steroids, because many HOA rules regulate nothing more than appearance, under the guise of protecting property values.

Did you know that it might be possible to eliminate your HOA, while still maintaining some of your CC&Rs?

Other possibilities: membership in an HOA can become voluntary, which means that you wouldn’t be forced to pay dues or assessments anymore.  Or all residents — including non-owners — could choose to start up a voluntary-membership neighborhood or civic association instead.

By the way, when a neighborhood has CC&Rs, but no HOA, each lot owner still has the right to enforce covenant violations against a neighbor, by filing a legal claim in small claims or civil court. But no more threats from an overbearing, dictatorial HOA.

 

Disposing of the “commons”

Getting rid of your HOA generally entails more than administratively dissolving the corporation. That’s because, dissolving the private legal organization doesn’t dispose of the homeowners’ joint responsibility to pay for maintenance of common areas.

You might think that if you stop paying the HOA and don’t register the corporation, your city or county will have to take over maintenance of your streets, stormwater facilities, and more. But that’s not how it works.

Here’s why.

The vast majority of HOAs in the past 3-4 exist for one reason: to force private homeowners to cover the cost of maintaining their own community services, which the city or county would otherwise have to provide using taxpayer dollars. In fact, for the past 2 – 3 decades, many local governments have routinely mandated an HOA for every new development.

That’s why it’s difficult to find a newer home that is not HOA governed.

Note that a homeowner does not get a property tax discount to offset additional costs paid to an HOA for private services. That’s why more and more homeowners are starting to object to being double taxed for both “private” and public services.

 

 

How hard is it to get rid of HOA property?

The complexity of fully dissolving an HOA depends on how difficult it is to get rid of common property. And that depends on whether another person or entity is willing to take ownership of it.

A community with expansive recreational amenities — swimming pools, parks, sports facilities, fitness centers, club houses, an equestrian center, etc. — will present far greater challenges than a smaller neighborhood with minimal common property.

At first, your local city, town, or county may be unwilling to acquire your common property. This is especially true if the property needs extensive maintenance, repairs or upgrades.

So, if your community has private roads, utilities, or stormwater management facilities that are run down, but your HOA cannot afford to maintain any of it, what can you do?

You’ll have to work with your local government to get the infrastructure in good shape, so that they will agree to take ownership and provide public maintenance. You and your neighbors will probably have to work out a cost-sharing plan to make that happen.

Don’t think it can happen? Think again.

On IAC, I’ve been following the growing trend of HOAs working with their elected city and county representatives, to shift many maintenance and security responsibilities from the Association, back to local government. This is accomplished mainly through establishment of Special Tax Districts.

Usually that involves getting a majority of homeowners in your neighborhood to vote in favor of establishing a Special Tax District, Utility District, or Recreation District — public governing entities that collect property taxes from homeowners to pay for repairs and future public services.

For obvious reasons, the HOA industry won’t tell homeowners that eliminating common property also eliminates an HOA’s essential responsibilities. And, with no common property to maintain and insure, there’s no compelling for a mandatory membership HOA.

 

What if the local government won’t take your common property?

In some cases, portions of HOA common areas can be rezoned and merged with existing private lots, or sold separately to a new buyer, for building a new home.

Sometimes it’s impossible to dispose of all common property, and the HOA must continue to exist, at least for the limited purpose of maintaining a few small parcels of land.

However, even if you cannot get rid of your HOA, you can certainly make it much less oppressive and hostile.

Homeowners can vote to amend their CC&Rs to strip HOA boards of excessive power. For example, you can change the CC&Rs to limit the HOA’s authority to raise assessments, enforce rules and restrictions, levy fines, foreclose on properties, and more. You can also eliminate most, if not all, of the landscape and architectural rules and standards. Or you can take away the HOA’s power to use everyone’s assessment dollars to sue one of your neighbors for breaking a minor rule, such as leaving the trash can on the curb too long on trash day.

Think of the possibilities!  ♦

 

 


Recommended reading: 
[PDF]An Overview of Special Purpose Taxing Districts – National Association of Home Builders (2014)

The Contractual Community – Why Community Associations Are Not “Governments” – berding-weil.com

Bankruptcy Won’t Work – Why There’s No Protection for Members When Community Associations “Go Broke” – berding-weil.com
Suspension of a Homeowner Association’s Corporate Status – It’s Not Just a Technicality – berding-weil.com

The Uncertain Future of Common Interest Developments– www.berding-weil.com