Fixing a Troubled HOA: Dissolution, Receivership, or Something Else?
A HOAleader.com reader is in a quandary. Her HOA is beset with delinquencies and warring factions. Some owners argue the answer is receivership or dissolution. In this week's tip, we discuss the pros and cons of dissolution.
"Dissolution is a lot trickier than one might think," says Matthew Zifrony, who advises homeowners and condo associations at Tripp Scott, a Ft. Lauderdale law firm, and who's also served as the president of a 3,000–home association. "What creates the association is the declaration of restrictive covenants. To dissolve, you'd need all the people affected by the decision to agree, unless the covenant—as here—sets out a less–restrictive way to dissolve the association. Even then, a lot of times, the declaration doesn't only talk about what the residents must agree to, but it mentions that all parties that have property rights in general—which means lenders—must also agree."
It will likely be nigh on impossible for our reader's association to get owners' lenders to concede to dissolution. "I'm sorry, that's not going to happen," says Zifrony. "From a practical standpoint, dissolution is a very difficult thing to do—and it should be. When people move into that community, it's often because they want to be part of that association and the lender lends knowing they'll be part of that association. To find that reason is taken from them should be hard to accomplish."
That's not the only problem. "There are all sorts of pitfalls involved in dissolution, not the least of which is what do you do with the common elements?" adds Nathaniel Abbate Jr., a partner at Makower Abbate & Associates PLLC in Farmington Hills, Mich., who represents associations. "There are probably more pitfalls involved in dissolution than in struggling to make this situation work."
Another problem? Dissolution's effect on property values. "Even if they can get the vote, and that's not going to happen in this day and age," says Duane McPherson, president of the western region and Dallas⁄Ft. Worth divisions of RealManage, an association management firm that oversees properties in Arizona, California, Colorado, Florida, Louisiana, Nevada, and Texas, "if they disband the association, property values will tank."
Is receivership a better option? To learn more about our reader's dilemma, whether receivership might be the answer, and other potential solutions, see our new article, Discussion Forum Follow–Up: Is HOA Dissolution or Receivership the Answer?