Wednesday, January 27, 2010

Bankruptcy Won't Work!

Why There’s No Protection for Members When 
Community Associations "Go Broke"

Tyler P. Berding, Esq. and Sandra M. Bonato, Esq.

            You’re at a board of directors meeting of your homeowners association.  Things have been happening around the community--not good things--and you want to find out why.  Why have they closed the pool?  Why is the landscaping looking so bad?  What’s with the rumor that the property manager might be let go.  You know that money has been tight for the association.  You’re aware that assessments haven’t gone up for years, and now word has it that a large number of owners have stopped paying altogether.  At the meeting the president of the association announces further cutbacks--the association’s insurance may have to be dropped.  There have been no deposits to the reserve account for several years and, worse, the account has been drained over time to meet monthly obligations. The board proposes a 5% special assessment and approves it, but it’s not likely to go far with all there is to do and pay.  A report from the manager confirms your worst fears: re-roofing of the project (including for your unit) will have to wait, and even temporary repairs to the leaking portions of the roof may not be done for months.  There’s no money to pay for it.
            A member raises his hand and asks the inevitable question--if the association is too broke to pay its bills, why not simply declare bankruptcy?  Hold the creditors at bay until the economy picks up?  No one on the board has a good answer.  Why?  Because it almost never happens.  Here are the practical and legal reasons why...

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1 comment:

  1. Well I was going to stay and try to tough this out with my HOA but my neighborhood has become so unruly that I now fear for my safety and people who shouldn't be have been going into my backyard while I'm at work. The foreclosure rate in my community continues to rise with no light at the end of the tunnel in sight. I thought maybe rent it but I just don't want to deal with the people and the HOA up there ANY MORE. I agree, they need to structure HOAs, so we have experienced people who know what they are doing running these communities. Our HOA is 100% useless but I continue to pay my $265.00 dues, as well as paying on a $13,300 special assessment and they have done ABSOLUTELY NOTHING to fix my home and they want $10,000 more now. My house was purchased for $207,990 back in $200,000 and is only worth $125,000 and falling fast. Very depressing.