The dissolution (or dissolving or termination) of a homeowners' association (HOA) can happen for a variety of reasons. Maybe the individual unit or home owners in the HOA aren't happy with the way the HOA is spending, or not spending, the fees and assessments the members pay. Or, maybe the HOA isn't enforcing, or is over-enforcing, the covenants, conditions, and restrictions (CC& Rs) that are supposed to ensure a certain standard of quality for the community.

Regardless of the reason, there typically are rules or some procedure that must be followed to dissolve your HOA, which usually are found in:

• The HOA's governing documents, like its bylaws
• The laws of the state where the HOA is located

If you're a member of a HOA, it's a good idea for you to understand how your HOA can be dissolved.

HOA Documents

The first place to look when trying to figure out how to dissolve your HOA are the HOA's governing documents, which define the HOA's powers and duties. These documents go by various names, but typically you'll hear terms like "bylaws," "articles of incorporation," or sometimes CC&Rs. In most cases, these documents will contain some type of description of how the HOA can be dissolved and what happens after the dissolution.

Unfortunately, the governing documents aren't always helpful. Other than stating how many members' votes it takes to approve dissolution, the documents typically don't explain exactly how the HOA can be dissolved. For example, you might see language like:

"The HOA may be dissolved at any time with the written consent of not less than two-thirds of its members. After all obligations have been fully discharged, its property and assets shall be contributed to a charitable organization to be selected by the HOA's Board of Directors at the time of dissolution."

If your HOA's governing documents contain language like this, not only will you have no guidance on how to dissolve the HOA, but the HOA's common property will go to a charity, which is probably a result that you and the other members want to avoid. In such a case, it's a good idea to get some advice from an experienced real estate lawyer.

State Laws

Some states follow the Uniform Common Interest Ownership Act (UCIOA) or the Uniform Planned Community Act (UPCA), both of which have similar rules about how to dissolve HOAs and other "common interest communities" (CICs). In particular, the UCIOA provides, among things, that:

• As a general rule, 80% of the HOA members must vote in favor of dissolution. However, your HOA's governing documents can call for a larger percentage of the votes. In addition, if the community or project is non-residential project, the HOA documents can call for a percentage lower than 80%
• There must be a termination agreement that that is signed by the members who approve the dissolution, and the agreement must be recorded in the local land office, such as the county recorder's officeIf the community or project has units that have horizontal boundaries only, like a high-rise building, the unit owners may be required to sell their units upon dissolution, even if they object to the dissolution or sale. However, if the project contains any units which do not have horizontal boundaries, like single-family homes, then the termination agreement can't force dissenting unit owners to sell their units unless the HOA's governing documents specifically state otherwise
• The HOA can enter into a contract for the sale of HOA property, but the contract can't be enforced unless it's approved by 80% of the HOA members, or any larger percentage that's specified in the governing documents
• If the HOAs common property is not going to be sold, the common property goes to the individual HOA members, unless the community or project consists of high-rise buildings (buildings with horizontal boundaries)

Other States

Except for those states that follow the UCIOA or UPC, many states don't have laws that deal with the dissolution of HOAs. In such states, you need to look at the laws that apply to the business form that the HOA took. For example, if the HOA is a nonprofit corporation, as most HOAs are, the laws that govern nonprofit corporations will control how the HOA can be dissolved.

Typically, the filing of a certificate of dissolution is the first step in dissolving a nonprofit corporation. The certificate is filed with the state agency in charge of overseeing corporate and business entities, such as the secretary of state. Then, the HOA's business affairs need to be "wound up" or closed. Again, state law will specify the winding up procedure, but it usually involves the payment of all HOA debts and the liquidation or sale of its assets. When the HOAs affairs have been wound up, the dissolution is complete.

Also, if your HOA is a corporation, it can be dissolved by the state, regardless of whether it's nonprofit and whether you want a dissolution. Almost every state has laws that require corporations to file various papers with, and pay fees to, the state. So, if your corporate HOA doesn't follow those rules, the state can dissolve it.

There are a number of business forms HOAs can take, and so the dissolution of any HOA likely will require you to examine the business laws in your area to determine how exactly the dissolution can accomplished.

Questions for the attorneys at Halpern Rodriguez, LLP

• Is there any reason why we shouldn't dissolve our HOA?
• Our HOA's bylaws state that it will take a unanimous vote of all HOA members for dissolution. If we can't get unanimous consent, can the bylaws be changed?
• If our HOA is dissolved, what happens to the surplus money that HOA collected through fees and assessments?
• The HOA board of directors wants to dissolve the HOA so that it can sell the property. I'm part of the small minority that's preventing the board from getting the necessary votes for dissolution. Can we stop the board from intentionally causing the state to involuntarily dissolving the HOA?

 

Source: Lawyers.com^sm