Can an HOA be dissolved? There may come a time when the members of an HOA community would want to terminate the association. To push through with such an action, members must know the requirements and procedures. They must also know what to do with the community and its assets in the aftermath. Otherwise, dissolution may not be completed.
In this article:
Can an HOA be Dissolved?
Homeowners associations are very popular in the United States. They usually come with planned developments and condo communities. However, homeowners can also choose to establish an HOA after the fact.
Despite the popularity and benefits of HOA neighborhoods, there may come a time when members want to dissolve the association. This can happen for various reasons, but dissolution usually takes place due to legal or financial reasons. For instance, the HOA may not be doing a good job of maintaining common areas or enforcing the rules. Homeowners can also stop paying their dues, leading to a lack of funding.
But is dissolution even possible? Can you dissolve an HOA?
The short answer is yes. It is worth noting that laws can vary from state to state, so the process is not always the same for all associations. An HOA’s governing documents can also play a part in determining dissolution requirements and procedures. That said, there are some general guidelines that HOAs can follow.
How to Dissolve an HOA
Dissolving a homeowners association is no easy feat. A handful of steps and actions are involved, not to mention the need for most members’ consent. Still, if the members of an HOA have decided to terminate the association, it is important to adhere to the proper process.
Can an HOA be dissolved? Here are the steps to dissolve an HOA.
Step 1: Check State Laws
As previously mentioned, the legal process for dissolving an HOA will depend on state laws and the association’s governing documents. As such, it is important to check the legal requirements outlined in both these areas before pursuing dissolution.
Several states have adopted the Uniform Common Interest Ownership Act (UCIOA), which consists of similar procedures and requirements for dissolution. Such states include Colorado, Minnesota, Vermont, and Washington State. Under the UCIOA, members will find the provisions governing the termination of an HOA.
Similarly, the Uniform Planned Community Act also contains the procedures and requirements for dissolution. Like the UCIOA, the UPCA has also been enacted by several states. Additionally, state corporation laws may also govern the termination of associations. If an HOA is structured as a nonprofit association, then the state’s Nonprofit Corporation Act will likely apply.
Due to the complex nature of dissolution, HOA boards should seek professional assistance. An HOA management company or attorney can help with the process.
Step 2: Follow Proper Procedure
The procedural requirements for dissolution can vary from one state to another and even one HOA to another. HOA boards should always check state laws and their governing documents for guidance.
When an HOA fails to follow proper procedure, it may invalidate the association’s dissolution. As such, it is essential for board members to adhere to the notice requirements and voting procedures. For some communities, certain reasons may even authorize a dissolution.
Typically, an HOA board must send adequate notice to members of the vote for dissolution. The members will then vote using the method/s that state laws and the bylaws allow. If the vote passes, then the HOA will dissolve. However, there are further legal requirements that the HOA must complete before the dissolution can be finalized.
Step 3: Finalize
If the vote passes to dissolve the HOA, the HOA must then file the “Articles of Dissolution” with the Secretary of State, formalizing the dissolution of the association.
Additionally, the HOA must settle any unpaid debts it has with other parties. After that, it must dispose of its available assets. The process for this will depend on state laws, but most of the time, an HOA will sell its available assets.
However, mortgages and any rights of third parties can complicate the situation. If the HOA has existing contracts or mortgages, it is best to seek help from a professional to settle these issues. If the HOA fails to resolve these, the obligations on the property will continue to persist.
Understanding the 80 Percent Rule
Although state laws can change things, the standard 80 percent rule generally applies in many jurisdictions. This rule states that 80 percent of the community’s members must vote to dissolve the association. Of course, the HOA’s governing documents may state a different majority rule. Conversely, the association’s governing documents may also indicate a lower percentage. A simple majority or even a 60 percent vote can dissolve the HOA in some communities.
What Happens When an HOA is Dissolved?
Once the HOA finalizes the paperwork for dissolution and settles the association’s lingering affairs, it is time to deal with the aftermath. The HOA may need to settle some real estate title problems.
For instance, if an HOA has common areas, it must convey those assets to another legal entity or distribute them to homeowners. Sometimes, an HOA will look for an investor to assume the maintenance responsibilities. Other times, an HOA will find a third party to buy the real estate or parts of it.
More often than not, an HOA will also need to verify the dissolution by filing the document with the real estate records or local county recorder’s office. Doing this essentially nullifies the effects and obligations tied to the CC&Rs, meaning that homeowners will no longer be subject to those documents.
Individual homeowners’ deeds may include a reference to the association. If the HOA dissolves, the deeds may need to undergo redrafting. Subsequently, homeowners must rerecord the deeds. This will take a lot of work, including coordination with mortgage lenders. Many homeowners may not want to go through the expense and effort, which could push them to vote against the dissolution.
Can an HOA be Dissolved? Answered!
Dissolution is a serious step, so homeowners should not take it lightly. They stand to lose a lot—curb appeal, convenience, and property values. Given the role HOAs play, a dissolution could have several unintended consequences. Plus, it involves a significant amount of work and can be costly. As such, it should only serve as a last resort.
Elite Management Services offers HOA management services to homeowners associations and condominiums. Call us today at (855) 238-8488 or contact us online to learn more about us!
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