The Truth About Disbanding an HOA?
One of the reasons why ending a HOA is so challenging is because of this. An HOA cannot be dissolved without the consent of many interested parties. If residents want to disband their HOA but one or more interested parties object, the HOA shall continue to exist.
The board must first approve a resolution to dissolve the HOA of directors. (Corporations Code Section 7911(a)(1); Section 8610)
The HOA must provide management, maintenance, preservation, or control of common areas or assets if it is:
- A planned development with five or more lots.
- A community apartment project with five or more apartments.
- A condominium project with five or more condominiums.
- A stock cooperative with five or more shareholders.
- A limited-equity housing cooperative.
In these cases, 100% of the members must be present—8724 of the Corporations Code.
Third, someone must assume responsibility for any common areas that the HOA manages, controls, or maintains, such as streets and landscaped areas. Suppose the development residents are unable or unwilling to take on these duties. In that case, it may be necessary to convince the local authority (such as the city, town, county, etc.) to assume them. The HOA may also be required to get the consent of particular governmental bodies in accordance with the governing papers of the HOA (see Civil Code 4150 for a definition of “governing documents”).
Finally, before the HOA may be disbanded, the governing documents of the HOA or a particular homeowner’s mortgage arrangement may require the consent of the lenders to the individual homeowners.
What happens next, assuming that all approvals are received?
The HOA will need to conclude its business affairs, just like any firm. This means that while it is shutting down, the HOA will still exist for a while. The winding-up procedure entails, among other things, notifying the HOA’s creditors of the dissolution (Corporations Code 8618), paying off all liabilities and debts that are known to exist (Corporations Code 8713, 8714), selling assets (Corporations Code 8710), and distributing any remaining assets to homeowners. There might also be some tax-related issues that come up.
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