What if a a home owners association goes bankrupt?

Answer 1

An association's inability to pay its bills means that the common areas are not maintained, master insurance premiums are not paid, and utilities paid by assessments can be turned off.

Best practices dictate that the association seek the advice of association counsel so that assessments can be levied to give the association the monies it needs to operate the community.

Answer 2

Your state law and governing documents require certain performances by the association's board, which probably includes master insurance policy coverage, basic utilities, reserve study contributions and so forth.

If the association has no funds, a special assessment is in order, so that these basic, required bills can be paid.

Read your governing documents to confirm owners' responsibilities to pay assessments, boards responsibilities to operate the business of the association, and the details involved in levying a special assessment to fund the business of the association.

Answer 3

When a condominium association becomes insolvent -- the association cannot pay its bills -- the association can file for bankruptcy.

The court-appointed receiver, then, works with the bankruptcy court to move the association through its process.

Owners may be assessed special assessments in order to pay bills incurred for the maintenance, preservation and security of the association's assets and the community.

Answer 4

The answer depends on how much you owe, how much the unit can be sold for, and where the lender's claim on the property falls in the priority status for distributing the funds from the sale.

Some associations file a lien on the title in advance of foreclosing, and this lien may be a priority lien, meaning it is paid first.

If the mortgage is not satisfied by funds from the sale, you still owe the balance to the lender.

Answer 5

Bankruptcy of the Developer:

If the developer files for bankruptcy there is a domino effect on unit owners, mortgagees, contractors and units under contract. Unit owners face difficulty and loss of value because a foreclosing lender (if allowed to foreclose) will make only limited maintenance efforts. Common areas can become degraded. If the condominium project remains unfinished with outstanding debts, the usual scenario when a developer goes under, it is also likely that a viable condominium association was not established and the business of the condominium is not being monitored (condo fees, utility bills, insurance, maintenance, etc.). That type of situation leaves the unit owner in a position of owning a property with a decreasing value and without the customary benefits of condo ownership.

In a project that was still under construction, the early unit owners can face unfinished building foundations as neighbors and promised amenities never materialize. Their units can't be sold because lenders will no longer take the risk to loan money to buy existing units. Many condominium projects "go under" and unit owners are left with an unsellable unit in an unfinished condominium. Sometimes another developer will purchase the developer's interest and complete the project.