Caution: Can You Own an HOA by Buying All Units?
Homeowners Associations (HOAs) are complex organizations that manage and maintain shared spaces and properties. But can you effectively take control or dissolve an HOA by purchasing every single unit within it? This article explores the intricacies and potential pitfalls of such an endeavor.
Basic Understanding of HOAs
First, it is crucial to understand that an HOA is inherently self-governed by the homeowners within it. If all units are owned by a single entity, then in theory, that entity could exert profound control over the HOA. However, several factors and legal requirements come into play, which can complicate this situation significantly.
Legal and Practical Challenges
Legal Requirements:
Every HOA is subject to specific legal conditions and oversight, often mandated by local governments or city councils. For instance, HOAs may be required to maintain public infrastructure such as roads, storm drains, parks, open spaces, and landscaping. These mandates must be adhered to, which limits the ability of a single entity to dissolve the HOA unilaterally.
Approval Processes:
Many HOA dissolutions require formal approval from city or county authorities, as well as possibly higher-level entities like the Pentagon in certain cases. This regulatory hurdle can significantly impede the process of dissolving an HOA, even if a single entity owns all units.
Theoretical Possibilities and Real-World Examples
Case Study on Ownership:
If a single entity were to own more than half of the units within an HOA, it could, in theory, exert significant control over the HOA. This is because the entity would have more than half of the voting power in the decision-making process. However, maintaining and enforcing the rules of the HOA would still fall on this single entity, rendering many of the original intentions of an HOA void.
For instance, consider a scenario where a developer bought up the majority of units in a subdivision and took over the responsibility of paying for and maintaining infrastructure. When the subdivision became bankrupt, the developer was unable to maintain the necessary payments, leading to further financial chaos.
As the owner of a rental property, the entity would need to set and enforce the same rules that the original HOA had, thus negating the opportunity to make meaningful changes.
Modification of Covenants and Special Meetings
Covenants and Governance:
Some HOAs are established by covenants that are recorded with the county courthouse. These covenants can be modified by a 2/3 vote of all homeowners present at a special meeting. If one homeowner owned multiple units, they would have a corresponding number of votes. Therefore, a single entity would need to own a certain percentage of units to have a majority vote, potentially dissolving the HOA.
Practical Considerations:
Consider the hypothetical scenario where a neighborhood had 700 units. To dissolve the HOA, an entity would need to own at least 467 units (2/3 of 700). However, this figure can vary based on the number of homeowners who actually show up to the meeting. Thus, if the entity owned 467 units and managed to get all of those homeowners to attend, the HOA could be dissolved with 100% certainty.
Financial and Legal Implications
Financial Burden:
The process of purchasing all units and potentially dissolving an HOA comes with significant financial implications. In the hypothetical scenario of purchasing all units, the cost would be substantial. For instance, if the average cost of a home in an area is around $28 per unit, and the total number of units is 700, the total would be $19,600. This is a considerable investment, and the entity would need to consider the potential benefits and risks before undertaking such a move.
Legal Risks:
Even if a single entity were to own all units, the legal complexities of dissolving an HOA cannot be overlooked. Lawsuits and disputes are common in such scenarios, and the legal battles can be lengthy and costly.
Infrastructure and Maintenance:
HOAs are often responsible for maintaining critical infrastructure such as roads, utilities, and open spaces. Dissolving an HOA without proper plans for ensuring these services would continue could lead to a breakdown in community living standards.
Conclusion
While the idea of owning an HOA through a single entity owning all units is intriguing, the practical and legal hurdles involved make it a challenging and risky endeavor. It is important to carefully consider the financial, legal, and practical implications before embarking on such a venture.