Homeowner associations (HOAs) are given responsibility by recorded subdivision and condominium documents for maintaining, insuring and operating private communities’ common properties, such as streets, drinking water systems, sewer collection and treatment systems, and recreation facilities.
With many developers having abandoned projects before the HOA is operated by residents, the residents and other lot or unit owners (such as lenders that have foreclosed) are often faced with HOAs that cannot properly function. The Department of Natural Resources has nobody to work with to make sure that the drinking water systems and sewer systems are properly operated. Nobody mows the green areas and nobody plows the snow from streets.
But Missouri statutes do nothing to provide residents with a mechanism for assuring that the HOA will always be there. The result is an HOA that lacks the power to perform the needed functions, leaving the residents with a dysfunctional community. When a “new” HOA attempts to collect assessments, the residents sometimes challenge the HOAs power to assess for basic services.
Most Missouri HOAs are and should be corporations, which are required to file annual reports with the Missouri Secretary of State. If the filing deadline is missed, and reinstatement is not made promptly, the HOA corporation is “administratively dissolved,” having the power only to dispose of its property and obligations. Reinstatement is often difficult, because it requires providing proof of having filed state and federal income tax returns, which often have not been filed. The developer and any financial records have often disappeared.
In four recent Missouri appellate decisions, the courts have squarely identified the problems faced by defunct HOAs.
- In Beavers v. Recreation Association of Lake Shore Estates, Inc., from 2004, the court held that an HOA corporation could not be revived once ten years had passed since it was dissolved by the Missouri Secretary of State for failing to file an annual report. The statute imposing the 10-year time limit had been amended in 1998 (section 355.716 RSMo), but Lake Shore Estates HOA had been dissolved for 10 years as of 1991. The court said that the Secretary of State’s attempted reinstatement of the HOA after the 10-year hiatus was void. Lake Shore Estates was left without an HOA that had the power to collect assessments.
- In 2005, Pioneer Point HOA v. Booth gave some hope to residents orphaned by the developer’s failure to keep the HOA going, holding that a new HOA corporation had the right and authority to perform the functions of the original HOA to impose and enforce assessments. The developer created a new HOA and, as president of the old dissolved HOA, assigned its powers and duties to the new HOA. The court approved this assignment, relying on language in the original covenants that contemplated there being successor HOAs, pointing out that the validity of the assignment was not challenged in the trial court.
- In Valley View Village South Improvement Association v. Brock, a 2009 case, the court of appeals held that without an assignment of powers and duties of the old HOA or the acquiescence of all the lot owners to be subject to the powers of the new HOA, the new HOA had no powers at all over the water system established by the developer for the community. While the lot owners may individually have rights to use the water, no new HOA could exercise the powers and duties of the HOA set forth in the subdivision covenants.
- In litigation between Stephen Veal and the DeBaliviere Place Association, the old HOA had been dissolved since 1992, but attempted in 2006 to assign its powers and duties to the new HOA (formed in 2003). The new HOA attempted to collect assessments from Veal for the years 1998 through 2007. The new HOA was successful on a motion for summary judgment and Veal appealed. The court of appeals agreed with Veal that the 10-year period for reinstatement of the defunct HOA had run in 2002, as in the Beavers case, before the statute was changed to eliminate the 10-year period. The new HOA asked the Missouri Supreme Court to review the case, and in April 2011, the Supreme Court set aside the decision of the court of appeals, in Debaliviere Place Association v. Veal, holding that the old defunct HOA, without being reinstated as an active corporation, still had the power to assign its rights to enforce recorded covenants and to collect assessments.
Legislation is needed to provide that a judge, upon the petition of two thirds of the owners of lots or condo units in a development, would have the power to determine that a new HOA is the successor to the HOA named in the declaration of subdivision or condominium, regardless of whether the old HOA could be reinstated.