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Defunct HOAs: what to do?


Outside of incorporated cities in the Ozarks, the homeowner association (HOA) is often the government for homes in subdivisions and condominiums. The clean water rules enforced by the Missouri Department of Natural Resources include HOAs as eligible “continuing authorities” to own and operate drinking water or sewer facilities, or both, in subdivisions not served by public utility companies regulated by the Public Service Commission or by governmental providers. In addition, the HOAs often have the responsibility of maintaining subdivision streets unless and until the county commission adopts an ordinance to maintain the streets.

HOAs are ordinarily established by the subdivision developer, in order to obtain permits for sewer or water facilities and to create an entity for road maintenance. An HOA’s power to collect assessments from lot owners (or unit owners, in the case of condominiums) is established by the recording of subdivision covenants (usually called CCRs or a declaration). The HOA is almost always set up as a non-profit corporation, with the developer and the developer’s associates making up the initial board of directors.

Even under the best of circumstances, the developer fails to file annual reports for the HOA with the Missouri Secretary of State, and the HOA, as a corporation, is administratively dissolved. When few lots are sold, that also happens. And there are worse omissions and consequences:The developer itself fails to maintain its corporate status or simply disappears without conveying the real estate where the water well and sewer treatment plant are located to the HOA. The developer’s creditors (or a purchaser at a tax sale) end up owning these facilities, even though they are not legally qualified or interested in operating them and conveying them to the HOA. Anyway, the HOA has been dissolved. What about those who have homes served by these facilities? Who do they look to for service? How can just a few homeowners pay the entire cost of operation and maintenance?

Missouri has some severe problems with HOAs that demands a legislative solution. One proposal, adoption of the Uniform Planned Communities Act, has been advanced several times by the Community Associations Institute, a non-profit that supports HOAs on a national and international level. Essentially, the UPCA would establish a formal legal relationship between developers and HOAs, much as the Uniform Condominium Act has successfully done for condominium communities. Marvin Nodiff, a St. Louis attorney who represents many HOAs and I have testified in support of the the bill, but the homebuilders associations’ have managed to kill it. We’ll try again this year, with more horror stories to tell to the legislative committees.

Meanwhile, I continue to work with developers, lenders, and lot purchasers in reinstating HOAs, helping them to craft budgets, getting the water and sewer facilities ownership in the names of the HOAs, and getting the water and sewer operating permits issued to the HOAs.

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About Harry Styron

I'm a lawyer who lives in Branson, Missouri, whose professional interests involve real estate, construction and local government.

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