Bankrupt HOA in California

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I started a thread here a few months back regarding false advertising in a condominium complex in CA. Basically the builder overstated the size of the units by over 100 sq feet. This case was settled through mediation with the builder's insurance company. We all came out a little ahead.

Now we have another problem. Another plot by the builder to get first time buyers to purchase his condos was to offer them a monthly HOA fee of only $142.00 a month. I knew that wouldn't last too long. The monies that come in barely pay for all the vendors for the complex upkeep and we have noting to put into a reserve account. It won't be too long before our HOA is bankrupt. My question is if our HOA goes bankrupt is it true the State steps in and accesses each home owner? I have heard it if were to happen it could be up to $5000.00 per unit. Most of the first time buyers barely get by after making their $2600.00 monthly mortgage payment and if this happens many my lose their homes.

Thank you in advance for any help you can provide.

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I take it the HOA is not in the hands of a property mangement company? Is the builder the Board or controlling member still? When does it get turned over to residents?

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Thank you,

It was turned over to the residents in July and we have a property management company. We elected a board, my neighbor is the president and he received copies of the financial statement from the property management company. We were both in shock after seeing how much money goes out each month and no reserve account at all. There are 124 units, the builder still has 16 unsold. We have been told by the city the pool is not up to code, the trees all have to be trimmed, over 160 trees on the property, 13k just for that. We even went to the City about the pool not being up to code, afterall they signed off on the project, but we were told in order for us to go after the builder we would have to hire an attorney, which we have no money for.

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Re: Bankrupt HOA in California

jcboy wrote:

My question is if our HOA goes bankrupt is it true the State steps in and accesses each home owner?

That would make sense. In effect, when you create a HOA you are telling the local city/town "Hey, we'll take care of our own stuff if you leave us alone.". With that the HOA sets it's own bylaws and can assess residents that fail to adhere to them. You pay a HOA fee instead of property taxes (or the property taxes are reduced...) to cover teh services that the HOA provides and the city doesn't. The HOA becomes a community within a community.

If the HOA fails and goes bankrupt than it would make sense that the some governmebnt entity would step in and assess propert taxes at the rate used for the rest of the city/town. I would think it would be the city or county though - not at state level. The HOA would no longer be maintaining roads/grounds, etc... so the city would step in and take those over again.

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Thank you Fishin.

In our next board meeting my recommendation will be to increase the HOA fee by at least a $100.00 a month, that will give us a additional $12,600.00 and we can start our reserve account and add to it each month. Of course I won't be to popular but we don't have a choice, we can increase the monthly fee or later these residents can pay the large assessment fee that is sure to come.

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jcboy wrote:

Thank you Fishin.

In our next board meeting my recommendation will be to increase the HOA fee by at least a $100.00 a month, that will give us a additional $12,600.00 and we can start our reserve account and add to it each month. Of course I won't be to popular but we don't have a choice, we can increase the monthly fee or later these residents can pay the large assessment fee that is sure to come.

That seems like a reasonable path to me. If I were sitting in your audiance I'd be asking lots of questions though. Study up and prepare yourself. No ione like a tax increase (and that is what you are proposing) so you are going to need to be ready to lay the whole situation out to everyone and lead them down the path so that they come to the same conclusion you've come to. Good luck!

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You're absolutely right. I have until November 7th until the next board meeting. I'll be putting together a spreadsheet showing how much money comes in and what goes out each month, plus what is not being done on the complex due to lack of funds. I have read our CC&R's front and back, our board can increase the monthly dues by 20% each year without a vote, any more of an increase has to be voted on by the membership. If the $100.00 increase is voted down then our board will increase the 20% which is another $3,500.00 a month, that amount will cover what we are lacking each month, however it would leave us nothing to start the reserve account. If any of these home owners plan on selling their unit in the next 3 to 5 years it won't be an easy sale when the prospective buyer learns there's no reserve account at all.

I have spoken to several residents and they also have come to the same conclusion I have so hopefully the hundred dollars a month increase will pass the vote.

Thanks again for the advice.

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@jcboy,

What was the outcome?

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When I first moved in the condo we were paying 167.00 a month, now we are paying 289.oo in HOA dues, we kicked out the first property management company and hired a new one who brought in their own vendors, we now have enough each month to pay for everything and have started a nice reserve fund Smile

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@jcboy,

Great! The reason I was interested was because I went through a similar thing as president of a HOA that was handed the keys to the car by a developer who had underestimated the maintenance fees by about half in order to "sell" the project.
I was forced to levy a special assessment of one thousand smackeroos in order to re-roof the place and it caused a great deal of hardship.

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Bankrupt HOA in California

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