Q&A of the Day – What Happens to Common Areas When HOAs are Dissolved?

In answer to today’s question, we don't know if the intent of legislation would be to only ban HOAs for future construction projects, or for all HOAs, existing and future developments. To date, Representative Porras has spoken of banning all associations.

Episode Transcript

Speaker 1 (00:02):
Have a question or topic you want to have addressed.

Speaker 2 (00:05):
Just ask.

Speaker 1 (00:06):
This is the Brian Mud Show. Today's Q and A.
What happens to common areas when hoas are dissolved? This
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(00:27):
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Speaker 2 (00:45):
This, Hey, good morning, Brian, I'm following up find your
h emails. I'm assuming that this is for new construction
going forward, because existing condo and homeowners associations have things
like pools that need to be maintained in common ground
that require maintenance and in many the building insurance.

Speaker 1 (01:08):
Yeah, and you know just for for disclosure and also
some additional basis and all of this. I am a
recovered HOA vice president from South Palm Beach, so I
have experienced that way. My wife is currently an HOA
board member in our community in North Carolina. So yes,

(01:28):
it is an excellent question and point that you're making
about many of these specific challenges that would come about
for existing communities of abolition of hoas were to take place.
And I wanted to address today's follow up question to
Friday's Q and A and hoa's because at this point
there are far more questions than answers, and have heard

(01:50):
from numerous people with additional questions about the topic. And
so the key to this conversation right now, anyway, is
something that I referenced on the conversation to potentially end
homeowners' associations is just that it's a conversation right now.
It's entirely theoretical. While Miami Representative Juan Carlos Porus has

(02:13):
regularly discussed the prospect of abolishing hoas, he's yet to
actually put pin the paper or fingers to keys, as
the case may be, and propose a bilt. He's yet
to propose any policy that we could specifically understand and address.
And by the way, it's also unclear if he actually
is going to produce a bill ors if he's just

(02:34):
going to talk. So for that reason, my initial analysis
was entirely from a macro perspective because there was no
policy to be able to analyze for you. So I
just pulled three potential positives that could result from the
abolition of HAYS to three potential negatives, and three significant
changes that would likely produce neutral outcomes. So that was

(02:58):
the approach I took without having something specific in hand.
So an answer to today's question, look, we don't know
if the intent of legislation would be to only ban
hoas for future construction projects or for all hoas existing
and future developments. Today, the way that Porus has spoken

(03:18):
about these things, he's talked about banning all of them,
including the existing. Now, as for what might occur in
these specific example sided of planned communities with pools, recreational spaces,
all those types of things, because yeah, I mean you're
talking about something that would need regular upkeep maintenance. How
does that work? We do have an idea of what

(03:39):
could occur, because there are numerous examples and precedent for
that matter that's been set over time with hoas dissolving
during bankruptcy proceedings for communities. So while we have not
seen a banned by any state of hoas, what we
have seen regularly, including in our state, ways that have

(04:02):
been dissolved through bankruptcy. So about that. Under Florida law,
there are three potential outcomes that could occur when a
joys are dissolved. The first is joint ownership by homeowners.
Common areas like pools and recreational centers would likely revert
under this one to what is known as joint in

(04:23):
several ownership among all residents in that community, as by
the way, is stipulated in many communities governing documents. I'll
come back to this point in the moment. This means
that every homeowner would share an equal responsibility for upkeep,
but without mandatory dues. Participation would be voluntary. The next

(04:44):
is local government takeover. If owner excuse me, if homeowners
cannot agree on management, counties or municipalities could step in,
as would immediately occur for all the essential infrastructure like roads, drainage,
and public safety features. Florida law allows for receivership, where
a court appointed overseer manages assets until resolving the situation

(05:09):
at hand, which, by the way, attempting to do this
at full scale across the state, that would be quite
the undertaking to see the least. And then you have
a third option, which is the privatization or sale of amenities.
So for non essential features like clubhouses, pools, tennis courts,
those types of things, communities might vote to sell or

(05:29):
divide them among the owners. Polls for example, could be filled,
could be converted to private lots, recreational centers, least to
third party operators that are charge fees that type of thing.
As I mentioned in discussing the potentially joint ownership option,
many communities have contingency plans for the dissolution of hoas.

(05:51):
So if you're in a planned community, I'm curious as
to what this might look for look like for you
if it actually happened. Reading through those documents, good chance
you're going to find your specific answer.

Speaker 2 (06:03):
Now.

Speaker 1 (06:03):
I've seen multiple interesting outcomes, not just in Florida, but
in other states as well where we have had HOA conversions,
often from bankruptcy dissolution, and sometimes just a choice to dissolve.
But the most creative examples just give you an idea
of like the view of the Possible, have included conversion
of hoas into corporations where each community member owns shares

(06:29):
in the public spaces equal to their property's share of
the community. This has included board members in often a
compensated CEO. Again, we're talking about like a corporate structure,
so rather than an HOA board, you would have a
corporate board of directors and then what is often a
compensated official. Occasionally, based on how big the community is,
I've seen up to five compensated members of an executive team,

(06:53):
but then oversee and are responsible for maintaining public spaces.
But again that's just an example. Perhaps provide more insight
into the view of the possible, but again for now,
the bottom line is we have to wait and see
what's going to be proposed, if anything, because there is
an am policy to consider.