Can you Dissolve an HOA in Texas?

Though homeowners’ associations function to serve the communities in which they govern, sometimes community members decide – for whatever reason – that the association has run its course.

In some cases, the HOA is not providing valuable services to the community, or not honoring the commitments that it was obligated to. In other cases, the HOA cannot pay their bills, or the community can no longer physically maintain itself, often due to a natural disaster or other similar misfortune.

So the question is, in these or other similar situations, is it possible to dissolve an HOA in the Lone Star State?

Can You Really Dissolve an HOA?

The answer is yes! However, be warned that it is going to be a long and costly process. An HOA is a legal entity. In order to dissolve a homeowners association, community members must comply with all laws regarding the formation and dissolution of a legal entity. Additionally, one must follow all of the rules written in the bylaws and covenants of the community.

The Dissolution Process

The first step of the dissolution process is to read through the association’s CC&Rs. These governing documents often cover the dissolution process and will, at a minimum, give you a starting point. This is the best place for you to begin.

If the bylaws allow it, you can vote to dissolve the HOA. If the bylaws do not allow for dissolution, you can amend them to allow it, and then vote to do so according to the amended bylaws. You must get the consent of a majority of members to proceed (anywhere between 80-100%). Usually, when a homeowner does not vote, it counts as a vote against dissolution. The members who approve the dissolution must sign a termination agreement; this agreement must be recorded at the county recorder’s office.

Alternatively, if your CC&Rs do not allow for dissolution, you can file a civil suit seeking the dissolution of the association. If the court grants your motion, you can proceed with the process according to the laws and deed restrictions that created the HOA.

You need to be well-versed in Texas state and local city laws, as all local government conditions need to be honored. For example, the city in which the HOA exists may require that the HOA operate for a specified minimum number of years or demand that city consent be obtained before any dissolution.

Pay Attention to Legalities

There are some legal ends that need to be tied up when dissolving an HOA. Before the dissolution process has begun, all third-party contracts must be fulfilled, either paid off or refinanced, or the agreements must be renegotiated. No jobs can be left outstanding or unpaid.  Next, if any of the homeowners’ deeds reference the HOA, new deeds will need to be drafted and rerecorded. The mortgage lenders for each property may need to be involved in this process, and this can be an especially burdensome and costly step! Lastly, since the HOA owns the common areas, someone must take over once the HOA is dissolved. The title to the HOA-owned portions of the development must be transferred to another legal entity or divided among individual homeowners. If transferred to the residents of the community, the residents then become liable for them. For example, if there is a running path that is owned by the community. and a runner falls and hurts himself, the residents could be held liable for that injury.

Remember, dissolving an HOA is a legal process, so a lawyer is necessary! A legal team can help you navigate the ins and outs of the dissolution so that you have a sure footing as you move on from the association and begin to run the community without that governing influence. Be prepared for legal fees to start around $10,000 and increase from there.

Consider All Other Options First

While it may seem like your HOA is a pain, be sure to clearly examine the pros and cons before starting down the road to dissolution. You could discover that the process of dissolving the HOA may be more of a burden than it is worth!

Before your community makes a drastic decision, consider all other options first about improving the state of the HOA and making the community a better place for all residents. Not sure where to start with getting your HOA back in shape? Contact Spectrum Association Management – our community management services are designed to help make HOAs a great organization for all involved!

2019-03-11T20:16:31-05:00

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