HOA debt and member consequences

From the April L.A. Times column, ASSOCIATIONS, by Donie Vanitzian — Can titleholders pay their share of loan directly to bank?  Here’s a peek.

HOA issue

Even with an annual income of more than $2 million, our association is in a big mess. There’s a several-million-dollar loan inclusive of our reserve account the association is paying off that has a variable interest rate currently at 6.85%. The association can’t touch the reserves because the bank says it’s garnisheed as collateral for the loan.

 The board says we have to pay this money back because the bank is holding our reserve account hostage. If it is borrowed and we can’t touch this high-interest money, can the association just give it back?

Response

 California homeowner associations cannot declare Chapter 7 bankruptcy and wipe out their debt. California appellate courts have ruled that because the association has an unending source of money — the titleholders — with which to pay its obligations, at most it can file for Chapter 11 reorganization. The court can order an association to make an emergency assessment against all the titleholders to pay off its obligation.

 

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Published in: on April 27, 2013 at 8:52 am  Comments (1)  
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One CommentLeave a comment

  1. In case you might have missed the point implied by this article, homeowners have pledged their homes for the survival of the HOA, and that includes for acts of the board that threaten that very survival.


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