Dissolving a condominium association, problems need help.

10 Replies

Hi, I am one of 14 owners in a condominium building located along the coast in Alabama. The building was destroyed in 2004 by hurricane Ivan and shortly after what remained was demolished down to the slab. The building codes changed during that time and there was not enough insurance money to completely rebuild the condominium much less to do so to the new codes. The proceeds from the insurance was divided among the owners.

Shortly after the building was destroyed, when the market was still strong, there was some interest from developers to work out a deal with us by providing a new unit to each owner exchange for the land. None of the deals worked out and as the market collapsed we received no offers from 2006 to current.

We explored rebuilding at several points over the years but the numbers never made sense. Construction costs were way too high and even though we owned the land it was still cheaper for us to go buy a unit somewhere else versus rebuilding. There were also major hurdles in regards to financing and none of the owners wanted to sign off on a multimillion dollar loan.

So for the last several years the land just sat vacant and nothing was ever accomplished by the Association. The topic of selling the land started coming up over the last few years but there was a few owners who were very reluctant to discussing it. About four months ago we received an offer to purchase the land from a local investor. The property wasn't listed but through a real estate agent we were contacted and the offer was presented to the association board. The board agreed to get an appraisal to use as a basis in negotiation. The board countered the offer that was made with the appraisal price and the buyer accepted with the contingency that all of the owners would have to sign off on the deal. A voting ballot was sent to each owner and approximately 75% of the owners agreed to dissolve the association and accept the offer.

Here lies the problem that hopefully someone here can help me with. We needed a 90% vote of approval to dissolve the association and accept the agreed-upon sales price. We only received 75% in approval. We consulted with a couple attorneys and was told that we could do a sale by division which only requires any owner with an interest in the property to file the suit. HOWEVER, we had to first dissolve the association. In order to dissolve the association a 80% vote is needed. We only received approximately 75% therefore we could not dissolve the association therefore we could not do a sale by division. This left us unable to accept the offer that the vast majority of owners wanted to accept.

The few who voted against the sale felt the price was too low and thought that the land was worth much more then the price agreed upon. They were very open about waiting till the market continue to go up higher so it could be sold for more money, aka speculating and trying to time the market.

What I don't understand is how a small minority of owners can force the majority of owners to be held hostage in essentially what amounts to a commercial land investment because they want to speculate that the market will go up in the future and hope to cash out at a future date for more money. It's been 10 years since the building was destroyed, we cannot rebuild and we have had no offers from anyone to try to do a deal with us in regards to rebuilding. The only offer that we have had is for someone to purchase the land. As I mentioned, we had an appraisal done to determine value and the buyer agreed to pay that price. Subsequently the property was put into the MLS when we initially received the offer and it's been in the MLS for the last four months and we received no other offers from any one else. This leads me to believe that the deal we have in place to sell the land is a very good fair deal. However because of a small few, who think (for what ever reason) that we can get much more money if we wait another 5, 10 or 20 years to sell they are preventing us from accepting this offer and will cause us to lose the deal. Some of the owners are elderly and need the money others have been waiting to get the money from the sale to use as a down payment to purchase another condo and the rest are simply fed up after 10 years and want to be done with it. Also note that the few who don't want to sell also don't want to buy out any of the other owners.

Before the uniform condominium act was accepted in Alabama any owner could dissolve the association after the building was destroyed, now you need an 80% vote to dissolve the association. But the new condominium act does not address what happens when the building is destroyed. I could understand needing more than 80% to dissolve an association when there is an existing building and units. But, there is no more "condominium" in the "condominium association" the association does nothing, there is no purpose to the association.

I just can't believe the vast majority of owners have no recourse, no way out and are at the mercy of waiting till a few owners decide it is time to sell and for how much. Keep in mind we all bought condo units and joined a CONDO association we did not sign up for being partners in a commercial land deal. The who scope changed when the building was destroyed now we have a few owners trying to be land investors, speculating with the market and jeopardizing our money. God forbid if another hurricane would devastate the coast or one of many other factors such as a recession, insurance rates or building cost going up, mortgage crisis, or one of many other issues happen causing the values to go down. Right now we have a good offer for current, fair market value we should be able to accept this offer especially since the vast majority of owners want to do so. Most of us do not want to gamble that the values will be going up in the future to sell nor should that even be an option or course that the association should proceed with..

Can anyone help on how this could be resolved? There has to have been other condos destroyed since the new condominium act went in place in the early 90s that have had to go through the same type of situation.

Edit: I see now what you are saying about the Condominium Act trumping 35-8-20(b) since your association was presumably created after 1991...I would say you need to pick off a couple of the holdouts to get you from 75% to 80%. 

Correct, it was built around 1995/96. As you pointed out, "

(1) In the event of total destruction of all improvements of the condominium property and no agreement is reached to rebuild such improvements within a reasonable time, or such rebuilding has not been completed within a reasonable time. "

That language was part of the previous condominium statutes and addressed this issue perfectly. The new uniform condominium act that was adopted in the early 90's changed everything and gives no mention to this type of situation what so ever and just generally says that you need 80% to dissolve an association. It doesn't address dissolving the association if the build has been destroyed and no attempts to build have been made.

Unfortunately, almost all of the opposition is from the same owners, they owned a couple units together and they are impossible to talk to and wont even answer the question of "how much will you sell for". My personal feelings are that they are trying to wait people out and hope people will cave to them and sell them their shares for pennies on the dollar just to get out. They have expressed interest in purchasing shares but wont even make other people offers.

The law addresses situations like this when there is owners in common, that you only need 1 owner to do a sale by division. However, it will not treat us as owners in common as long as their is an association. But in all reality, we are owners in common as we no longer own "units" but are just % holders in a piece of vacant land. This is beyond screwed up and I can't believe their is no legal recourse, there has to be something that can be done through the legal channels. I can't believe that if someone (or a group of people) control 21% of the vote and they decide that they never want to sell and they want to sit on the land for 100 years that everyone else has no choice but to go along with them.

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This is exactly why I don't own condos - unless I can own or otherwise control 20-25% of the units.

If the hold-outs cannot be bought-out or re-convinced to cooperate then I would want to look for a judge to persuade to 'set aside' the strict provisions of the association and perhaps to dissolve the association as being 'nonconforming' to it's original intent.

On the other hand;  how much money are we talking about here?  What is the offer per unit now?  Is this something worth time hassling with?

Hi,

I agree with you. The association has nothing to do with it's original intent, and hasn't for the last 10 years. It seems like a contract issue, the object of the contract no longer exists. We went from being condo owners who had an association in place to protect the covenants, to handle repairs, maintain common areas, etc etc etc... to being a bunch of partners in a land investment and being held hostage by a small minority of greedy owners who want more money. And I should note, unrealistically want more money as we have an offer to sell the land for the same amount it appraised for. The few who don't want to sell think the market is rebounding and we should wait till it goes up higher and cash in for more money in the future. For how much more and wait how much longer, they wont even share that info with the rest of us.

There are 18 shares (14 different owners). The offer we have from someone to buy the land is for $750,000, which is also the same amount that the property appraised for. Most owners have 1 share which after commission and fees would net them about $37,500 each per share. I think it is worth it, but only if most of the owners who want to sell agree to share the cost of litigation. There could easily be 15K to 20K in attorney and court fees to sue to dissolve the association. It's too much for just a couple of the owners to spend. I am not sure how many would be willing to go along with it but if we could get enough owners to get involved so that the cost per each owner would be about 2K or so, then I think it would be more than worth proceeding. I just don't know how you would handle those owners who wanted to sell but didn't want to chip in to cover the legal cost, but they would benefit from the results.

The local attorneys we spoke with said there is no guarantee of wining because you could always get a judge who wants to do a strict interpretation of the law. So it is a little bit of a gamble even though our situation is ridiculous and common sense should rule here.


And this is just to do the suit to dissolve the association. The suit to do the sale by division wouldn't be an issue at all for us as all of the attorney's costs are addressed in those types of suits and settled at the end from the proceeds of the sale.

A little brainstorming here.  Not sure if any of this will work but it might spark some discussion or additional thoughts.

You could ask the other owners that want to sell to form an LLC and contribute their share to the LLC, then you would have one entity to go after the other owners.

Can the association stop paying RE Taxes on the property and force it to go to tax sale then have the LLC with the remaking owners buy it, you ca always invite the other owners to contribute their shares to the LLC? Then sell to the local investor? I would stop paying any property taxes to put pressure on the holdouts.

hi, 

I am in a similar situation and need some advice. We have water damage to the condo and repair cost quoted at 3 million. Our condos are worth between 100-120k and there are 40 units. Special assessment fee is 70k for each unit which owners think can't pay and they just want to go for partition by sale. They think they can get 1million for the building. 

My question is I owe 95k in mortgage and if I get 20k share from the sale what happens to my mortgage. Am I still responsible to pay for the mortgage even though I will not have any property? Would lenders foreclose this? Would lenders need to approve for partition by sale?

I really appreciate if someone can answer with their expertise 

Thanks

@Will Sifert  -  What ever happened with your condo situation?

@Chandra Kanth  Just curious but how do you possibly get 3M in damages?  Did the whole building flood?  I assume you have had multiple quotes?

Our HOA has block wall view fencing on the outside perimeter, some of the wall was not built correctly. Our development of 403 homes got a big for 1.1 million to repair the wall. Instead we decided to repair certain parts,. The new cost 80k.

Yes we are all in shock for the 3million quote. I think ours is a flat roof 40 unit building. And may be over the years there may have been water leak and it got into the woods, studs and trusses. We see masonry on the first floor coming off because water is trapped inside. I would assume the building perimeter may be maximum of 20,000 sq ft. Because 4 floors. The quote is like $150/ sq ft for the repair which I think is insane. The value of home in there is about 100-110/ sq ft.  We did not have multiple quotes but the association says even if we get quotes it may be 5-10% difference. We already pent 30k for looking at the damage

I would get a second and third quote.  How can the association know what another would come in at?  they are just guessing.  

Post some pics if you can, there might be someone on BP that can help narrow the scope of work to reduce the cost.

@Bob E.

It was resolved a year or two after my post here. I am trying to remember but I believe there was a share owned by the bank and they would not respond so we couldn’t count on their vote for anything. (The bank had foreclosured on one of the owners that bought right before the storm, had a big mortgage and was upside down and stopped paying.)

The bank stopped paying property taxes and it went to tax sale. The person who bought at tax sale was on board with the sale and it gave us just enough % to move forward. If not for that who knows where we would have needed up with this.

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