Is it Possible to Disband an HOA in California?

The Truth About Disbanding a Homeowners Association

Technically, yes, but it is so difficult that it is not realistic in practice. There are both legal and practical considerations that most homeowners have not considered. So, as discussed in this article, homeowners should think carefully before trying to disband their homeowners association (“HOA”) and consult with an attorney before starting the process.

In California, HOAs are non-profit, mutual benefit corporations. The HOA is the legal entity that manages the common interest development and enforces the governing documents. Like any corporation, an HOA may be dissolved. But as discussed in this article, dissolving the legal entity that manages the common interest development will not disband the common interest development or get rid of the Declaration of Covenants, Conditions and Restrictions (“CC&Rs”).

A common interest development is created when homeowners first purchase lots in a development and the purchase of the lot conveys an interest in common area or membership in the association, provided that each of the following have been recorded: (a) CC&Rs; (b) a condominium plan, if any exists; and (c) a final map or parcel map. (Civl Code § 4200.)

CC&Rs are recorded equitable servitudes that place “covenants”, “conditions”, and “restrictions” (as the name implies) on each lot and parcel of land within the common interest development. (Civil Code § 4250.) An equitable servitude is a recorded obligation or encumbrance on a particular piece of land that “runs with the land” to the burden or benefit of each successive owner. In other words, if a homeowner purchases a home or lot within a common interest development, they are agreeing to be bound by the obligations and encumbrances recorded against that home or lot as described in the CC&Rs. The process of recording the CC&Rs with the county recorder ensures that every potential purchaser is aware of and has an opportunity to review the CC&Rs before the purchase.

So, even if the HOA as a legal entity is dissolved, the common interest development that was managed by the HOA and the CC&Rs recorded on the lots within the development will continue to exist. These ongoing obligations and encumbrances may create practical problems for the homeowners within the common interest development if there is no longer an HOA to manage the development.

How to Dissolve an HOA
Dissolving an HOA requires the approval of numerous interested parties. This is one of the reasons dissolving an HOA is so difficult. If homeowners wish to dissolve their HOA but one or more interested parties do not approve of the dissolution, the HOA will stay in place.
First, the board of directors must adopt a resolution to dissolve the HOA. (Corporations Code §§7911(a)(1); 8610.)

Second, if the HOA is (a) a planned development containing five or more lots, (b) a community apartment project containing five or more apartments, (c) a condominium project containing five or more condominiums, (d) a stock cooperative having or intended to have five or more shareholders, or (e) a limited-equity housing cooperative, in which the HOA is obligated to provide management, maintenance, preservation, or control of common areas or assets, 100% of the members must approve of and consent to the dissolution of the HOA. (Corporations Code § 8724.)

Third, if the HOA manages, maintains, or controls common area like streets and landscaped areas, someone will need to take over these responsibilities. If the homeowners in the development are unable or unwilling to do so, this may require getting the local governmental entity (e.g., city, town, county, etc.) to agree to take over those responsibilities. The governing documents of the HOA (see Civil Code § 4150 for a definition of “governing documents”) may also require the HOA to obtain the approval of certain governmental entities.

Finally, the governing documents of the HOA or an individual homeowner’s mortgage agreement may require the approval of the lenders to the individual homeowners before the HOA may be dissolved.
Assuming that all approvals are obtained, what happens next?

Like any corporation, the HOA will need to wind up its corporate and legal affairs. This means that the HOA will continue to exist for a period of time while it is winding up. The winding up process includes, among other things, giving notice of the dissolution to creditors of the HOA (Corporations Code § 8618), paying all known liabilities and debts (Corporations Code §§ 8713, 8714), selling assets (Corporations Code § 8710), and distributing any remaining assets to homeowners. There may also be certain tax-related issues that may arise.

The HOA is dissolved and wound up: Now What?
Homeowners that have wound up their HOA may now face many practical issues that were previously handled by the HOA.

For instance, if the HOA is a condominium association, who is going to maintain the structural and exterior portions of the condominium building? Who will pay for the costs of the maintenance and how will that money be collected? What happens if the common area of the building is damaged or causes damage to a condominium or condominiums? Who will pay to repair the damage?

Or let’s say the common interest development has private roads or shared walkways leading to houses. These passageways are generally controlled by easements between all owners in the community. Who will repair and maintain the roads, and how will these costs be paid for? If a local governmental entity agrees to take responsibility for the roads, how will the costs incurred by the local governmental entity be paid, and will they become public roads? Will the easements need to be terminated and how? Can one owner refuse to allow others to walk on a path or sidewalk in front of his or her house?

In another hypothetical situation, suppose the CC&Rs prevent homeowners from using their properties in a way that would be a nuisance to other homeowners or would lower property values in the community (e.g., raising chickens, painting the house bright pink, etc.). Who will prevent a homeowner from using their property in a manner that hurts other homeowners? Will those homeowners that are harmed by a rogue homeowner have to sue their neighbor to enforce the CC&Rs?

So, no matter how poorly run, mismanaged, or corrupt your HOA may seem, disbanding your HOA is a long, difficult, and expensive process, and even if you are successful, it may lead to consequences that you haven’t foreseen. HOAs are intended to maintain home values and to enforce the obligations and encumbrances in the CC&Rs. Correcting the failures of the HOA as opposed to disbanding the HOA may be in best interest of both you and the community. Talk to one of our HOA specialists to find out more.