What Happens If a Condo Is Placed in a Receivership?

Most condominium complexes are run by homeowners' associations, or HOAs. This type of association collects monthly dues from tenants in the complex and uses these funds to cover maintenance, repairs and other costs associated with the condo community. When a condo or homeowners' association is unable to cover these costs, a receiver steps in.

When an HOA is put into receivership, this means the association is no longer solvent. This could be due to a variety of factors, including members not paying their HOA dues, unexpected or higher than expected building costs or repairs, or the association paying for expensive legal fees in a lawsuit. If your association is insolvent, maintenance could be deferred until further notice, higher maintenance costs may be charged to tenants or special assessments may be made.

Purchasing a condo in a complex that is currently in or will most likely be put into a receivership is risky, since the future HOA dues you will have to pay are uncertain. For example, they may increase more than you expected. Depending on the stage of the receivership, condo transactions in the complex can take longer than normal. Your condo may have unpaid HOA fees from its previous owner that you may be required to cover, along with a potentially higher overall monthly HOA payment to cover the lack of dues coming in from non-performing units in the building. If maintenance costs are one of the reasons why the association is in a receivership, building amenities may be unfinished or not up to par due to insufficient funds.

Receivership laws vary from state to state. According to HOA Leader, "Your state may have no provision for receivership in the statutes governing condo or homeowners' associations, but there may be a general statute on receivership." For more information on your state laws, contact your state's real estate division.

Understanding all details about why a condo association is bankrupt and in a receivership will guide you in making a more informed decision about your real estate purchase. Speak with the HOA president or committee members, along with residents near the unit you plan to purchase. Meet with your real estate agent to go over all official HOA documents and legal filings. Depending on what your circumstances are, you may also want to contact an experienced real estate lawyer to guide you through the process and explain any legal documents you don't understand.