At Least Five Community Associations in Florida have filed for Bankruptcy Protection and Relief.
Reorganization through Bankruptcy Allows Communities to Restructure Obligations and Reduce Debt.
On July 8, the Daily Business Review reported about the Maison Grande Bankruptcy filing. Maison Grande condominium owners are obligated to pay the developer over $100,000 per month for a 99-year lease of the pool and some other improvements.
Bankruptcy Attorney Aleida Martinez Molina of Becker & Poliakoff indicated that the bankruptcy code contains unique provisions which, in essence, give associations the upper hand in dealing with creditors. According to the Daily Business Review, Maison Grande owes the developer almost $700,000, but the lawsuit filed by the developer is on hold while the bankruptcy court has jurisdiction.
There a various benefits to reorganization through bankruptcy proceedings:
- If the Association is facing lawsuits from several creditors in different venues, the bankruptcy court may have the power to shift the jurisdiction to streamline addressing each claim.
- The Bankruptcy Code includes provisions allowing debtors to assume or reject executory or unexpired leases, providing opportunities to renegotiate onerous provisions.
- A Bankruptcy filing will delay, and in some cases prevent, a creditor from seizing or garnishing bank accounts and will also delay cancellation or shut-down of utility services.
Many community associations are obligated under contracts initially entered into by the developer. The Legacy Park Community filed for bankruptcy protection when it could not pay a cable bill in excess of $100,000, especially since it reported over $250,000 in lost (unpaid) HOA assessment fees not paid by the owners that lost homes due to foreclosure.
Presidential Golf Maintenance Association also recently filed for relief under Chapter 11 allegedly due to the fact that in can no longer maintain approximately 97.8 contiguous acres because they do not have sufficient funds. They filed to “restructure and evaluate other strategic alternatives.”
Attorney Molina strongly encourages any Association desiring to take advantage of relief that may be available through bankruptcy proceedings to only file with a clear understanding of its plan for reorganization.
Judge Mark dismissed a bankruptcy filing on the behalf of View West Condo Association. View West had controversy with roofer who supplied services to the condominium regarding payment, quantity and quality of work performed and warranty of work. The Court found:
There does not appear to be any purpose for filing a Chapter 11 plan nor any reason for the Debtor to stay in Chapter 11 other than Debtor’s counsel’s suggestion that this Court would be a more expeditious forum for litigating claims against third parties. That reason is insufficient if the litigation solely involves state law issues.
As a result of current economic conditions, bankruptcy filings may become more prevalent for community associations. Please contact us if your community would like to discuss whether bankruptcy is a viable option.BankruptcyChapter 11Financially Distressed