What happens when a Michigan condominium association or homeowners association has no board of directors? If no one steps up, a court can place the community in receivership. A receiver is a stranger appointed by a judge, paid by the co-owners at an hourly rate, to do the job the volunteer board used to do for free.
Most condominium associations and homeowners associations run quietly in the background. Assessments come in, the lawn gets mowed, the road gets fixed, and the people who volunteer to serve on the board of directors rarely get a second thought. But condos and HOAs depend on these volunteers. When no one is willing to volunteer their time to serve on the board of directors, an association can go from running smoothly, to mild dysfunction, to being in court standing in front of a judge.
This article explains how a condominium association or homeowners association can find themselves in this situation, what it costs, how to climb out of receivership, and most importantly, how to keep it from happening in the first place.
How Does a Michigan Condo or HOA End Up With No Board?
Condominium associations and homeowners associations, while different, serve similar functions: they are tasked with administering and operating the community and enforcing the provisions of the governing documents. Further, the governing documents will identify how many co-owners or owners are required to be on the Board. Things can go sideways and end the association up with a receiver if these oversight responsibilities and membership numbers are not met.
An issue that is common across nearly all associations is a lack of participation and volunteers to serve on the Board. The stereotype of the grizzled veteran of the Board who has served since the developer was around is not unique. Sometimes this is because that member genuinely enjoys serving the community. Other times, it is because the member feels obligated to continue serving, as no one else is stepping up to volunteer. But that member will tire and eventually resign. The remaining Board members may also resign. All of a sudden, there is one or two Board members left. Then there are none, and the association no longer has a Board. Without an entity to act on behalf of the association, the members may need to ask a court to intervene.
Who Can Ask a Michigan Court to Appoint a Receiver for a Condo or HOA?
The ability to request a court to appoint a receiver is grounded in Michigan law and the Michigan Court Rules. Under MCL 600.2926, “Circuit court judges in the exercise of their equitable powers, may appoint receivers in all cases pending where appointment is allowed by law.” The Michigan Court Rules similarly provide, “Upon the motion of a party or on its own initiative, and for good cause shown, the court may appoint a receiver as provided by law.” MCR 2.622(A). Accordingly, “[u]nless specifically allowed by statute, a suit may not be maintained solely for the purpose of establishing a receivership as the appointment of a receiver may only be made as an ancillary remedy to other relief sought.” Petitpren v Taylor Sch Dist, 104 Mich App 283, 296; 304 NW2d 553 (1981). For homeowners associations and condominium associations, this typically means that an owner or co-owner has filed a lawsuit against the association for failing to comply with the governing documents, such as not holding annual meetings or elections, or to require the association to enforce the governing documents, such as performing repairs.
A Receiver Is a Remedy of Last Resort
Just because an owner has requested that a court appoint a receiver does not mean that the court will do so. A receiver is designed to be a drastic remedy. As stated in Ypsilanti Charter Twp v Kircher, 281 Mich App 251, 273; 761 NW2d 761 (2008), “We recognize that the appointment of a receiver is a remedy of last resort and should not be used when another, less drastic remedy exists. However, the appointment of a receiver is appropriate when other attempts have failed and a property owner has repeatedly refused to comply with the court’s orders.” This was what happened in Goodson: the plaintiffs in the first lawsuit asked the trial court to appoint a receiver, which the trial court denied because there was a less drastic remedy available of ordering that an election be held at a court-ordered meeting.
In Goodson, the Court ultimately appointed a receiver because there was a concern that the Board was not administering the association according to the bylaws. Improper management, or lack of management, can be a common basis for a court to appoint a receiver. In Mooney v Brush Park Village North Condo Assn, Wayne County Circuit Court Case No. 18-010745-CB, a number of co-owners requested that the trial court appoint a receiver because the Board, which was controlled by a single person, was failing to make repairs to a leaking roof and to the damage caused by the leak.
Condo and HOA Receivership in Michigan Is Not Theoretical
In Goodson v Cairns, unpublished per curiam opinion of the Court of Appeals, issued June 4, 2020 (Docket No. 346809), the Michigan Court of Appeals dealt with a number of issues arising out of a condominium association that was involved in a receivership. In 2014, two co-owners filed a lawsuit against the Heritage Pointe Association, a condominium association, because it failed to elect a board of directors, hold annual meetings, create an annual budget, maintain the common elements, maintain insurance on the common elements, and maintain the architectural standards required by the association’s bylaws. The court ordered the association to hold a new board of directors.
Following the election, one of the newly elected board members filed a lawsuit against the other newly elected board members, alleging a number of violations of the bylaws. At the request of the plaintiff, the trial court appointed a receiver. The trial court tasked the receiver with controlling the association, levying and collecting assessments, enforcing the bylaws, executing contracts, retaining legal counsel, among other responsibilities. The trial court ordered that the receiver would be paid $300.00 per hour plus expenses. At the end of 2018, the receiver reported to the trial court that an annual meeting was held, a new board of directors was elected, and there were sufficient funds for the board to manage and operate the association, and recommended that the trial court terminate the receiver. The trial court agreed and terminated the receiver.
The actual claims and arguments raised in the Court of Appeals largely related to issues unrelated to the receiver. But in one claim, the plaintiff alleged that the trial court authorized the receiver to take actions that were outside the scope of the bylaws. In response, the Court of Appeals stated:
Under MCL 450.2489, the court was authorized to cancel or alter the corporate bylaws and was not bound by them as the board of directors would be. Given this authority, and because MCL 600.2926 provides that the court defines the receiver’s power and duties, we reject plaintiff’s argument that the receiver steps into the shoes of the corporate board and can only do what the board could do. Although the board is bound by the condominium documents, from which it derives its power, the receiver’s power stems from the circuit court order appointing him, and he is an agent of the court and not bound by the bylaws. The court had full authority to define the powers and duties of the receiver in the appointment order. MCL 600.2926. The court, acting in equity, had authority to look at the whole situation and grant or deny relief as good conscience dictates.
A community association that stops governing itself may wind up in a receivership, paying an individual appointed by a court hundreds of dollars an hour to take actions that may or may not be expressly authorized by the governing documents.
What a Receiver Controls and What Receivership Costs Co-Owners
Once a Michigan court appoints a receiver for a homeowners association or condominium association, the receiver is not an advisor or consultant for the Board; they are not there to assist the Board. The receiver is appointed to take control of the association according to the authority granted by the court. In Goodson, the trial court authorized the receiver to exercise “all powers generally available to receivers under the laws of the State of Michigan,” and authorized the receiver to to levy and collect assessments, enforce the bylaws, cancel or modify the association’s agreements, hire and fire third-party service providers, retain counsel and file lawsuits on the association’s behalf, pay the receiver’s own expenses from association assets, and borrow money to fund the receivership. The receiver in Goodson was compensated at a rate of $300 per hour.
In Mooney, the trial court’s grant of authority for the receiver was more general:
The Receiver is authorized to exercise all powers and authority generally available under the laws of the State of Michigan that may be incidental to the powers described in this Order and reasonably necessary to accomplish the purpose of this receivership. The Receiver shall have such additional powers that may be provided by law and that the Court may from time to time direct or confer.
Without limiting the foregoing, the Receiver shall have the power to employ and/or contract with professionals and others, including but not limited to counsel, accountants, brokers, assistants, agents, private investigators, consultants, advisors, realty professionals, and other third-parties…
The receiver in this case was entitled to compensation at the rate of $200 per hour, and at the time the receiver was discharged, the trial court approved the receiver’s total compensation of $159,756.66. That is the real cost of receivership: the co-owners lose control of their community and pay for the privilege.
How Does a Michigan Condo or HOA Get Out of Receivership?
Discharging a receiver is relatively straightforward in theory: fix the problems that the receiver was appointed to address. If the receiver was appointed because there was not a functioning Board in place, then the association will need to hold an election to elect the required number of directors. If the receiver was appointed because the association was not being properly maintained, then the association will need to perform the proper maintenance. Once the receiver addresses and fixes the problem, the receiver will file a final accounting with the court stating that the problem has been fixed and the receiver is owed (or has already been paid) its total amount. The court will then review the matter, resolve any final disputes, and then formally discharge the receiver.
How to Prevent Receivership in a Michigan Condo or HOA
Everything above is expensive, stressful, and almost entirely preventable. The best receivership strategy is never needing one. The following are some easy tips to keep an association out of court and a receivership.
- Recruit directors before you are desperate. Empty board seats are the first domino. Treat recruitment as a year-round effort, not an annual-meeting scramble. Make serving on the Board attractive and manageable: keep meetings short and well-run, define what each officer role actually requires, and recruit for staggered terms so the whole board never turns over at once. Lean on the indemnification protection the law already requires in condominium bylaws, as many reluctant volunteers do not realize the association is required to have their back.
- Use holdover directors. Sometimes it can be difficult to find new members to volunteer to serve on the Board. In that case, a director does not stop serving the instant their term ends. Instead, a director holds office for the elected term “and until his or her successor is elected or appointed and qualified,” or until the director resigns or is removed. MCL 450.2505. A director whose term is expiring can be encouraged to assist the Board with finding a replacement, otherwise, that director will continue to serve on the Board as a holdover.
- Keep the association in good standing with the State of Michigan. This one is almost embarrassingly simple and saves enormous trouble. File the annual report and pay the annual fee, every year, on time. Doing so avoids the automatic dissolution that hits associations after two years of non-filing. If an association has already slipped, Michigan law provides a clear fix: it can renew its corporate existence by filing the missing annual reports (up to the last five years) and paying the fees plus a small penalty per report. More information about annual reports and how to fix an association that has been automatically dissolved can be found at the following article, What to Do When Your Condo or HOA has Been Automatically Dissolved.
- Act immediately if the board falls below quorum. A thin board is a warning light, not an emergency—if you respond. Remember the numbers: a quorum can never be fewer than one-third of the directors then in office, MCL 450.2523, so even a diminished board often retains the power to act. And Michigan law gives a below-quorum board a direct tool to heal itself: the remaining directors, by majority vote of those still in office, can appoint new directors to fill the vacancies. Appoint new directors to the Board promptly, do not wait for the next annual meeting. If the board has emptied out completely, an officer or any member can call a special meeting of owners to elect a fresh board. Either way, the association can almost always restore itself without a judge, but only if someone steps forward in time.
Keep Your Michigan Condo or HOA Self-Governing
Receivership is what happens when a condominium association or homeowners association stops governing itself and a court has to do it instead. Michigan law makes it hard to reach that point—holdover directors, below-quorum appointment powers, and member elections all exist to keep associations self-governing. But those tools only work if owners use them. The warning signs are rarely subtle: no one running for the board, directors resigning, a manager heading for the exits, bills going unpaid. The 137-unit community whose story opened this article lived through every one of them, and it took years and a court-appointed receiver billing by the hour to set things right. Treat each warning sign as a prompt to recruit, to file, and to fill the empty seats. A little attention from volunteers today is far cheaper than a receiver’s invoice tomorrow.
