When a developer starts a project in Michigan, often it is easier/cheaper to create a site condominium or a homeowner’s association (“HOA”) rather than platting single family homes. As the developer sells enough units, control of the site condominium or HOA transfers to the homeowners in the project. Once the transition occurs, it is the homeowners’ responsibility for making sure the association is maintained and reasonable restrictions enforced. Because HOAs are typically governed by a nonprofit corporation organized under the laws of the State of Michigan, our office routinely encounters HOAs who are no longer in good standing with the State of Michigan’s Department of Licensing and Regulatory Affairs. This article explores 1) how to check on the status of your HOA, 2) common ways that a HOA loses its corporate status and 3) how to revive a defunct HOA.
How to Check a HOA’s Corporate Status in Michigan
The easiest way to check on the corporate status of an association in Michigan is to search Michigan’s Department of Licensing and Regulatory Affairs website. If the association is listed as “Active” under the Status section, then it is current with the State of Michigan. Where issues arise is when the HOA is listed as:
• “Active, But Not in Good Standing as of xx/xx/xxxx” or
• “Automatic Dissolution” or
• “Dissolved”
Common Ways a HOA Loses “Active” Status
While there are many ways that a HOA may lose “Active” status, below are a few common situations our office has encountered:
• The developer is listed as the resident agent for the association and the developer closes its single-purpose LLC or the developer moves to the next project without updating the Board of Directors or the State of Michigan.
• A homeowner is listed as the resident agent and moves out of the neighborhood.
• A property manager is listed as the resident agent and is fired by the association (this is more common with condominiums, but can occur with HOAs) and the association decides to self-manage instead of hiring a new property manager.
• The Board of Directors is overthrown by a new board and the new board is unfamiliar with the requirements to file annual reports with the State of Michigan and fails to do so for a number of years.
• The Secretary of the Association is replaced mid-year and there is a miscommunication whether the appropriate documents are on file with the State of Michigan.
• The resident agent dies and all of the notifications from the State of Michigan go unanswered.
• The homeowners are apathetic about maintaining the association and everyone “does their own thing” for a number of years (typically until a problem occurs).
Regardless of the reasoning, most defunct HOAs will at some point update the association’s records with the State of Michigan to become “Active” again.
Reviving a Defunct Homeowners Association
On the positive side and under most circumstances, if an association is listed as “Active, But Not in Good Standing” or as “Automatic Dissolution” then the association should be able to update its corporate status with the State of Michigan and become current again. This typically entails completing and filing the appropriate documents (usually past due annual reports) with the State of Michigan and paying the appropriate fees (including any late fees). On the other hand, if your association is listed as “Dissolved” this may take more investigation and work determining why this occurred and what can be done about it. Under MCL 450.2833, a dissolved corporation is limited on what actions it can and cannot take. MCL 450.2833 states:
Except as a court may otherwise direct, a dissolved corporation shall continue its corporate existence but shall not conduct affairs except for the purpose of winding up its affairs by:
(a) Collecting its assets.
(b) Selling or otherwise transferring, with or without security, assets which are not to be distributed in kind pursuant to section 855.
(c) Paying its debts and other liabilities.
(d) Doing all other acts incident to liquidation of its affairs.
Given this draconian language of “shall not conduct affairs except…”, a dissolved corporation typically entails more analysis and should be handled by an opinion letter from a competent attorney.
Conclusion
If your HOA is listed as anything but “Active” with the State of Michigan, you should review the matter with your Board of Directors, your property manager and/or a competent attorney to ensure your association is current.
The team at Hirzel Law, PLC is composed of award-winning real estate attorneys that can offer quality representation for Michigan clients. Regardless of if you are a commercial real estate developer or individual homeowner, our real estate attorneys can help. We fully understand how unique and complex the challenges that our clients may face, and our real estate attorneys are prepared to help in whatever way necessary. Contact Hirzel Law online or call 248-986-2921 (Farmington) or 231-486-5600 (Traverse City) or 616-319-9964 (Grand Rapids) to learn how our Michigan real estate lawyers can help protect your Michigan real estate investment today.
