What to do when your Condo or HOA has been automatically dissolved

Michigan condominium and homeowners Associations are organized under the Michigan Nonprofit Corporation Act, MCL 450.2101, et seq. As a result, they are subject to automatic dissolution if they fail to file an annual report or pay an annual filing fee for a period of two years. See MCL 450.2922(1). But what happens when a dissolved condominium or homeowners association (which often operates after dissolution as though the corporate existence continues) wants to enforce restrictions contained in their governing documents? In order to enforce the requirements of their governing documents through litigation, a condominium or homeowners association must exist, unless it is organized as an unincorporated association. As a result, if a condominium or homeowners association has previously been dissolved, then it should renew its corporate existence.

MCL 450.2925(1) provides the method by which a condominium or homeowners association may renew its corporate existence and provides as follows:

A domestic corporation that is dissolved under section 922(1) . . . may renew its corporate existence . . . by filing the annual reports under section 911 for the last 5 years or any lesser number of years in which the reports were not filed and paying the annual filing fees for all the years for which they were not paid, together with a penalty of $5.00 for each delinquent report. When the reports are filed and the fees are paid, the corporate existence . . . is renewed. . . .

Importantly, “[t]he rights of a corporation that complies with [MCL 450.2925(1)] are the same as if the dissolution . . . has not taken place, and all contracts entered into and other rights acquired during this interval are valid and enforceable.” MCL 450.2925(2).

This second provision of MCL 450.2925 that states that a renewed corporation’s dissolution is essentially erased (because, as the statute says, “the rights . . . are the same as if the dissolution . . . ha[d] not taken place”), is incredibly important for condominium and homeowners association to remember. In short, this provision of the statute allows a condominium and homeowners association to enforce obligations contained in the governing documents, even if a violation only occurs during the time that the entity was dissolved.

An unpublished Michigan Court of Appeals case from December 2017, Hawthorne Ridge Homeowners Association v Wang et al (Docket No 336077), examines this very issue. The Hawthorne Ridge Homeowners Association (the “Association”) was administratively dissolved in 2011, for its failure to file its annual reports and pay its annual filing fee in 2010 and 2011. In June 2015, co-owners of one of the Units in the Condominium hired a painter to repaint the exterior of their home. The co-owners, however, did not submit an application to change the exterior paint color to the Association, nor did it receive the Association’s approval, prior to repainting their Unit, as required by the governing documents. In September 2015, the Association renewed its corporate existence pursuant to MCL 450.2925(1), by filing annual reports for the years 2010, 2011, 2012, 2013, 2014, and 2015, along with its filing fees for those years, and a $25.00 penalty for filing the 2010-2014 reports late ($5.00 per year). The Association then filed suit against the co-owners in November 2015.

The co-owners argued, in relevant part, that because their violation occurred while the Association was dissolved, it did not have the legal authority to enforce the governing documents. The Court of Appeals rejected this argument, relying on MCL 450.2925(2)’s language which explicitly provides that, once renewed, “all contracts entered into and other rights acquired during [the dissolution] interval are valid and enforceable.” As a result, even though the violation occurred while the Association was dissolved, once the corporate existence was renewed, the Association was empowered to enforce the requirements of the governing documents.

Michigan condominium and homeowners association should be aware that, they are required to file annual reports and pay an annual filing fee each year by October 1st. See MCL 450.2911(1). Condominium and homeowners association that fail to file annual reports for two consecutive years will be automatically dissolved by the State of Michigan Department of Licensing and Regulatory Affairs (LARA). MCL 450.2922(1). If your condominium or homeowners association is automatically dissolved, it is important that it complies with the procedure in MCL 450.2925(1) to renew its corporate existence. Once renewed, the fact that the condominium or homeowners association was administratively dissolved will be irrelevant, and all contracts and rights acquired during the period it was dissolved will be, and remain, valid and enforceable. MCL 450.2925(2).

Kevin Hirzel is the Managing Member of Hirzel Law, PLC and concentrates his practice on commercial litigation, community association law, condominium law, Fair Housing Act compliance, homeowners association and real estate law. Mr. Hirzel is a fellow in the College of Community Association Lawyers, a prestigious designation given to less than 175 attorneys in the country. He was named a “Go To Lawyer” in Condominium and Real Estate Law by Michigan Lawyer’s Weekly. Mr. Hirzel has been a Michigan Super Lawyer’s Rising Star in Real Estate Law from 2013-2021, an award given to only 2.5% of the attorneys in Michigan each year. Mr. Hirzel has been named a Leading Lawyer in Condominium & HOA law by Leading Lawyers Magazine from 2018-2021, an award given to less than 5% of the attorneys in Michigan each year. He represents community associations, condominium associations, cooperatives, homeowners associations, property owners and property managers throughout Michigan. He may be reached at (248) 478-1800 or kevin@hirzellaw.com.

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