Change classification from Condo to Townhome

[JenniSam]

What is the name of your state (only U.S. law)? Michigan

A neighbor just recently tried to sell his condo but the deal fell through when the buyers mortgage company would not proceed because our condo’s do not have an active HOA. We had an HOA but it has been inactive for almost 10 years now. The neighbor has now approached us with his intent to have the community reclassified as townhomes. The community is small, 6 units (3 sets of 2). I am not opposed to this as long as I understand what I am signing up for and I hope to move in the next 1-2 years myself.

I have been trying to find any information about this with no luck. First I am wondering if this kind of change is possible and then what are the pros and cons. Any info would be appreciated.

Thank you!

 

[LdiJ]

What is the name of your state (only U.S. law)? Michigan

A neighbor just recently tried to sell his condo but the deal fell through when the buyers mortgage company would not proceed because our condo’s do not have an active HOA. We had an HOA but it has been inactive for almost 10 years now. The neighbor has now approached us with his intent to have the community reclassified as townhomes. The community is small, 6 units (3 sets of 2). I am not opposed to this as long as I understand what I am signing up for and I hope to move in the next 1-2 years myself.

I have been trying to find any information about this with no luck. First I am wondering if this kind of change is possible and then what are the pros and cons. Any info would be appreciated.

Thank you!

Condos with an inactive HOA are basically operating as townhouses by default...not legally, but for all practical purposes. You do not have an HOA providing any common area services so obviously you are all each providing all of your own services.

 

[JenniSam]

If I understand my neighbor correctly, his intent is to have the legal description changed with the city.

 

[LdiJ]

If I understand my neighbor correctly, his intent is to have the legal description changed with the city.

I understand that. My point that was for practical purposes its not going to change anything for you. However, it may change something for legal purposes but if it does, its going to be part of your city ordinances, and that is something you really have to research with your city.

 

[quincy]

What is the name of your state (only U.S. law)? Michigan

A neighbor just recently tried to sell his condo but the deal fell through when the buyers mortgage company would not proceed because our condo’s do not have an active HOA. We had an HOA but it has been inactive for almost 10 years now. The neighbor has now approached us with his intent to have the community reclassified as townhomes. The community is small, 6 units (3 sets of 2). I am not opposed to this as long as I understand what I am signing up for and I hope to move in the next 1-2 years myself.

I have been trying to find any information about this with no luck. First I am wondering if this kind of change is possible and then what are the pros and cons. Any info would be appreciated.

Thank you!

Property classifications are for tax assessment purposes only.

Your condominium is either classified as a residential property (probably) or as a commercial property (probably not). There are actually six classifications in Michigan (like agricultural and industrial), but these would not apply to you.

Properties are classified and assessed according to their current use.

If you (or your neighbor) wish to dispute your current classification, you can file an appeal with the Board of Review. If you are already classified as residential, however, you have little to gain from a reclassification.

See MCL 211.34c for more information.

Now, if instead of "classification," your neighbor is looking to have the inactive HOA dissolved entirely, that is more complicated. It not only involves getting consent from all of the homeowners, but there could be a need to get deeds changed and mortgage documents changed and something has to be done with the common areas currently under the control of the HOA (whether actively under its control or not).

There might be in your HOA documents information on the dissolution of the HOA. I would check there first. If not, it might be necessary to consult with a real estate attorney in your area to work with the homeowners on the dissolution.

Good luck.

 

[FarmerJ]

Food for thought , if the so called HOA is dissolved then talk to your insurance agent now to see if your homeowners policy has to be modified to address the lack of HOA but yet you would still have a so called common roof and common wall neighbor maybe you want some kind of additional coverage in case the other owner or another occupant next door did something or did not address any issue with any commonly owned items . You did not say anything about lawns ( actual lots ) if the streets were HOA owned ? , If nothing else you may learn there is no extra coverage needed but if there was it sure would be a better choice to help take steps to KEEP what you have instead of losses due to a neighbor who didn't take care of something that could impact you.

 

[quincy]

There were several major changes made to Michigan's Nonprofit Corporation Act in January of this year, which can impact condominium associations and the dissolution of HOAs. Following is a link to Michigan's Condominium Act and, then, a link to the current MCL 450.2804 on dissolutions of corporations.

JenniSam and her neighbor really need to consult with an attorney in their area of Michigan if they wish to dissolve the condominium association. This is definitely not a do-it-yourself project.

Michigan's Condominium Act: http://www.legislature.mi.gov/(S(eiuyt3bwkafbvg55hhwhz55))/documents/mcl/pdf/mcl-Act-59-of-1978.pdf

MCL 450.2804: http://www.legislature.mi.gov/(S(mzc2un3a1koihajb2rz1tijn))/mileg.aspx?page=GetObject&objectname=mcl-450-2804

 

[festival]

It would be a much, much easier to re-activate the HOA than all the legal work to dissolve and reclassify.

 

[JenniSam]

The HOA was "dissolved" maybe 2 months after we purchased the condo. We learned about the status of our insurance shortly after the purchase. Our insurance company understands our situation and we have the correct policy now.

Long story short, One guy handled pretty much everything to do with the HOA and he owned 4 of the 6 Condos. Right before the housing bust he had his condos appraised for ridiculous amounts, took a loan against each condo, never made a payment and walked away. He also cancelled the umbrella policy, received a refund and no one has been able to locate him since. For 1-2 years 4 of the 6 condos were vacant and finally sold at an auction. My connecting neighbor was in complete denial and believed everything was still being taken care of even though there was no one to make an HOA payment to. So I went to our insurance company and told them the issue. It took some special approvals and extra coverage but we are covered. My neighbor was not.

A non-connecting neighbor presented the change by saying, "4 of the 6 have decided to do this and according to the bylaws we have enough to proceed with out your agreement." I found that rather funny considering there has been no active HOA since 2008. How do you enforce rules of an HOA that is in-active? I am in the process of reading over the bylaws now. But I agree, a local attorney would give us the best insight. This is all a big mess.

Thanks to everyone for your input.

 

[quincy]

... But I agree, a local attorney would give us the best insight. This is all a big mess.

Thanks to everyone for your input.

A personal review by a local attorney does appear to be necessary. I agree your described situation sounds a big mess.

And thank you for the thanks, JenniSam. We all appreciate them.

 

[festival]

There is a big difference between dissolving the HOA as a corporation, and terminating the condominium. You probably have a dissolved corporation due to not filing with the Secy of State for a number of years.

Most condos incorporate the owners association from the beginning, since it shields/protects the owners. Corporations can be dissolved, but you will still have a condominium with an unincorporated owners association. The corporation can usually be re-established without too much trouble.

You should have a governing doc called a Master Deed that created the condominium and should have the procedure for termination. It usually requires all owners to give written permission to terminate, although it may have a smaller percentage. If it is not formally terminated, then your condominium still exists, and you have all your rights in the master deed and by law.

 

[JenniSam]

There is a big difference between dissolving the HOA as a corporation, and terminating the condominium. You probably have a dissolved corporation due to not filing with the Secy of State for a number of years.

Most condos incorporate the owners association from the beginning, since it shields/protects the owners. Corporations can be dissolved, but you will still have a condominium with an unincorporated owners association. The corporation can usually be re-established without too much trouble.

You should have a governing doc called a Master Deed that created the condominium and should have the procedure for termination. It usually requires all owners to give written permission to terminate, although it may have a smaller percentage. If it is not formally terminated, then your condominium still exists, and you have all your rights in the master deed and by law.

This is great information. Thank you!