Dissolving an incorporated HOA that owns a private road

[Ashbrook]

Jurisdiction

Tennessee

Hello. I am a board member of an HOA incorporated in Tennessee in 1999. There are twelve single family residence that comprise the HOA. The HOA owns a private road, each HOA member plot (home) is a 1/12th owner of the incorporated HOA. The only common area is the private road. To complicate matters further there are actually fourteen homes that connect to this private road. Two homes are not members of the HOA even though they have driveways that connect to the road. I don't know why or how this came to be, before my time owning a home on this road. Recent discussions have centered around dissolving the HOA, primarily as a means of avoiding or limiting liability for the road. Some feel this is misguided but I digress. My question is how would we equitably divide ownership of the private road between the twelve homes if the incorporated HOA is dissolved? Does ownership of the road now get split among twelve homes or fourteen? The fourteen properties have varying lengths of road frontage. Plot maps show the individual plots going to the center of the road. Thanks in advance for any insights you may be able to offer.

 

[army judge]

My question is how would we equitably divide ownership of the private road between the twelve homes if the incorporated HOA is dissolved?

Does ownership of the road now get split among twelve homes or fourteen?

Excellent question for the board members to pose to the HOA's attorney.

If the HOA doesn't have a law firm on retainer, then it should pose their questions to the attorney it retains to address it's dissolution.

However, there are always gotchas, lurking. Those gotchas and their consequences must be identified, another reason the HOA requires precise, accurate information from the attorney they hire. This forum is insufficient in that regard!!!


Dissolution and Termination

Dissolution does not end the existence of a business entity.

In Tennessee, ceasing the existence of a business entity is a two step process: (1) Dissolution and (2) Termination.

Filing dissolution documents is the first step and requires the business to wind-up its business and affairs. Once that is complete and the entity has obtained a Certificate of Tax Clearance for Termination/Withdrawal from the Tennessee Department of Revenue, the business entity may file termination documents.

Until termination documents have been filed, the business entity will still be required to file annual reports and pay taxes to the Department of Revenue.

Secretary of State - Dissolution and Termination

Dissolving a Homeowners' or Community Association (HOA)

 

[Ashbrook]

Thank you for your reply. One homeowner wants road ownership to be determined by road frontage. Of course this homeowner lives on the cul-de-sac end of the road and has the smallest road frontage. That just doesn't seem equitable. Utilizing that method some homeowners will shoulder a far greater liability burden for the road than will others. With an incorporated HOA at least we share equally. Thanks again for your reply.

 

[flyingron]

There's more involved than we can possibly answer. You'll have to see if the exactly what the land records involved (ownership of the road, easements, HOA incorporation documents and bylaws, covenants, etc....). A lawyer can research these as well as the laws involved and help you come up with a resolution. If you have several like minded neighbors, you can band together to share an attorney to represent your desired outcome.

 

[Ashbrook]

There's more involved than we can possibly answer. You'll have to see if the exactly what the land records involved (ownership of the road, easements, HOA incorporation documents and bylaws, covenants, etc....). A lawyer can research these as well as the laws involved and help you come up with a resolution. If you have several like minded neighbors, you can band together to share an attorney to represent your desired outcome.

Agreed this is a very complex issue. I thought possibly someone on this forum might have encountered a similar situation and could enlighten me as to some options to consider. Thank you for your reply.

 

[zddoodah]

My question is how would we equitably divide ownership of the private road between the twelve homes if the incorporated HOA is dissolved?

Perhaps I'm not understanding this question, and putting aside the issue of whether this is a good idea, but is there any reason to believe that 1/12th (or 1/14th) ownership wouldn't be equitable? Are you simply asking us (a bunch of anonymous strangers) whether, if this happens, ownership should be divided between the 12 current members of the HOA or those 12 plus the other 2 property owners? Do all 12/14 owners want to own the road? It's not like the HOA can force anyone to take ownership. If I were one of the "other" 2 owners, why on Earth would I want obligations and liability that would come with ownership?

Based solely on your post, this seems like a terrible idea, and it likely won't work in the absence of unanimity.

 

[flyingron]

The issue is that the ownership division is just part of the problem. You'll want new easements and perhaps some agreement on maintenance going forward. This is going to require an attorney. I'm on a HOA board that (among other things) maintains several private roads, some of which have easements for others and some are on property owned by others for which we are a dominent tenant on an easement. It's not a simple matter.

 

[adjusterjack]

Plot maps show the individual plots going to the center of the road.

Nobody has picked up on this.

It's possible that each homeowner already "owns" that part of the road that falls within those plot lines. Read the deeds and decipher the legal description.

The HOA may only exist to maintain the road. Is there a recorded deed in the name of the HOA describing ownership of the road? You'll need to find that out. If there isn't one, then the HOA might not actually "own" the road.

If it turns out that each homeowner is the owner of a portion of the road then his homeowners insurance will cover him for any liability that involves that portion of the road.

If that's the case, then dissolution of the HOA may still be problematic when the road wears out and has to be repaired. You may be willing to fix the pothole in front of your house but then have to navigate the potholes in front of other homes where the owner doesn't want to spend the money to fix.

Keeping the HOA and collecting small fees to build a repair fund takes care of that.

As for the HOA's liability for the road use, the HOA should have it's own liability policy.

Seems like your HOA is populated by some really ignorant people who can't comprehend simple solutions and want a cure that might be worse than the disease.

 

[Ashbrook]

Perhaps I'm not understanding this question, and putting aside the issue of whether this is a good idea, but is there any reason to believe that 1/12th (or 1/14th) ownership wouldn't be equitable? Are you simply asking us (a bunch of anonymous strangers) whether, if this happens, ownership should be divided between the 12 current members of the HOA or those 12 plus the other 2 property owners? Do all 12/14 owners want to own the road? It's not like the HOA can force anyone to take ownership. If I were one of the "other" 2 owners, why on Earth would I want obligations and liability that would come with ownership?

Based solely on your post, this seems like a terrible idea, and it likely won't work in the absence of unanimity.

I believe that my HOA is not the first to encounter this issue of dividing ownership of a private road among several homeowners. My question is not really about how do we do this but rather has anyone encountered this situation before and what information or strategies can they share related to this issue. I was hoping my question would spark a conversation thread, which it appears it has, that can help me understand some of the concerns or issues I haven't thought of.

There are varying opinions among the 12 HOA owners about dissolving it. One home that has the least adjacent road frontage but travels one of the longest distances on the road is pushing for dissolving the HOA simply to minimize their liability exposure associated with the road; i.e. they believe the probability of an accident occurring on the road in front of their property is extremely small. They are probably correct in that assumption but it doesn't seem equitable to lessen their liability exposure since they travel a far greater length of the road than some homeowners who will have to shoulder a greater liability risk simply because their property has a larger adjacent road frontage yet they travel a shorter distance on the road. Basically, this homeowner wants to shift their liability exposure from the current 1/12th (8.33%) to somewhere in the neighborhood of .05%. I agree dissolving the HOA is a terrible idea, primarily because our home values are tied to this road. If the road were to fall into disrepair then our home values will reflect that. The board has not approached the two property owners who are not members of the HOA. I can't believe either will be willing to accept liability and maintenance responsibilities that they currently are exempt from. Living on a private road is a new reality for me. I am doing my homework so that when this issue comes before the board, which I am certain it will soon, I can be ready to discuss it with rationale arguments. Thank you for your reply.

 

[Ashbrook]

The issue is that the ownership division is just part of the problem. You'll want new easements and perhaps some agreement on maintenance going forward. This is going to require an attorney. I'm on a HOA board that (among other things) maintains several private roads, some of which have easements for others and some are on property owned by others for which we are a dominent tenant on an easement. It's not a simple matter.

Agree this is not a simple matter. I had not considered that new easements will be required. I had envisioned a new road maintenance agreement is in order. I read that one homeowner can derail the ratification of a road maintenance agreement. We have at least one such homeowner possibly more who won't buy into such an agreement. Thank you for your reply.

 

[Ashbrook]

Nobody has picked up on this.

It's possible that each homeowner already "owns" that part of the road that falls within those plot lines. Read the deeds and decipher the legal description.

The HOA may only exist to maintain the road. Is there a recorded deed in the name of the HOA describing ownership of the road? You'll need to find that out. If there isn't one, then the HOA might not actually "own" the road.

If it turns out that each homeowner is the owner of a portion of the road then his homeowners insurance will cover him for any liability that involves that portion of the road.

If that's the case, then dissolution of the HOA may still be problematic when the road wears out and has to be repaired. You may be willing to fix the pothole in front of your house but then have to navigate the potholes in front of other homes where the owner doesn't want to spend the money to fix.

Keeping the HOA and collecting small fees to build a repair fund takes care of that.

As for the HOA's liability for the road use, the HOA should have it's own liability policy.

Seems like your HOA is populated by some really ignorant people who can't comprehend simple solutions and want a cure that might be worse than the disease.

Thank you for your reply!! I have not thought to confirm that the HOA actually owns the road. Our Covenants and Restrictions say the HOA owns the road but I have no knowledge that a deed confirming that fact actually exists. Confirming ownership will be my first step. Thank you for pointing this out.

I did check with my insurance agent about whether my homeowners policy (I have an umbrella policy as well) will cover me should the HOA be sued as the result of an incident related to the road. My agent said "NO". He stated that my policy covers me but any lawsuit brought against the HOA is not their obligation since the HOA is not their client. I have also read that homeowners / umbrella policies do not cover a person for "inherited liability" which to me is the liability that one assumes with ownership of an HOA. Liability aside, dissolving the HOA will have far more negative side-effects than benefits. A few of us see that. Hopefully enough to thwart efforts to dissolve the HOA.

Typical of HOA's we suffer from membership apathy. Some really don't care what happens, such as when a homeowner looking out for just themself see's an opportunity to screw over their neighbors creating a mess that folks not paying attention will be blind to until it is too late to do anything about it.

Thank you again for your reply.

 

[adjusterjack]

One home that has the least adjacent road frontage but travels one of the longest distances on the road is pushing for dissolving the HOA simply to minimize their liability exposure associated with the road; i.e. they believe the probability of an accident occurring on the road in front of their property is extremely small. They are probably correct in that assumption but it doesn't seem equitable to lessen their liability exposure since they travel a far greater length of the road than some homeowners who will have to shoulder a greater liability risk simply because their property has a larger adjacent road frontage yet they travel a shorter distance on the road.

That's ridiculous. If one is travelling along the road they are doing it by car. That's auto liability and has nothing to do with the road. And if they are walking and cause damage or injury to somebody, that's personal liability and also has nothing to do with the road.

The liability issue is a non-issue. A cheap liability policy for the HOA solves any minimal risk.

It's road maintenance that the HOA exists for. As long as you don't change anything you can enforce the small amount of fees that it would take to have a maintenance fund.

Hopefully enough to thwart efforts to dissolve the HOA.

Check your HOA documents to see what kind of vote it takes to change or dissolve the HOA. Might be easier to just do nothing and ignore the rabble rouser.

 

[flyingron]

Plots [SIC] often aren't defining. You have to look at the historical deed records to find out who owns anything. You also have to check for any easements or the like granted. If the HOA does in fact have some sort of ownership interest in all or part of the property, there are likely restrictions on the disposal that you can't just handwave through.

 

[Ashbrook]

That's ridiculous. If one is travelling along the road they are doing it by car. That's auto liability and has nothing to do with the road. And if they are walking and cause damage or injury to somebody, that's personal liability and also has nothing to do with the road.

The liability issue is a non-issue. A cheap liability policy for the HOA solves any minimal risk.

It's road maintenance that the HOA exists for. As long as you don't change anything you can enforce the small amount of fees that it would take to have a maintenance fund.



Check your HOA documents to see what kind of vote it takes to change or dissolve the HOA. Might be easier to just do nothing and ignore the rabble rouser.

I was a little harsh in my reply about that one homeowner. They are looking at this issue from the lens of what is in their best interest. Can't really fault them for that. Acquiring liability insurance for the HOA is in the works. As for our HOA documents my interpretation is that it requires a vote by all homeowners with a minimum requirement of two-thirds being yes in order to pass a motion to dissolve the corporation. Thanks again for your replies.

 

[Tax Counsel]

That just doesn't seem equitable.

What seems fair/equitable to one may not be to another. The statutes don't specifically mandate how that should be done, so if it's not expressly stated in the terms of the HOA hopefully you all can reach agreement on something everyone can live with. army judge was spot on that there are lot of issues that will need to be resolved upon dissolution of a HOA and consulting an attorney who represents HOAs is a very good idea in spotting what may become issues in the dissolution. Resolving those issues collectively during negotiations on the break up will cost you less than the litigation costs later over something that should have already been dealt with when the HOA dissolved.

 

[welkin]

If you want to know about the easements that may exist across the properties, you look at the recorded subdivision plat. That would be in the county registrar's office.

If the plat shows the road and the front lot lines are to the center line of the road (as you indicated) the easements for the road (on each property) were created by the recording of that plat. In easement law it is called easement by plat.

Unless a contrary intention appears of record, the presumption is that a grantee acquired rights in all roads, streets, parks, and other designated ways shown on a recorded plat where a subdivision was lawfully created and constructed, or partially constructed. The implied easement is created where land is conveyed with reference to a recorded plat.

And that would also include the two lots not part of the HOA.

Problem solved about what easements may exist.

The value of the road to each of the lots along it, is a matter of benefit like figuring out how much a waterline or sewer line cost and how much benefit each property receives and must pay if it is done by special assessment.

For example: The property at the cul de sac has the benefit of the entire road not just his frontage so he pays the most (not the least). The first house(s) on the road has the benefit of only a small portion of the road so they pay the least.

 

[flyingron]

If you want to know about the easements that may exist across the properties, you look at the recorded subdivision plat. That would be in the county registrar's office.

I disagree. The subdivision plat may show indications of easements or other encumbrances created at the time of the subdivision, then again it may not. As I said, I'm on the board of a 47 lot HOA which has not only private roads plus a runway in the common area. I have a dozen subdivision plats but they are largely informational, the actual boundaries of many of the areas are described textually in other documents. I've got a dozen or so easement documents and a several editions of recorded bylaws and covenants. This I accumulated all by searching every land use record index entry that involved any of the original developers names or their company name as well as the HOA name and in addition checking any of records in the names of grantors and grantees involved with the above parties.

If you think that a plat is going to tell you everything, you're sorely mistaken.

 

[welkin]

Ron, I didn't make up the doctrine of an implied easement by recorded plat. All you have to do is search the case law in every state and you will find that it is a settled doctrine.

As for the plat telling everything; we are discussing a single road up through a subdivision with lots on both sides with their property lines extending to the centerline of the road. That, by law, creates an easement on each property to use the road without an express written easement in the deeds if the road is shown on a recorded plat that was used to sell the property.

We are not discussing reserved easement or parks or land for future use or common areas that you may find necessary for your HOA.

 

[flyingron]

Believe me, I have exactly what you describe. One of our roads passes straight through the edges of the properties. It's not platted and the property lines are defined via the deed (though they do mention the road) and there is a separate easement both for road ingress and egress and yet another for utilities along the road.