Administratively Dissolved Homeowners Associations can be Reinstated under New Nebraska Laws

By David Skalka, Attorney and Daniel E. Cummings, Senior Certified Law Clerk

Two laws passed this year provide methods for Nebraska homeowners associations (HOAs) that have been administratively dissolved for over five years to reinstate, resolving a conundrum that dissolved HOAs have had regarding reinstatement of assessing authority over the entirety of the development. LB 279, already in effect, allows for reinstatement of any corporation or other entity dissolved for over five years with an application, a $500 fee together with all delinquent fees of the Secretary of State, and delivery to the Secretary of State a properly executed and signed biennial report. LB 304, taking effect in late August 2015, allows for reinstatement of HOAs that have been dissolved for over five years with a fee of only $100. It also allows three or more members of a dissolved association to call a meeting to remove and elect directors and approve an application for reinstatement.

Background

Homeowners associations are usually created through a declaration of covenants filed by the developer against all lots of a residential development before lots are sold. The declaration of covenants directs that an HOA be formed, identifies its specific name, states that the lots that the declaration of covenants are filed against are subject to the HOA and its owners are members, and sets forth the responsibilities and authority of the HOA including many times the care of common area property, the assessment of dues, and right to place liens against real estate if HOA dues or assessments are not paid.

The Nebraska Secretary of State requires corporations including HOAs, and other entities, to biennially to file a report and pay certain fees. The failure to do so causes the Secretary of State to administratively dissolve the entity. Prior to January 1, 2013, that dissolution was not a death knell to a corporate entity because an entity could always seek to reinstate itself no matter how long the entity had been dissolved. By law reinstatement from an administrative dissolution relates back to the date of dissolution as if the dissolution had never occurred. The one risk and issue that prevented reinstatement was if the corporation’s name or similar name was given to an entity that was formed in the interim.

However, in 2012 effective January 1, 2013, the Nebraska Legislature passed LB 854 which limited the ability for corporate entities including HOAs to reinstate after being administratively dissolved. It provided that an entity could then only be reinstated within five years after its administrative dissolution. The stated purpose of the law was to prevent business identity theft. However, the law created problems for HOAs that had been dissolved for over five years, suddenly finding themselves without any ability to reinstate. Forming a new HOA is not usually a solution because only the HOA named in the development’s declaration of covenants has the authority and powers granted such as enforcing covenants, imposing assessments, and imposing liens on real estate to enforce those assessments. Further, by law membership in a non-profit corporation is voluntary, so whereas the declaration of covenants provides that all lot owners are automatically members of the (now dissolved) HOA and bind subsequent owners, a new HOA not identified has no means to impose anything on anyone involuntarily. The only means to restore the HOA authority granted by the declaration of covenants was to meet the requirements to amend the declaration of covenants to change the name of the applicable HOA and form that new HOA. Those requirements which almost always include a supermajority of lot owners to approve are usually insurmountable if the development no longer is mostly owned by the developer.

Such HOAs and residential developments have found themselves unable to manage common area property or make assessments to fund maintenance or the HOA. The problem this created, as Nebraska Senator Matt Hansen testified in the committee hearing on LB 304 (discussed below), was that “due to the restrictive covenants and the deeds, the now defunct HOA still has control over the common property of the neighborhood. . . . Without an active and functioning HOA, there is no one to collect assessments, perform maintenance, or conduct the business of the HOA that is needed to benefit the surrounding property owners.”

LB 279

In March 2015, the Nebraska Legislature passed and the Governor signed into law LB 279. It amended laws governing several Nebraska corporate entities, including the statute governing reinstatement of administratively dissolved non-profit corporations such as HOAs. The law allows such entities to be reinstated for a $500 fee together with all delinquent fees of the Secretary of State, delivery to the Secretary of State a properly executed and signed biennial report, and requires the submission of a statement that the reason(s) for dissolution no longer exist or have been eliminated, that a legitimate reason exists for the reinstatement, and that the reinstatement does not constitute fraud on the public. The law does not further define what is a legitimate reason, but the fact that the HOA is the entity granted authority and responsibilities in a declaration of covenants we believe should be a sufficient legitimate reason. LB 279 was passed as an emergency measure and thus took effect immediately.

LB 304

LB 304 was passed and signed into law in April 2015. LB 304 provides an additional means to reinstate a Nebraska HOA to the existing procedure for reinstating administratively dissolved non-profit corporations. It provides that three or more members of a dissolved HOA may call a special meeting to remove and elect new directors and approve the submission of an application of reinstatement to the Secretary of State. Notice of the time and location of the meeting must be provided to the HOA members in a fair and reasonable manner (pursuant to Neb. Rev. Stat. § 21-1955). Notwithstanding the HOA’s declaration, articles of incorporation, or bylaws, an affirmative vote of all those present shall be sufficient for all matters approved in such a meeting. Three members eligible to vote is a sufficient quorum.

The application for reinstatement made in such a meeting is the same as an application made through the normal procedure for reinstating a non-profit corporation, except that the fee for reinstating a HOA that has been dissolved even if for over five years is $100 as opposed to the fees required by LB 279. The application must provide the name of the HOA, the effective date of its administrative dissolution, that the ground(s) for dissolution either did not exist or have been eliminated, and that its name satisfies the requirements for non-profit corporations (see Neb. Rev. St. § 21-1931). Once the HOA is reinstated, the reinstatement relates back to the date of dissolution as if the dissolution never occurred.

LB 304 also provides terms allowing municipalities to act as a custodian of a HOA that has been dissolved and has not reinstated within six months after the municipality has made a demand for reinstatement. LB 384 was not passed as an emergency measure; it will take effect on August 29, 2015, three calendar months after the end of the legislative session.

Those seeking to reinstate an administratively dissolved HOA or for help in other corporate governance matters can contact our firm at 402-391-6777 or email an inquiry. The attorneys at Croker Huck Law Firm, have extensive experience assisting businesses generally in a wide range of the legal issues that they face.

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