Receivership occurs when a court appoints a third-party individual (a “receiver”) to manage the affairs of a condominium, homeowner (HOA), or townhome community association because it no longer has a functioning board.

Receivers are typically appointed to ensure the continued operation and stability of the association when self-governance has broken down. This may be necessary to protect property values, fulfill legal or financial obligations, or even as a condition imposed by a lender to safeguard its collateral interest in the community. While receivership appointments and situations are all unique, the receiver may take over association decision-making duties from obtaining vendors, managing maintenance projects, and the enforcement of community rules.

It’s important to note that the receiver is not an owner, resident, or stakeholder in the community. Their authority comes from the court appointment and their primary goal is to stabilize the association, not to reflect the will or wishes of the homeowners. For associations that can no longer function due to lack of leadership, receivership may be the only option, but it is rarely ideal.


Five Reasons Associations End Up in Receivership

  1. Board Resignations Without Replacements: When multiple board members resign and no one steps forward to fill the vacancies, the association loses its ability to govern. This may include paying association bills, assigning repairs, reviewing architectural change requests, or signing vendor contracts.
  2. Chronic Volunteer Shortages: In some communities, especially those with low owner engagement, recruiting board members is a constant struggle. Without proactive efforts to build a leadership pipeline, even well-functioning boards can erode over time. It may not take long before this leadership vacuum can lead to operational paralysis where essential tasks like budgeting, contract approvals, and rule enforcement fall through the cracks.
  3. Community Apathy: Disputes, tension, or a lack of trust among homeowners can lead to complete disengagement from the association’s operations. If no one wants to serve on the board, a court may have no choice but to intervene and appoint a receiver.
  4. Legal Challenges and Compliance Failures: Community associations facing ongoing legal battles such as lawsuits related to construction defects, discrimination claims, or covenant enforcement can find themselves overwhelmed and unable to effectively govern. When these legal obligations are ignored or mismanaged, a court may determine that the association can no longer fulfill its duties and appoint a receiver to take control and bring the association back into compliance.
  5. Financial Mismanagement and Insolvency: Severe financial distress is another common pathway to receivership. Community associations that have failed to collect assessments, maintain proper reserves, or manage budgets responsibly may face mounting debt, unpaid vendors, and service disruptions. Without adequate cash flow, basic functions like insurance coverage and emergency repairs can become impossible to maintain. A court may intervene and appoint a receiver to stabilize the association’s finances, manage debt, and restore fiscal responsibility. However, this can often come at a high cost to homeowners already struggling with financial shortfalls.


Receivership: Pros, Cons, and Costs

While there are several arguable pros to receivership including immediate operational continuity and formalized oversight, the cons are significant. Without a board of directors consisting of association members, homeowners may lose control over their community’s direction and priorities. You may also see long-term disengagement where the longer receivership lasts, the harder it is to reengage owners and rebuild board leadership.

Another con is the high cost of receivership. The receiver’s salary and expenses are paid from the association’s funds, often before other financial obligations. Receivership costs vary, but court-appointed receivers can charge hundreds of dollars per hour along with potential administrative fees and legal filings. These costs are paid from the association’s budget, often resulting in increased assessments or deferred maintenance.


How to Avoid Receivership: Building a Stronger Board

The best way to avoid receivership is to keep the board seats filled with engaged and informed volunteers. Based on our best practices for recruiting board members, here are a few key strategies:

  • Demystify board service by promoting open meetings and providing informational flyers
  • Identify and personally recruit candidates, especially those who have shown interest in the community or voiced concerns
  • Appeal to specific skills or interests like finance, social media, or event planning (ex. block parties, garage sales)
  • Create a sense of purpose for board involvement by emphasizing its role in preserving property values and quality of life for the entire community
  • Support new members with clear onboarding tools such as welcome packets, responsibility guides, and mentorship


Legal Resource

Receivership may seem like a safety net for a community association, but it often comes at a high cost. The impacts are felt financially, legally, and across the community. Associations are strongest when governed by their own members. With proactive recruitment, clear communication, and legal support, community associations can avoid receivership and keep control where it belongs: with the owners themselves.

Do not hesitate to contact our law firm if you are a community association board member, property manager, or community association leader with questions about receivership, board eligibility, elections, voting, or other legal concerns.

Please call 855-537-0500 or visit www.ksnlaw.com.

Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.

 

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