When Peter and Katherine Chang met with the Garden Oaks Maintenance Organization (GOMO) in 2012, about a deed restriction violation related to constructing a second garage on their property, they said they were told by the homeowners association that it had a “war chest” it was not afraid to use on the couple.
Nearly a decade later, the neighborhood organization has been battered and bruised by a string of court cases over the dispute. And now, nearly three years into a federal bankruptcy proceeding that was precipitated by a state district court ruling in favor of the Changs, GOMO’s assets are being whittled away and its future is uncertain.
Judge David Jones allowed an unsecured claim made by the Changs, who sought to recover the $3,937.50 transfer fee they paid when they purchased their Garden Oaks home, during a Feb. 22 hearing. It was the last claim Jones ruled on as part of the Chapter 7 case, which has entered its final phase as trustee Randy Williams works toward distributing several thousand dollars in claims made by property owners.
“None of this would have happened if GOMO would have just taken time to sit down and talk to my wife and I, back in 2012, like we belong here,” Peter Chang said.
A state district court judge sided with the Changs in 2016, ruling that GOMO violated the Texas Property Code when it formed in 2002 and therefore had no standing to collect .75 percent transfer fees upon the completion of each property sale in the neighborhood. Transfer fees have been the primary revenue source for GOMO, which filed for bankruptcy in April 2018 and invited hundreds of claims by property owners who sought to recoup those fees.
The homeowners association initially tried to reorganize during a Chapter 11 proceeding, but property owners in the neighborhood did not sufficiently support a restructuring plan that included amendments to the deed restrictions and a mandatory, $80 annual fee in lieu of a transfer fee. After that point, when GOMO leadership remained at odds with a committee of unsecured creditors that included Peter Chang, Jones converted the case to Chapter 7 in the summer of 2019.
“It was a horrible disaster,” Pam Parks, who served as office manager for GOMO, said of the conversion.
Last summer, Jones overruled an omnibus claims objection filed by Williams, who argued there was a statute of limitations tied to GOMO’s improper formation and the state district court ruling applied only to the Changs and could not be used as a valid basis for claims filed by other property owners. But Jones allowed the roughly 35 remaining claims in question, accepting a mutual mistake equity argument made by Garden Oaks homeowner and attorney Mike Falick.
The Changs’ attorney, Brendon Singh, made the same successful argument during the Feb. 22 hearing. Johnie Patterson, the attorney representing Williams, argued the Changs’ claim should be disallowed because they had the opportunity to recover their transfer fee during the state district court proceeding.
After ruling to allow the Changs’ claim, Jones said he realized it had been a long and hard bankruptcy case and that he thought Peter Chang tried to bring the neighborhood together during the Chapter 11 proceeding.
“If there ever was a situation where someone has been a leader, has tried to do the right thing, has asserted his claim, has done everything the bankruptcy code expects them to do, it is the Changs,” Jones said.
Jones also said his bankruptcy court is “simply not the forum” to determine whether GOMO is a valid homeowners association and has the legal authority to collect transfer fees. Those figure to be questions left for another court or GOMO’s leadership.
Jones dismissed an adversarial complaint filed in 2018 by the now-defunct creditors committee, which sought to prevent GOMO from collecting more transfer fees and using the fees it already had received. The dismissal of the complaint also terminated a temporary order by Jones that forced GOMO to suspend the collection of transfer fees.
That means GOMO could have the legal authority to collect transfer fees once the bankruptcy case is closed, but Parks said such a practice figures to be problematic since claims seeking a refund of those fees were allowed by Jones.
Another question for GOMO is whether it will have any remaining assets when the case is closed. Williams said during a hearing last August that GOMO had about $582,000 in assets.
Roughly 40 unsecured claims totaling more than $155,000 were allowed by Jones, according to court filings. The court also granted Patterson’s application for about $73,000 in attorney’s fees related to his work for GOMO in the Chapter 11 proceeding, and he is expected to submit another application for his work in the Chapter 7 proceeding. GOMO’s estate also will pay Williams for his legal work.
Both Peter Chang and Parks said they expect GOMO to have as much as $200,000 in remaining assets when the case is closed. So GOMO could theoretically continue operating and use that money to try to petition the neighborhood for a new funding mechanism, which would require an amendment to the deed restrictions.
If GOMO’s assets are depleted before the end of the bankruptcy case, it could be forced to dissolve.
Williams declined to answer questions related to GOMO’s fate, and Patterson did not respond to emails and a voicemail seeking comment.
GOMO’s volunteer board of directors, which has 12 seats, has dwindled to three members during the bankruptcy case, because annual elections have not been held and many board members’ three-year terms have expired. Two of the remaining board members did not respond to voicemails seeking comment, and the other declined comment until more information is available.
“There’s a lot of questions here,” Parks said. “We need a roadmap out of this, I think.”
The Changs said they also are unsure about what’s to come for GOMO, but they are glad their claim was allowed and that the bankruptcy case is winding down.
Peter Chang said he and his wife want to have an HOA moving forward, so long as it’s one that’s formed properly and treats them “like neighbors” instead of opposing litigants. Along those lines, Katherine Chang said their lengthy legal dispute with GOMO was more about “the way we were treated” than it was about a second garage.
“I think the neighborhood needs to step back and we need to take time to heal,” Peter Chang said. “This neighborhood needs to go without lawyers for a couple years. I think this neighborhood has had enough lawyers’ involvement to last many lifetimes.”