Judge David Jones allowed roughly 35 claims against the Garden Oaks Maintenance Organization (GOMO) during its latest hearing in federal bankruptcy court, accepting an equity-based legal argument made by a homeowner representing himself and applying it to the other claimants involved in the Aug. 13 hearing.
In ruling that the group of homeowners can recover the transfer fees they paid to GOMO upon purchasing their homes, Jones pushed the two years’ long case closer to completion while leaving the fate of the neighborhood’s embattled homeowners association in limbo.
The purpose of the hearing was to determine the validity of some of the claims made against GOMO, which has enforced deed restrictions in the affluent Northwest Houston neighborhood for nearly two decades. The claims had been challenged as part of an omnibus objection filed by Chapter 7 trustee Randy Williams, but Jones overruled the objection after hearing from Garden Oaks homeowner Mike Falick, an attorney who represented himself and his wife.
Without addressing whether GOMO had the legal authority to collect .75-percent transfer fees upon the completion of each home sale in the neighborhood – a key question entering the hearing, since the transfer fees were GOMO’s primary revenue source and the amount tied to most of the claims filed against it – Falick said it would be reasonable under the circumstances to return those fees to homeowners. Jones accepted the money-had-and-received legal theory and applied it to all the other claimants who took part in the hearing, which was conducted via an online conference call.
“I think the absolute stance of, ‘This is void,’ I just think people haven’t thought through the implications of that,” Jones said during the hearing. “At the end of the day, I think that ends up hurting every single one of you that owns a home. As I said during this case (previously), I wasn’t going to let anything bad that I could see coming happen to folks who live in a community.”
Williams and his special counsel, Johnie Patterson, the GOMO attorney before the case was converted from Chapter 11 to Chapter 7 last summer, previously objected to most of the 450 or so claims filed in the case. And more than 400 of those claims were disallowed at the July 29 hearing, because those claimants did not file a timely response to the objection.
The objection asserted those claims were filed without a legal explanation for why they should be granted or were based on a 2016 state district court ruling in favor of Garden Oaks homeowners Peter and Katherine Chang, whose counsel successfully argued that GOMO formed improperly in 2002 and therefore had no standing. That court applied the ruling only to the Changs and not to other homeowners. The objection also contended there is a 180-day statute of limitations tied to GOMO’s violation of the Texas Property Code in 2002.
Two attorneys representing some of the remaining claimants in the Aug. 13 hearing, Casey Lambright and Brendon Singh, argued that GOMO and its ability to collect transfer fees should be invalid based on the previous court case involving the Changs. Jones responded by saying, “The argument that this is just a void transfer is problematic for so many reasons,” suggesting that homeowners voluntarily paid the fee.
Jones then asked to hear from Falick, who said he originally filed his claim with the hope GOMO would reorganize through a Chapter 11 proceeding and continue to be a functioning, capitalized homeowners association. Falick said he wanted to recoup the transfer fee he paid in 2015 only if GOMO dissolves through the Chapter 7 proceeding, asserting that an equitable distribution of GOMO’s remaining funds would be appropriate.
“I don’t think they did anything wrong in collecting it,” Falick said of GOMO. “But if they’ve got it now, and are not using it, it should go back to me.”
Jones’ agreement with that stance, and subsequent application of it to the other claimants involved in the hearing, caught at least one of them off guard. It also prompted a question from Patterson, who asked the judge what it meant in terms of GOMO’s validity as an HOA and its authority to collect transfer fees moving forward.
Jones did not say one way or another, referring to the result of the Chapter 11 proceeding and suggesting the matter would need to be addressed by the Garden Oaks community outside of the bankruptcy case. The Chapter 11 restructuring plan presented last year to homeowners, which included modified deed restrictions and the removal of the transfer fee in lieu of a mandatory annual fee, did not garner enough support from the neighborhood.
“If it turns out that vote was the wrong thing to have done, everyone is vested in maximizing the value of their home and having a good neighborhood and safe place for their kids to play and to live. That will work itself out,” Jones said. “There is certainly more than enough market power in that neighborhood to make an effect if people believe that there is a common interest to further.”
Falick said he thinks the bankruptcy case will now wind down in the hands of Williams, the trustee, who said during the hearing that GOMO has a little more than $582,000 in assets. A chunk of that money will go to the attorneys involved in the case, then secured claims will be paid, followed by the unsecured claims allowed by Jones.
Williams previously said there are “a few” claims that were not part of his objection, including the claim filed by the Changs, and he also said a subsequent objection is possible. So it is unclear how much GOMO will have to pay in claims and whether it will come out of bankruptcy with any remaining assets.
Falick said the presence of a homeowners association was one of the reasons he decided to move to Garden Oaks, so he hopes the neighborhood will continue to have one.
“Don’t do anything stupid,” Jones said at the conclusion of the hearing. “We’re not out of this yet.”