The Garden Oaks Maintenance Organization (GOMO) filed for bankruptcy in part because it expected to owe money to a host of homeowners.
Nearly two years and thousands of dollars in legal fees later, there’s a chance those homeowners won’t be awarded a cent.
More than 400 homeowners have filed claims seeking a total of $1.45 million from GOMO, which was found to not have the authority to collect transfer fees in a 2016 state district court case against resident Peter Chang. The ruling, which said the homeowners association was improperly formed in the early 2000s, precipitated GOMO’s bankruptcy filing in April 2018.
But Houston attorney Randy Williams, appointed as the trustee in GOMO’s federal bankruptcy case when it was converted from Chapter 11 to Chapter 7 in June, said he believes the bulk of those claims are problematic under Texas law. He said there is a statute of limitations for challenges that an HOA was improperly formed, which expired more than 15 years ago but was not brought up by GOMO attorneys in the case involving Chang. Williams also said the state district court ruling applied only to Chang and not to the hundreds of other homeowners who filed claims based on the outcome of his case.
“It has large consequences,” Williams said of his impending objection to those claims. “The judge is going to have to decide whether or not the way we read the law is correct.”
Williams filed a motion Dec. 18 asking Judge David Jones to allow the filing of an omnibus claim objection. That would give Williams the chance to use one court filing to object to all claims made on the same basis, instead of objecting to each of the 400-plus claims individually.
According to the motion, which had not been granted by Jones as of Tuesday afternoon, claimants have until Wednesday to object to Williams’ request. Even if the motion is allowed, claimants will still have the opportunity to argue the validity of their claims.
It’s a befuddling development to Chang, who was involved in the bankruptcy case as a member of the court-appointed committee of unsecured creditors. The creditors committee was unable to agree with GOMO on a Chapter 11 restructuring plan and disbanded when Jones, who expressed frustration with the two sides, converted the case to Chapter 7 and put GOMO’s fate in the hands of Williams.
“It’s just so muddy and confusing,” Chang said. “I just gave up. I don’t know what’s going on.”
The notion that GOMO might be able to avoid paying back the .75-percent transfer fees it collected upon the completion of every home sale in the affluent Northwest Houston neighborhood – transfer fees were the organization’s primary source of revenue – could be considered a welcome development for GOMO and its future. But Pam Parks, who served as GOMO office manager until the conversion of the bankruptcy case, said that could result in a backlash among the 1,100 or so homeowners in Garden Oaks.
If all the claims against GOMO are allowed, it likely would deplete the organization’s assets and force it to dissolve. GOMO has nearly $585,000, according to the Dec. 18 court filing, after paying a total of about $55,000 to the HOA attorneys who represented GOMO and the creditors committee in the Chapter 11 proceedings.
The two other attorneys involved in the bankruptcy case, Johnie Patterson for GOMO and Charles Rubio for the creditors committee, have yet to receive compensation. Patterson also is serving as special counsel to Williams.
“I’m trying to figure out who won here,” Parks said. “It’s kind of sad.”
Chang and Parks both said GOMO board members were aware of the statute of limitations relating to their improper formation before the organization filed for bankruptcy. Parks said GOMO’s goal in bankruptcy was to correct the formation issue, which it attempted to do by trying to overhaul Garden Oaks’ longstanding deed restrictions.
But GOMO’s Chapter 11 restructuring plan did not garner enough support from the neighborhood, and its continued impasse with the creditors committee led to the conversion to Chapter 7.
Chang wondered why GOMO filed for bankruptcy in the first place, since it knew beforehand that the statute of limitations could protect the organization from claims against it.
“The whole drama has been very emotionally draining,” he said. “I just hope everyone can come to their senses and do the right thing, which is start over. … To continue this drama in the bankruptcy court is just a waste of people’s time, money and effort.”