Members of the Garden Oaks Maintenance Organization (GOMO) spent months – and at least tens of thousands of dollars – putting together a restructuring plan. They drafted a revised set of deed restrictions for the affluent Northwest Houston neighborhood, held multiple town hall meetings and hired two law firms to represent them in federal bankruptcy court.
In a matter of minutes last week, control of the homeowners association and its future were ripped from their grasp.
Judge David Jones, while expressing frustration over GOMO’s inability to find common ground with the court-appointed committee of unsecured creditors, ordered the case to be converted from Chapter 11 to Chapter 7. The ruling disbanded the creditors committee and forced GOMO officers to relinquish management of their organization, granting that authority to a trustee appointed by the U.S. Department of Justice.
The trustee will decide what to do with GOMO’s assets – which totaled more than $720,000 at the end of the last fiscal year – and how to handle hundreds of claims against the organization. That leaves the future of GOMO, which has enforced the neighborhood’s deed restrictions since the early 2000s, in limbo.
“I’m going to find that there is a substantial or continuing loss to the diminution of the estate. I see no reasonable likelihood of a rehabilitation,” Jones said during a June 6 hearing. “… I have lost confidence in the direction and the ability of the (attorneys) to drive this in a manner consistent with the bankruptcy code.”
Jones was especially critical of the four members of the creditors committee and their attorney, Charles Rubio, saying they had not functioned as a creditors committee. The group of Garden Oaks homeowners was representing nearly 400 claimants who are seeking a total of $1.45 million, according to GOMO office manager Pam Parks.
But according to Houston attorney Randy Williams, who was appointed June 7 as the trustee in the case, Jones’ order was no better for GOMO and the 1,100-plus homeowners it serves. He said GOMO “got nothing” out of the Chapter 11 proceeding, which began in April 2018, and that the involuntary conversion to a Chapter 7 proceeding is “not a good development for a resolution.” The conversion means a reorganization is now off the table and GOMO’s assets will be liquidated.
Much of GOMO’s restructuring plan, which was presented to homeowners earlier this year and did not garner enough support to be adopted, focused on changes to the deed restrictions and replacing a .75-percent transfer fee upon completion of each home sale with a mandatory annual fee of $80. Many of the claimants are seeking the return of their transfer fees, which were GOMO’s primary revenue source and the precipitator of its bankruptcy filing.
A 2016 state district court ruling in favor of Garden Oaks resident Peter Chang, a member of the creditors committee, revealed that GOMO had no authority to collect transfer fees because it violated the Texas Property Code while petitioning residents to include them in the deed restrictions in the early 2000s. Jones ordered GOMO to stop collecting transfer fees in August.
One of GOMO’s objectives in bankruptcy court is to correct its violation of the property code, either through amending the deed restrictions or a ruling by Jones. That appears unlikely at this point.
“Pigs get fat and hogs get slaughtered,” Williams said. “Because people have always got ideas. Plans can do a whole lot of things, but they can’t rewrite the law.”
Still, the ultimate outcome of GOMO’s bankruptcy case is unclear. Williams said Jones’ order put the case “back to square one,” because the trustee would need to study the history of the case and evaluate GOMO’s assets and the merits of the claims against the organization before making any determinations.
Williams said June 7 that he had initial phone conversations with Rubio and GOMO attorney Johnie Patterson and was scheduled to leave town the following day. Williams said he did not plan to do anything else with the case until returning from vacation June 25.
In the meantime, he said it might be wise for GOMO and the members of the creditors committee – although officially disbanded by Jones – to continue communicating and try to work toward a resolution. Williams said Jones could at some point convert the case back to Chapter 11.
“If they come up with something and are all in agreement, I’m not going to stand in the way,” Williams said. “They could go back in front of a judge and say, ‘We have a plan now, we have a deal, put us back in 11 and we’re out of your hair.’ ”
Based on each party’s reaction to the June 6 order, that appears unlikely. Members of GOMO and the creditors committee blamed each other for the stalemate, saying neither was willing to budge when they tried to negotiate a joint restructuring plan or agree on an amount of money to be distributed to the creditors.
Parks has said Patterson, the GOMO lawyer, will argue that the statute of limitations for claims related to GOMO’s improper petitioning in the early 2000s long ago expired. If that argument is successful, the claims against GOMO could be drastically reduced or eliminated.
“In our opinion, we can come out pretty much as well at the end of a 7 as we can at the end of an 11,” GOMO vice president Al Thomas said. “We’re not terribly worried about it.”
All four members of the creditors committee said they believe the Chapter 7 conversion will ultimately result in the demise of Garden Oaks’ homeowners association, which would be an unwanted outcome. Creditors committee member Cheryl Luck said her “heart breaks for the entire neighborhood.”
But at least one homeowner who attended last week’s hearing would not mind if GOMO goes away. Diego Martinez, while addressing the judge, said he and several other Garden Oaks homeowners would prefer to have a new homeowners association or none at all. Martinez, who described the dynamics between GOMO and some homeowners as the “Hatfields and McCoys,” also said the bankruptcy case has been a waste of time and money.
Jones thanked Martinez for his comments and referred to them as wise. The judge also expressed disappointment at how the case had evolved.
“I have hinted, I have talked, and it’s perfectly fine for folks to ignore me,” Jones said. “But we won’t ignore the law. And this is simply a case that cannot continue.”