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Pre-Incorporation Signing OK for Disclosure Packet

Although a homeowners’ association was not incorporated when debtors signed documents acknowledging receipt of the disclosure packet required under the Virginia Property Owners Association Act, the 20-month delay in incorporation did not allow debtors to cancel their agreement to buy a subdivision lot for $450,000, and a Richmond U.S. District Court upholds the bankruptcy court’s decision for the developer.

On Sept. 21, 2006, debtors signed a real estate purchase agreement to buy Lot 2 from Stony Point in a planned 13-lot subdivision. The price was $450,000 with a $45,000 deposit due upon execution of the agreement. The agreement said settlement was to take place within 10 days of Stony Point’s completion of Phase One Infrastructure construction. Stony Point was also obligated to incorporate the Riverwatch Homeowners Association.

In September 2006, debtors twice signed a Property Owners Association Disclosure form which acknowledged receipt of the disclosure packet required under the VPOA. However, the association was not incorporated until May 2008. Debtors thereafter emailed a broker and requested another copy of the disclosure packet.

They were directed to a website containing the requested documents. In a later email exchange, debtors acknowledged having “electronic versions of everything.”

In September 2008, debtors notified Stony Point they intended to cancel the agreement for failure to deliver the disclosure packet or notify them it was not available.

Under Virginia law, pre-incorporation actions of de jure corporations are valid and binding on the parties involved. Here, all parties were aware of the lack of incorporation and timeline for achieving full performance of the contract. Debtors cannot now cancel a contract to which they knowingly assented and understood. The signed disclosure forms that recognized their receipt of the Disclosure Packet, and also acknowledged receipt of the packet through email communications with Stony Point’s agent.

Regardless of the association’s lack of corporate status at the agreement’s signing, its incorporation on May 22, 2008, before the final closing date on the property at issue, validated its past actions.

Also, Stony Point’s efforts to mitigate damages by continuing to market Lot 2 after debtors said they wanted to cancel, did not constitute an abandonment of the contract. Debtors failed to plead abandonment as an affirmative defense, and the bankruptcy court found Stony Point remained ready to finalize the sale to debtors.

Judgment for developer affirmed.

Hubbard v. Stony Point Land Inc. (Gibney) No. 3:11cv237, Aug. 15, 2011; USDC at Richmond, Va. VLW 011-3-468, 9 pp.

VLW 011-3-468

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