                                 CODE OF VIRGINIA

PROTECTION OF THE INTERESTS OF ASSOCIATIONS; APPOINTMENT OF RECEIVER FOR COMMON
INTEREST COMMUNITY MANAGER (§ 54.1-2353)

A. A common interest community manager owes a fiduciary duty to the associations
to which it provides management services with respect to the manager&#8217;s
handling the funds or the records of each association. All funds deposited with
the common interest community manager shall be handled in a fiduciary capacity
and shall be kept in a separate fiduciary trust account or accounts in an
FDIC-insured financial institution separate from the assets of the common
interest community manager. The funds shall be the property of the association
and shall be segregated for each depository in the records of the common
interest community manager in a manner that permits the funds to be identified
on an association basis. The common interest community manager shall transfer
and release all funds and close bank accounts maintained on behalf of an
association within a reasonable time after termination of the contract for
management services without additional cost to the association.

B. All records having administrative or fiscal value to the association that a
common interest community manager holds, maintains, compiles, or generates on
behalf of a common interest community are the property of the association. A
common interest community manager may retain and dispose of association records
in accordance with a policy contained in the contract between the common
interest community manager and the association. Within a reasonable time after a
written request for any such records, the common interest community manager
shall provide copies of the requested records to the association at the
association&#8217;s expense. The common interest community manager shall return
all association records that it retains and any originals of legal instruments
or official documents that are in the possession of the common interest
community manager to the association within a reasonable time after termination
of the contract for management services without additional cost to the
association. Records maintained in electronic format may be returned in such
format.

C. If the Board has reasonable cause to believe that a common interest community
manager is unable to properly discharge its fiduciary responsibilities to an
association to which it provides management services, the Board may submit an ex
parte petition to the circuit court of the city or county wherein the common
interest community manager maintains an office or is doing business for the
issuance of an order authorizing the immediate inspection by and production to
representatives of the petitioner of any records, documents, and physical or
other evidence belonging to the subject common interest community manager. The
court may issue such order without notice to the common interest community
manager if the petition, supported by affidavit of the petitioner and such other
evidence as the court may require, shows reasonable cause to believe that such
action is required to prevent immediate loss of property of one or more of the
associations to which the subject common interest community manager provides
management services. The court may also temporarily enjoin further activity by
the common interest community manager and take such further action as shall be
necessary to conserve, protect, and disburse the funds involved, including the
appointment of a receiver. The papers filed with the court pursuant to this
subsection shall be placed under seal.

D. If the Board has reasonable cause to believe that a common interest community
manager is unable to properly discharge its fiduciary responsibilities to an
association to which it provides management services, the Board may file a
petition with the circuit court of the county or city wherein the subject common
interest community manager maintains an office or is doing business. The
petition may seek the following relief: (i) an injunction prohibiting the
withdrawal of any bank deposits or the disposition of any other assets belonging
to or subject to the control of the subject common interest community manager
and (ii) the appointment of a receiver for all or part of the funds or property
of the subject common interest community manager. The subject common interest
community manager shall be given notice of the time and place of the hearing on
the petition and an opportunity to offer evidence. The court, in its discretion,
may require a receiver appointed pursuant to this section to post bond, with or
without surety. The papers filed with the court under this subsection shall be
placed under seal until such time as the court grants an injunction or appoints
a receiver. The court may issue an injunction, appoint a receiver, or provide
such other relief as the court may consider proper if, after a hearing, the
court finds that such relief is necessary or appropriate to prevent loss of
property of one or more of the associations to which the subject common interest
community manager provides management services.

E. In any proceeding under subsection D, any person or entity known to the Board
to be indebted to or having in his possession property, real or personal,
belonging to or subject to the control of the subject common interest community
manager&#8217;s business and which property the Board reasonably believes may
become part of the receivership assets shall be served with a copy of the
petition and notice of the time and place of the hearing.

F. The court shall describe the powers and duties of the receiver in its
appointing order, which may be amended from time to time. The receiver shall,
unless otherwise ordered by the court in the appointing order, (i) prepare and
file with the Board a list of all associations managed by the subject common
interest community manager; (ii) notify in writing all of the associations to
which the subject common interest community manager provides management services
of the appointment and take whatever action the receiver deems appropriate to
protect the interests of the associations until such time as the associations
have had an opportunity to obtain a successor common interest community manager;
(iii) facilitate the transfer of records and information to such successor
common interest community manager; (iv) identify and take control of all bank
accounts, including without limitation trust and operating accounts, over which
the subject common interest community manager had signatory authority in
connection with its management business; (v) prepare and submit an accounting of
receipts and disbursements and account balances of all funds under the
receiver&#8217;s control for submission to the court within four months of the
appointment and annually thereafter until the receivership is terminated by the
court; (vi) attempt to collect any accounts receivable related to the subject
common interest community manager&#8217;s business; (vii) identify and attempt
to recover any assets wrongfully diverted from the subject common interest
community manager&#8217;s business, or assets acquired with funds wrongfully
diverted from the subject common interest community manager&#8217;s business;
(viii) terminate the subject common interest community manager&#8217;s business;
(ix) reduce to cash all of the assets of the subject common interest community
manager; (x) determine the nature and amount of all claims of creditors of the
subject common interest community manager, including associations to which the
subject common interest community manager provided management services; and (xi)
prepare and file with the court a report of such assets and claims proposing a
plan for the distribution of funds in the receivership to such creditors in
accordance with the provisions of subsection G.

G. Upon the court&#8217;s approval of the receiver&#8217;s report referenced in
subsection F, at a hearing after such notice as the court may require to
creditors, the receiver shall distribute the assets of the common interest
community manager and funds in the receivership first to clients whose funds
were or ought to have been held in a fiduciary capacity by the subject common
interest community manager, then to the receiver for fees, costs, and expenses
awarded pursuant to subsection H, and thereafter to the creditors of the subject
common interest community manager, and then to the subject common interest
community manager or its successors in interest.

H. A receiver appointed pursuant to this section shall be entitled, upon proper
application to the court in which the appointment was made, to recover an award
of reasonable fees, costs, and expenses. If there are not sufficient
nonfiduciary funds to pay the award, then the shortfall shall be paid by the
Common Interest Community Management Recovery Fund as a cost of administering
the Fund pursuant to &#xA7; 54.1-2354.5, to the extent that the said Fund has
funds available. The Fund shall have a claim against the subject common interest
community manager for the amount paid.

I. The court may determine whether any assets under the receiver&#8217;s control
should be returned to the subject common interest community manager.

J. If the Board shall find that any common interest community manager is
insolvent, that its merger into another common interest community manager is
desirable for the protection of the associations to which such common interest
community manager provides management services, and that an emergency exists,
and, if the board of directors of such insolvent common interest community
manager shall approve a plan of merger of such common interest community manager
into another common interest community manager, compliance with the requirements
of &#xA7; 13.1-718 shall be dispensed with as to such insolvent common interest
community manager and the approval by the Board of such plan of merger shall be
the equivalent of approval by the holders of more than two-thirds of the
outstanding shares of such insolvent common interest community manager for all
purposes of Article 12 (&#xA7; 13.1-715.1 et seq.) of Chapter 9 of Title 13.1.
If the Board finds that a common interest community manager is insolvent, that
the acquisition of its assets by another common interest community manager is in
the best interests of the associations to which such common interest community
manager provides management services, and that an emergency exists, it may, with
the consent of the boards of directors of both common interest community
managers as to the terms and conditions of such transfer, including the
assumption of all or certain liabilities, enter an order transferring some or
all of the assets of such insolvent common interest community manager to such
other common interest community manager, and no compliance with the provisions
of &#xA7;&#xA7; 13.1-723 and 13.1-724 shall be required, nor shall &#xA7;&#xA7;
13.1-730 through 13.1-741 be applicable to such transfer. In the case either of
such a merger or of such a sale of assets, the Board shall provide that prompt
notice of its finding of insolvency and of the merger or sale of assets be sent
to the stockholders of record of the insolvent common interest community manager
for the purpose of providing such shareholders an opportunity to challenge the
finding that the common interest community manager is insolvent. The relevant
books and records of such insolvent common interest community manager shall
remain intact and be made available to such shareholders for a period of 30 days
after such notice is sent. The Board&#8217;s finding of insolvency shall become
final if a hearing before the Board is not requested by any such shareholder
within such 30-day period. If, after such hearing, the Board finds that such
common interest community manager was solvent, it shall rescind its order
entered pursuant to this subsection and the merger or transfer of assets shall
be rescinded. But if, after such hearing, the Board finds that such common
interest community manager was insolvent, its order shall be final.

K. The provisions of this article are declared to be remedial. The purpose of
this article is to protect the interests of associations adversely affected by
common interest community managers who have breached their fiduciary duty. The
provisions of this article shall be liberally administered in order to protect
those interests and thereby the public&#8217;s interest in the quality of
management services provided by Virginia common interest community managers.

HISTORY: 2008, cc. 851, 871; 2011, cc. 334, 605; 2019, c. 712; 2025, c. 105.