individual homeowner liability for BOD negligence?

Joyce,

I would think that they would be liable for not having equipment in working order. It is probabl in your documents that the association is required to keep the water system functioning and in return, the Association is governed by the Board. The buck stops there. Would your insurance cover? Ask your agent. Liability for damages, the would be an attorneys call but I would get the Board to act by any means including a swift kick in their butts. How dangerous was that incident.

Daniel,
Let's just stick to this case and bear with me for a moment. Are you saying, anyone can purchase some kind of rider on their home owners insurance that would cover any liability that may befall any owner due to negligence on the Boards part to provide adequate insurance coverage?

Now if this is true, does it stand to reason that the board could also purchase an extension (sic) on their present policy to cover the same short falls. Wouldn't this be what should have been in place to begin with. I am insurance dumb or worse.

Robert,

Every Insurance company has wording a little different. My company covers special assessments due to the result of unexpected repairs (such as after storm damage) but not for poor planning of expected repairs (such as not enough reserves to repave your roads because they are due).

Just contact your insurance company and ask them if they offer the coverage.

Tim

Back to the original post:

Joyce,

It's really a hard question to answer as every situation has specifics that can alter what an insurance company will or won't cover.

In general, as a member of any HOA, if the Association is responsible for something (repairs, legal bills, judgments, etc.) and there is not enough money to cover the issue the members must make up the difference on an equal basis. Usually by a special assessment.

Lets take you hypothetical:

House burnt down due to Associations negligence. Association taken to court and lost. They now have to pay $500,000 (simple round figure). Insurance will cover $200,000 of it and there is enough money in the reserve account to cover an additional $100,000. There are 1000 homes within the Association. Thus:

$500,000 Judgment
- $200,000 covered by Insurance
- $100,000 covered by Reserve Funds
= $200,000 short
divided by 1000 lots = $200 special assessment per lot

It is doubtful if the individual Board members would be held liable as most States have laws protecting the volunteer members of a Board from individual liability if they acted on what they thought was best (don't have the money right now, need to wait is a fair argument but, as you pointed out can have large consequences).

This is why it is important for anyone who is a member of an Association to be involved and keep themselves informed on what is going on. This is best done by attending as many meetings as you can. I would recommend to attend every general membership meeting and at least a Board meeting each quarter.

Hope this helps,

Tim

Michael,

I believe the same would hold true for a volunteer HOA. IMO, it's not so much the fact that it's an HOA but that it's a Corp with members. But I do know that if the HOA dissolves and does not take steps to sell the common areas, the members are liable for anything that would happen on the common area. And, I also believe the members are liable for any unpaid debts incurred by the HOA.

Thanks, Mary.

I think many HOA's are structured to be difficult to dissolve. Ours requires 100% consent of the Membership.

Also, I think it may be legally impossible to dissolve the financial structure while there are substantial obligations outstanding, regardless of whether the Common Areas or other assets remain.

The problem is that the income stream – the ability to asses – may be an asset, which cannot be simply relinquished or extinguished while creditors remain. The nature of this assessment power is to pass ultimate financial responsibility for the HOA to the individual homeowners.

Often it includes restrictions, such as a requirement that assessments be levied (distributed) equally among Homeowners (Members) -- not according to who can pay – and/or a limited amount or percentage by which assessments can be increased each year without consent of a supermajority of the Members (Homeowners).

However, this power to assess is usually backed up by authority place liens and even foreclose. The end result is that the HOA's debts may be inescapable, being backed by the equity in our homes.

Robert,

The AZ Nonprofit Corp Act has specific requirements for dissolution of the corp. There are 3 types of dissolution: dissolution by the BOD; administrative and judicial. Articles of dissolution must be written up and published (in a newspaper). State taxes must be paid, amenities and prop owned by the assn must be sold and all debts erased.

One of the biggest obstacles in dissolving an HOA is getting rid of the common areas. Oftentimes the bulk of the common areas consists of water retention areas which cannot be used for any other type use therefore cannot be easily sold. If the City or Co does not want to take over ownership, unless a volunteer assn can be formed to maintain them, the members are stuck!