Disclosure and Payment of Legal Settlements

Started by BettyO1 • 4 replies • 1642 views

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BettyO1 (California)
Posts: 104

Posted:

If a homeowner or outside party gets a legal judgment against an HOA in court, where must settlement funds come from? Can it be taken either from operating or repair / replacement reserves or does there need to be a special assessment? Is the board obligated to disclose the amount to homeowners?

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Betty,

Hopefully, the defense for the lawsuit and the judgement will be paid by the association's insurance. If you don't have liability and D&O insurance, shame on you. You need to go back to HOA BOD school.

Otherwise, how can you take the funds from the operating account? What expense are you going to give up to pay an unforseen expense? Take it from reserves? You can borrow from reserves, but you're going to have to pay it back. The only thing left is a special assessment, and yes, you need to disclose the settlement amount to the homeowners. Do you think it's ethical to hide that from them?

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Because of the way California handles reserve accounts I would issue a special assessment. One could make a claim on the insurance, but that will grantee they will drop you and getting insured again will be very expensive in the future. Depends on how much the claim is for.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

This is why I always preach "Suing your HOA is suing yourself and your neighbors"...Most likely a special assessment will be needed to pay this off. However, here is the extra "hitch"...Did the owner who won have it in their judgement they would not be responsible for any special assessments required to pay off the judgement? The court would be the one's to determine this. The court may grant them "court costs be paid by so-so party" but it doesn't mean they are exempt from paying their fair share of the special assessment.

Here's the extra rub for that owner....If they don't pay this special assessment...the HOA can take legal actions against them for non-payment of the special assessment. Which means the HOA can lien (NOT foreclose) that owner for that.

I stress make sure to review the judgement agreement and the terms. A HOA is ONLY funded by it's members FOR it's members...So the money will have to come out of the owner's pockets if the insurance didn't cover it.

Former HOA President

JamesB15 (Florida)
Posts: 87

Posted:

Makes you wonder why BOD's like to play make believe with other people's money. If they have insurance they will only be responsible for the deductable. That won't help next year when you association can't get BOD insurance or if they do it will be an unbelievably high deductuctable. You will also have to pay the member who won attorney fees and possible other losses. Yes the all of this information is available to members unless of course they are ready to lose another lawsuit. I hope you get rid of them as soon as possible.

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