Paying for Attorney Expenses and Settlement Costs

Started by BettyO1 • 4 replies • 1472 views

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BettyO1 (California)
Posts: 104

Posted:

What are rules in California for how associations pay for attorney expenses and settlements that are owed due to lawsuits? Can funds be taken from operating funds or reserves since the expenditures are not for normal operating purposes or to maintain, replace items identified in the reserve study. Or, do special assessments have to be made?

RichardP13 (California)
Posts: 1,767

Posted:

Attorney fees and lawsuit are paid in a variety of ways. They made be paid through the association's insurance company. Regular legal expenses are generally paid through the operating account, with larger ones possibly paid through reserves. If no reserves, a special assessment is used to pay the attorney fees. If the association prevails in a lawsuit, generally the loser has to pick up the charges. Much is dependant on the financial health of the association.

JeffR7 (California)
Posts: 251

Posted:

If I understand you correctly you are asking if attorney costs and settlement amount can be paid out of reserves. Yes it can. Associations are specifically allowed to pay for legal costs associated with defending itself out of reserve funds.

FredN (California)
Posts: 87

Posted:

CIVIL CODE
SECTION 1368.3-1369

1368.3. An association established to manage a common interest
development has standing to institute, defend, settle, or intervene
in litigation, arbitration, mediation, or administrative proceedings
in its own name as the real party in interest and without joining
with it the individual owners of the common interest development, in
matters pertaining to the following:
(a) Enforcement of the governing documents.
(b) Damage to the common area.
(c) Damage to a separate interest that the association is
obligated to maintain or repair.
(d) Damage to a separate interest that arises out of, or is
integrally related to, damage to the common area or a separate
interest that the association is obligated to maintain or repair.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Betty,

The Association could borrow from the Reserves to initially pay for the legal expenses. I suspect that many Associations do this in the hope that they will win and the losing part will be required to pay all legal fees and this will put the money back into the Reserves.

Associations, and members, need to remember that you can't drain the reserves without some way to refill them. If it's a long legal battle, special assessments might be a better way to go.

My Association maintains a contingency fund that is used to cover many things. Typically it covers minor unexpected repairs or budget shortfalls. Legal fees in excess of the budgeted amount would be paid from this fund.

Tim

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