Houston, we have a problem. Thoughts?

Ok, so I'll try to summarize as briefly as possible. Our HOA is being sued by a former homeowner.

Our property contains 250 condos built in the 60's and 24 townhouse built in 2001. Beginning around 2006, the property began having aging problems with the older condos that really drained the hoa. Dues were never raised. Fastforward to 2010 and the town homes began to need maintenance. Specifically they really needed to be painted as the original yellow color was no showing green mold. The hoa did not have the money to paint the town homes.

In late 2011 a town home owner lost his house to foreclosure. The origanal purchase price was 205k in 2001. Place sold for 80k. Former homeowner is suing for recovery of damages due to at least some of the value decline being due to neglect of the hoa and violation of the hoa declaration. The two specific areas of neglect noted are failing to properly maintain the outside appearance of the unit (failure to paint or power wash the exterior ever in 11 years) and violation of a section of the declaration that requires the hoa to have a "working capital fund for unforeseen maintenance and upkeep of the property". Former homeowner claims this caused such a drastic drop in value, no short sale deal could be reached with the lender.

The long story here is this hoa has struggled financial for years. No one wanted to raise dues, no "working capital reserves" were ever established. A management company hired to help run the complex was fired for poor performance in 2011. I believe that is documented in our minutes.

So my worry is the claim is somewhat legit. Has the property value declined because of poor property management....absolutely. Did it cause someone to go into foreclosure and lose money.....I'm not sure.

Proving damages is the kicker here. The past 7 years of budgets, financials, and board minutes have been requested. That's not going to be good for the hoa.

Is our best bet that the homeowner can't prove damages?

In a lawsuit for monetary damages, the plaintiff has to prove two things: 1) that the defendant is liable and 2) the amount of the damages.

Liability is usually a question of law that can be determined by a judge. If the judge finds that the defendant is not liable, the case is dismissed. If the defendant is liable, then damages will be determined at trial and usually by a jury.

In this case, the HOA had a duty to maintain the exterior and did not do so. The HOA had a duty to maintain a reserve fund for maintenance and did not do so. As the HOA breached its duty to the homeowner, the court will most likely find that the HOA is liable and send the case to trial.

Damages are not so easy to determine. The home went into foreclosure due to the plaintiff's own actions. The reality is that in most of the country is that $80,000 at foreclosure on a home that sold for $205,000 in 2005 is about normal. I would have a hard time assessing any damages against the HOA even if they did breach their duty. The best the plaintiff is going to do is argue that if the place looked better he might have been able to do a short sale. This is such a speculative argument, however, that the only way to prevail would be to find someone to testify that he was going to place a bid but backed out solely because of the lack of maintenance.

One possible outcome is that the HOA's insurance company will offer the plaintiff an amount of money to just go away. The usual thought is that going to trial will cost them, so they offer the plaintiff the same amount that going to court would cost. This is common practice and an offer to settle is usually not admissible.

This person will have a hard time proving that the HOA is responsible for his house going into foreclosure.

The amount of "damages" due to the condition of outside paint on the building would be difficult to acertain.

The inside of the unit - the owner's responsiblity - probably had more to do with this. Check out what the new owners had to do when moving in.

I think this question needs a lawyer. The HOA certainly seems liable in some respects. I just don't know how a court could determine how much of the sale price was affected by the lack of upkeep.

Also, once the house was sold I don't know if the HOA could be held accountable since that person is no longer part of the HOA. I'm sure a lot of us would be interested in hearing the outcome on this one.

Are you a member of the current Board?

Has the complaint been filed and has the property been served?

Is the plaintiff seeking monetary damages if so how much?

IMO if the property faces actual legal action your best bet would be to consult with an atorney versed in HOA/condo law.

As this is not a legal forum nor do the posters here have knowledge as to the actual details of your case or the local laws that might affect your situation I would shy away from basing my response on what was provided here.

You can either fund a attorney yourself or if you have a master policy that might offer coverage in such cases you could contact the carrier.

Understand once you turn the case over to the carrier in most cases they then decide how it will be handled. They could settle the claim and make a payout just to close the matter.

I find it interesing an owner who lost their property due to foreclosure now has the funds to persue a legal acion such as this. Where is this money coming from? Or is there a lawyer in the family who is willing to file suit in the hopes some easy $$$$ will come their way.

A lawyer would be able to explain if the HOA can be held liable.

Sounds like a shot in the dark hoping for something from nothing.

IF this owner were to prevail my my my how many HOAs/condo associations would be sued next with the housing market in the tail spin we have sen for years.

Please let us know how this developes and what the property's resonse to this lawsuit is.

The proof is in the short sale. (If any). The suer has to prove they did indeed have an eligible buyer in a short sale agreement. This means the person making the short sale purchase had to be a qualified pre-approved actual person. It can't be a "situation" denied. Ie...I couldn't have the option of selling my house in a short sale. It has to have an actual bona fide offer both recognized by the seller and bank.

There are many other reasons why a short sale or even a home sale falls through. It happens everyday. I've had an offer on a house that fell through before. It was because the appraisal value didn't match the sell price. The appraisal came up short by a $1K. Bank's won't lend money for more than appraisal...Which the appraisal fell short not due to house condition but due to the market prices nosediving due to higher foreclosures in the area. Waiting a few months the appraisal came back much higher and offer accepted.

I still think the HOA should file a countersuit to get their lawyer fees/expenses back. They may not get any of the old dues monies back if any, but it will atleast show by filing that issue, the HOA is fighting back. I still don't know if the paperwork has been delivered or not or this is all a bunch of hot air of an angry owner.

FYI: I foreclosed on a house in our HOA with an owner who tried to claim similar issues of maintenance. They claimed lawncare damaged their siding and other bogus claims. Never reported them to the HOA so we could address these issues IF they had really occurred. They were sued by their tenant that had a lease to own agreement during that time and tried to make them pay their back dues. The HOA was called in to testify. (Me). They lost their case. The tenant won.

All

With the ineptness, slight of hand, and just plain old stupidity the way some HOA's are run, a good lawsuit every once in a while just might wake some up, especially those that "allowed it" to happen.

Foretold is forewarned.

The countersuit has been filed by the homeowner. Suing for financial damages. The former homeowner's attorney sent pictures that don't reflect very well on the property. The suit doesn't specify the exact dollar amount sought, but it says the homeowner suffered damages in excess of $100k.

I'm guessing the D&O insured will be involved next week?

It doesn't seem like this is a good situation, but i just haven't seen many HOA suits that turn out really badly for the HOA. Maybe they all get settled or something. I don't know. I'm sure there will be lots of phone calls and emails next week.

yes, there was more to the story, but i didn't go into all of it b/c i didn't think it was vital info.

This person stopped paying HOA dues because none of the issues he pointed out we're gettig fixed. He owes about 10 months of back dues, so we filed suit. No he's countersued.

The crux of the issue is whether the property is being propertly maintained or not.

Does anyone have a feel for how often a place should be paited? It's not just painting, but that's one of the issues. The places were built in 2001 and haven't been painted and there are no plans to paint in the next few years. Too many other issues with older condo's in the complex.

Well the owner counter suing and other owners not paying their dues would be a good argument for the counter suit. The association is funded by the members and when the members do not pay their fair share how can they expect maintenance and upkeep to be properly provided. After all such items must be paid for in order to be performed.

How often to paint or other maintenance will depend on the quality of previous paint, weather conditions for your area, etc. That is not a question which we could fairly answer due to the variables.

Just saw today where the attorney representing the homeowner has 4 other cases going against HOA's (different HOA's than us) in our county.

Seems like this is going to be pretty difficult not to be at a minimum some type of settlement due to the cost of litigation. Whether the case has merit or not, we have to defend ourselves. Tort reform anyone?

Next on my list is to fire the collection attorney's for not warning us of the potential downside to going after 3k of back dues. An attorney friend of mine said it was pretty idiotic to open ourselves to this over 3k. Of course the collection attorney is going to tell us that. He just wants to get paid and probably counted on a default judgment. Looks like a big mistake.

Jason,

The owner lost his property to foreclosure because he was unable to meet his obligations to his mortgage lender. The owner also defaulted on his obligation to the association. While he now claims that he deliberately quit paying his assessments because of poor maintenance, it is not surprising that he did so about the same time he quit paying his mortgage. Prior to his filing his countersuit, did the deadbeat owner ever inform the HOA that his unit or building was not being maintained?

As I said before, I would consider the owner’s lawsuit to be frivolous. The fact that his attorney is also representing others in suits against their HOA’s should have zero bearing on your case. For all you know, every one of those other lawsuits are frivolous.

Here is what you should be worried about: to pursue your collection action, you will now have to spend a lot more in attorney fees. The deadbeat owner will also have to spend more in attorney fees. As each side digs in deeper, they are less likely to fold as the loser will be stuck with all the legal bills. The lawsuit will go on and on, as will the attorney fees for both parties. Your deadbeat owner is likely to run out of money first. Once he stops paying his attorney, the case ends. You will be left with a huge legal bill and a judgment that you will never collect since the deadbeat has no money. You should discuss this with your attorney, but your best course of action may be to offer to dismiss the collection action and the countersuit ASAP with both parties paying their own expenses.

Jason,
Each state has their own laws but your situation is a lesson for all of us on why HOA's need to be on top of their responsibilities. Please keep us updated as it progresses. Good luck.

Melissa -

Thanks for your reply and I appreciate the thoughts. Like I said, I'm not an attorney, but what I'm telling you guys now is based on legal advice we're getting at this point and I think it's very important for everyone on this board to understand.

No offense, but your view is that of a layman (like me) and isn't based on how things really work in a court of law. I'm just going to point a few things out so people on this board are aware. I wish our HOA would have been aware.

First off, in many states, including Georgia, most people request legal fees as part of the judgment, but you really ever, ever get them awarded by the court. The only way you can get awarded legal fees is if the case is determined to be frivolous by the Judge and it's actually not difficult at all to get the case to appear legit. If the case was considered frivolous, he/she would through it out very early. You don't make it to a trial, then the judge says "oh, yeah, this is frivolous, I'm throwing it out and awarding legal fees to the defendant". We've already been told this case will not been seen as frivolous. Frivolous is more like suing someone for not meeting you at Starbucks like they said they were going to. There is no legal issue that needs to be considered in that case.

In a case of an HOA, we all know there are laws and declarations that must be followed, so a case against an HOA may have a matter of law that needs to be litigated.

As for the foreclosure issue, like I said in another post, the fact that the townhouse was foreclosed just isn't much of a factor in the case. The HOA was required to maintain the property, including the outside of the property. If the outside of the property looks horrible, it doesn't matter that the home was foreclosed on. That's not a defense for the HOA.

If we get asked to provide minutes, financials statements, show up for depositions, etc. We'll have to do that. That will be a big cost to the HOA.

Jason,

I think you are wrong. The former owner claims that that he lost money because the HOA neglected the property. Because he is no longer a member of your HOA, this is the only action he can bring. Suppose he does prove that the HOA did not paint often enough or failed to maintain a reserve fund? That alone does not prove that he suffered a loss. The plaintiff (counter-plaintiff in this case) has the burden of proving that he suffered damages and that the HOA caused his loss.

Part of his claim is that he paid $205,000 in 2001 and at foreclosure in 2011 it brought only $80,000. This exactly what has happened in much of the country and the figures you have supplied are entirely consistent with the foreclosure market. (I know this because I bought a foreclosed house last year for about a third of what the last buyer paid.) It is all a matter of supply and demand: too many foreclosures and too few buyers. Your HOA did not cause the former owner to go into foreclosure nor were they responsible for the fact that the housing market nationwide has taken a major loss.

Another part of the former owner's claim is that the lack of maintenance prevented him from selling his unit to avoid foreclosure. Unless he has at least one verifiable offer that was withdrawn solely because of the condition of the property, he has no chance of making this claim stick as it is entirely speculative. In any event, the fact that the foreclosure occurred (due to the owner's failure to pay his mortgage) puts the kabosh on his claim that he could not sell the unit.

A real estate agent would not likely be recognized by the court as an expert, so an affidavit about value from one is not relevant. A reasonable person would conclude that the former owner was unable to pay his HOA assessments and his mortgage, causing his lender to foreclose at a time when the market was flooded with foreclosures and there were few buyers. The proximate cause of the former owners loss was his failure to pay his mortgage, not any HOA issues.

Do your CC&R's have a provision about the losing party paying all court costs and attorney fees? Most do, so I would be surprised if yours does not.

I am not a lawyer but I did take some legal courses in college. Those course involved criminal and business law. So it does give me some insight in hiring a lawyer and how the court system does work. I've also gone to court representing the HOA in a case involving a foreclosure with much similar claims. They lost.

Our HOA had foreclosed on that owner. They tried to force the renter to pay their dues. Plus had an invalid rent to own agreement with that renter. When the HOA foreclosed the renter was forced out. That renter then sued the owner for money they spent in addition to paying rent to purchase the home. It was over 10K. However, the owner in court wanted to bring up that the HOA's lawncare had done damage to their home and did not provide some services. It was proven that we were not responsible for these items nor provided these services. They claimed the HOA was to offer cable and other such services which isn't true. Plus if there was any such damage to their home, the lawncare company's insurance was responsible NOT the HOA's. They never reported it to the HOA for the HOA to contact the lawncare to resolve the issue.

The renter won their case hands down. That is why I say that this case sounds like it will just be a waste of time and money for this person to bring against the HOA. Your HOA lawyer has to protect themselves in case the case is lost. Going to present you with different scenerios.

This could all turnout to be an insurance claim in the end. If they did win, they'd win whatever amount the HOA's liability insurance caps out at. It might be a million dollar policy but it may only pay out 80K. Anymore than that capped allowance then the HOA members will have to have a special assessment to cover that extra outside the insurance. That's worst case.

I think there must be a crucial detail involved in this case that hasn't been posted. Otherwise, the legal advice wouldn't have such weight to it.

In my opinion Jason has a very realistic grasp on the situation they are in and as JonD mentioned, be sure you have a lawyer who is well versed in laws governing HOA's.

I would say this, I did not stay at a holiday inn last night so I am not going to pretend to know anything about the law. What I do know is there are occassions in life where you have to cut off the arm or leg to save the body even if you still think they can be saved. This may be one of those, perhaps it is financially in the best interest of the association to settle, not admit fault, and move on and correct their issues. Who knows what will happen in court, maybe you get a judge or a jury that despises HOA's and everything they stand for. Everyone likes to think court is black and white, it isn't as long as you have people making decisions.

None of us know enough of the facts in this case, if your attorney is advising settling and the cost is at least doable it is something to think about. Remember, if your offered a settle, decline it and then lose your tail in court there will be a lot of people coming after you because you just cost each homeowner a lot of money.

Even if they have D & O insurance, based on what I have heard not so sure they would cover this claim. If I were in your shoes based on what I heard from the OP I wouldn't slam the door shut on a settlement if it were reasonable.

Just going by OP comment.

Yep, like I said I'm not an attorney, but claim #1 in the countersuit is breach of fiduciary duty. I guess that makes it a tort issue? I don't know.

I'll keep everyone in the loop. I don't think it's something that will be resolved quickly, but we'll see.

It was NOT small claims court that I went to. I also did NOT represent our HOA in a legal capacity. I represented them as a witness type capacity. A HOA is to be represented by a lawyer because they are a corporation. However, the law does allow a HOA member to represent the HOA IF the HOA membership agrees to be represented by that member. Just NOT too many HOA's are going to approve a member to represent them in court...

The owner tried to claim the HOA didn't do it's fidiciary duty. Our HOA is only responsible to provide lawncare. The HOA continued to mow/maintain this person's yard even when it was abandoned property. The owner in court stated we were to provide such things as cable, water, and other amenities. We used to provide water but had installed separated water meters. This owner had refused to sign or pay the special assessment which was part of the foreclosure/lien against them. So they were on the hook for over 2 years of non-payment of dues, late fees, legal fees, and special assessment they never paid. They tried to force their tenant to pay off these debts on their behalf. That's when the tenant moved out and moved the case into court....The owner then had their lawyer question me about these amenities and reports of supposed damage in the court room. My answer was NO we didn't provide these items and NO we never received a report to my knowledge of damage to the property by the lawncare service. Sank their case right there...

This owner as a member of the HOA was just as responsible for voting and paying his dues to provide the care and maintence of the HOA property. This owner's hands are not "clean" in this matter if they didn't contribute to the budget of the HOA...This person has a no case and should be tossed out once it hits the court room...

Your question is that the HOA is going to be held responsible for not maintaining enough funds to fund repairs and maintenance? Isn't it past that point for this ex-owner? Does this owner mean to say that they would have paid HIGHER dues if it meant providing maintenance and maintained property value? I HIGHLY doubt this person would have agreed to pay higher dues along with the rest of the members. It's really NOT a matter for the court to decide but your HOA's. It may be time to consider raising the dues or having a special assessment if this indeed is an issue that needs addressed. Maybe this lawsuit will help fuel that fire to do something amongst the membership to agree to paying up more money.

May I suggest finding an appraisor report sheet? Fannie Mae or Freddie Mac may offer one online. Each mortgage/bank company may do appraisals slightly different. You can review it to get an idea of what is looked for in an appraisal. Believe it or not, a house can have a non-functioning Central air unit but still get credit for having Central air. Things don't have to actually function but exist or have the ability to exist. (I don't use gas but gas lines available on my street for example). That form is what house appraisor's use to turn into mortgage companies to give them an idea of the home's value. Different appraisors can measure houses differently so they are NOT always the same. This is NOT a home inspection where functionality is a factor. That's a different area when buying a house. It's also not a SELLING factor as people can put their house up for sale for ANY amount they want. It's when those appraisor's come in and render their evaluation that the real value comes in. NOT the Real Estate agent selling the property.

There is another little known form for HOA's most are unfamiliar with. It's a HUD form. Housing and Urban Development produces it I believe. It's a requirement for certain types of loans like FHA. Trying to avoid another HUGE topic but not all types of loans are available to all areas. That subject has been covered here in other posts so I am going to skip it for now. This form is filled out by the HOA prior to the loan closing. I as President used to fill it out. It's a 25 question evaluation of the HOA. It asks questions such as is the property Fee simple? How many homes/members? How many are rental units? How many homes in collections?. It's basically a "Health check" of the HOA provided to the mortgage lender to evaluate the health of the HOA and if they will continue to offer their loan product. It is that form that could be a factor if the mortgage/bank that foreclosed used that form. It would show the health of the HOA but not necessarily the devalue of any property.

These are the other factors involved in why I don't believe this person can attach the stigma the HOA is responsible for keeping home values. It is up to ALL the owners to maintain the HOA's health and maintenance. That person once being a member of the HOA is NOT of clean hands as they to were a member of the HOA and participated in the neglect of the HOA as well. Maybe I am providing a different angle of viewing this subject. Something that may be needed so your HOA can indeed take some steps in improving itself and realizing the effect ALL the members have on each other...

Hi Jason:

LOL … I will not guess any more claims filed but may be right on a couple more if guessed.

I’m with Melissa in it can depend on how a case is argued. When you state:

Questions:

1. Is it plausible that a jury would conclude that failing to maintain the outside appearance of the property could have/may have led to loss in value of the property? Also, did the HOA fail to maintain the property?

Yes it is plausible; however, it is the responsibility of all owners to participate as allocated in the governing documents towards the costs of said maintenance. Therefore, potential evidence or questions would be:

1. For what period did the Owner not participate towards payment of dues to provide maintenance because without participation how are the funds to be raised?

2. How many others also did not participate during the same time period to provide maintenance for the property because an HOA is all for one and one for all?

3. If you take the homeowner and others not paying their fair share, how much would that have been to use towards the maintenance? Would that have covered the cost of painting?

4. What would it cost to do the needed painting?

5. If all owners had properly paid assessments could the painting or other maintenance have been accomplished as required or needed?

6. Did the homeowner ever complain about maintenance not being properly performed prior to foreclosure, after all it is their property and they have ultimate responsibility for maintaining or insuring any other entity properly maintains?

These are just a very small sample of the questions to answer and have evidence hopefully in favor of the HOA. If you have the proper evidence then maybe you can file a motion to dismiss and be free.

I agree with Melissa in that the individual owned X% of the HOA property and was responsible for X% of the responsibility which was both in payments to maintain and responsibility to lodge complaints or insure action regarding the maintenance. Failure to take action on their part does not absolutely insure others are responsible.

LOL … I call it individuals trying to play the “Blame Game”.