Spending for Legal Fees

Dear Forum:
Our community is coming out of a situation with the PREVIOUS Board President & V.P. who have since been removed. They consulted a lawyer to bring charges against a resident due to their (the Board's) belief that the resident had wrongly erected a structure on the resident's ltd. common area. The particulars of the situation are not important here, we are the 'resident' and I previously posted to this forum some months ago describing the situation. We have finally seen a light at the end of the tunnel and all would seem to be rectified by the NEW BOARD and municipal authorities.

Now, for my question. The NEW Board has scheduled an open meeting for residents to air their concerns and I would like to address the issue of the Board consulting a lawyer. For the future, would it be feasible for the assn. to add a rule, an amendment to declaration, or bylaws, for all future situations----
"if the Board determines it is necessary to bring charges against a resident which require a lawyer, the Board will first bring it to community for a vote before incurring lawyer's fees.....". In presenting this, I don't want to come off as a 'sore loser', since we didn't actually lose--it came out in our favor. The situation never went to an actual hearing (we didn't show up) nor did it go to court, but it is the association who must pay the Board's lawyer fees of $2000.. (Our lawyer charged us $2000 also.)

Obviously, it was both lawyers who were able to line their pockets while dragging this on for months.

Questions: How have other communities handled legal situations? What can be included as verbiage in our documents to cover lawyer fees and to allow the assn. of residents to be included in decisions involving excess fees not budgeted.

Thanks to all for your input.
PaulM

I would agree with Brian. If you want to try to have the HOA micro-manage the Board by requiring a vote to approve of everything the Board does, then nothing will ever get done. You elect the Board to make these types of decisions for the HOA. If the Board makes decisions that you don't like, then you can get them voted out or removed as you have done.

Frankly, this sounds like the system is working as it is supposed to. The Board made a decision that the members disagreed with strongly enough for the members to remove that Board and replace them with people who will hopefully make decisions more in line with what the community wants.

Note that I'm not saying that the old Board made the "wrong" decision, just that it wasn't in line with the community. Nor am I saying that the new Board won't make some "bad" decisions in the future. There will always be somebody who doesn't agree with some Board decision. Does that mean you replace the Board every time somebody doesn't like a given decision? I would hope not. I would hope that a community would only consider replacing a Board when that Board consistently makes decisions that the majority of the community is in disagreement with.

Hi Paul:

Does your HOA have some kind of resolution that deals with violations, fines, and give a due process procedure? If so, did the board follow their due process?

In Oregon, fines are subject to a hearing before the Board of Directors. You might check what your state laws and your documents & resolutions say about how violations are to be handled.

Typically, most managers send out a warning letter before a fine is imposed or an injunction would be sought regarding the need to remove an "improvement." Generally, the hope is that a resident who is deemed to be in violation will contact the Board or Manager and work things out, rather than letting it go to either fines or a violation.

If the Board violated its own (or the state's) due process procedure, then they might be on the hook for your legal fees - but ask your lawyer about that. Also, if they were in any way discrirminatory or vindictive in their approach, you might have a cause of action.

It sounds like you have a rational membership who removed them from office.

J. Patrick Moore, CMCA
Compliance Coordinator
Forest Heights Homeowners Association
Portland, Oregon

Sorry another thorn.

If you have to take legal action because of Delinquent dues it is in most stats not allowed to disclose the personal financial information.

Requiring a vote by the members takes a private board matter into the public venue. Most states frown or disallow such an action.

Did someone finally figure out that suing their HOA they are suing themselves? If your a member of the HOA, the board MUST hire an attorney to defend themselves in court. They pay that lawyer with the dues money. So no matter what "rule/ammendment" you want added or changed, your still a member of the association and must abide by the rules.
Next time, I would suggest trying OTHER options outside of the legal realm. Because you are essentially dealing with a contractual agreement that BOTH you and the board must abide by.

JM2:
Thanks for your input. No, our community does not have a resolution committee to intercede in matters between resident and board. Certainly, there is due process prior to a fine being imposed and the Board did not follow it. But that's not the issue.

The situation I am specifically addressing is the Board's need to have consultations with a lawyer and then for the assn. to be asked to finance this action.

What I hear most of you stating is that the Board does have the authority to seek legal counsel at the assn's expense.

PaulM

Paul, try to get a Rule and Regulation passed which states the association SHALL (must) use ADR prior to considering legal action. In the R&R set forth the process of ADR in detail. You could also try to limit the Board's use of attornies by limiting the budget line item for legal expenses. Most of the associations we manage have from zero to a couple hundred dollars budgeted.

To reduce or eliminate legal fees you can hire a management company for Covenant enforcement and collection of Delinquent accounts which has an excellent record - look at the DARCO ad

RogerB:
Thanks for your response on something positive to present. Yes, this makes sense, to present a motion to vote on adding a rule that states we must use ADR (first, we would have to seek volunteers to be on ADR committee) prior to considering legal action 'or counsel'. In our case, it was the Board seeking counsel which prompted the expense.

You also state-- 'try to limit the Board's use of attorney fees by limiting the budget line item for legal expenses'. Our line item is set at $500 to cover legal filing of annual paperwork; however this DID NOT prevent them from incurring legal fees (without community's knowledge)bringing the amount to well over (75%over) the budgeted $500--and we will still have to come up with the $500 at the end of the year for filing paperwork.

So, we come to my original question. If the Board has incurred expenses well over the budgeted line item --how does the assn. prevent this from happening in the future. The verbiage to prevent excessive spending over budgeted amount should be general enough to cover ALL line items. This same problem of excessive spending could apply to lawn maintenance or snow removal also.

Do we ask for addition of a rule to state...the Board CANNOT exceed any budgeted line item over 10% (20%, 30%) without a community vote.

With this additional Rule and the ADR committee in place, it would seem that legal action could not take place without community knowledge and the Board has a little wiggle room for spending in all line item areas.

Am I understanding your suggestion ok? Pls. offer some wording we could use for our rules to accomplish this. Thanks to all.
PaulM

It costs money to file paperwork in court. Our CC&R's cost nearly $700 to file at the county courthouse. There are legal fees attached to filing many court cases or other legal issues. A sum of $500 doesn't sound unusual to me.
I can't see capping legal fees. There's no crystal ball in knowing how much attorney's fees, court filing fees, legal notifications, or other legal costs are. If anything, the HOA may want to keep an attorney on "retainer" at all times. This should save some costs. Hiring different attorneys or hiring on an "as needed" terms can raise additional costs. There could be a "retainer" charged for EACH time this is done.
The HOA's liability insurance is usually "capped" on what it will pay out if someone does win a case. Ours capped out only at $60K even with it being a "million dollar" policy. So anything above $60K would have to be divided amongst ALL the homeowner's to pay. In some cases, forcing a special assessment amongst ALL the owners plus increased (if not dropped) insurance premiums.
There are valid reasons to sue your HOA. However, I wouldn't recommend it on an "individual" basis but as more of a "class action". It may cost less in the long run and get a major issue resolved that effects EVERYBODY. Overall: Suing your HOA is a BAAAD idea and expensive for everyone.