Board Behavior/HOA Liability?

This relates to several on-going threads but I started a new one to try and not change the course of the other threads.

Many of us have posted/read comments or personally witnessed Board behaviors that more than a few here have described as harassment, rogue, vile etc. It is my understanding that BOD insurance in many cases does not cover malfeasance and even failure to act when it was reasonable to expect action to be taken to protect an individual.

What are your thoughts regarding a Board's behavior that they have been given fair warning about from multiple channels in regards to some of the behaviors described on this site? Assume the bad behaviors have happened. Are these behaviors exposing the members to additional liability if the insurance company fails to cover the expenses? The behaviors increasing the chances of a lawsuit may also reduce property values and salability. Is this in itself a failure of the Board to exercise their fiduciary responsibilities? Is it a failure to exercise reasonable care and caution?

If anyone agrees it is, what recourse does your state have for such behavior? If nothing, do you agree that if all other avenues are exhausted that a lawsuit is warranted? Assume that through whatever tactics Board elections are tightly controlled events (again as multiple folks have mentioned is the case with their community.) and throwing the bums out is not a realistic short term solution. (Also realize while you may be able to wait until enough time has transpired to change things, others will need to move in the near future.)

Please list the steps you would recommend be taken in these types of situations, and if all other tactics failed would you concede, even encourage, that a lawsuit is necessary.

Thanks.

I'll start;

I recognize Boards can and do act poorly enough on occasion to put members at financial risk for lawsuits. I believe the members have an obligation to assist the Board in remedying their behaviors.

First step is to communicate your concerns directly to the Board with specific examples.

Second step, and all others are only required if the Board fails to act after step 1, is to begin communicating to the other members your specific concerns and ask for their involvement.

Third step is to try and serve on the Board and encourage like-minded individuals to run as well.

During all of this detailed documentation should be started and retained. Some examples of this documentation should be shared with the Board and other members so that the validity of your concerns can be demonstrated as well as allowing for responses. (Acceptable responses will be constructive as to solutions but do not include attacks on the individual.) Point to specific failures to comply with the governing documents.

Continue with this type of pressure soliciting support from other members. If your issues do not raise alarm with anyone else, consider you may be wrong and re-evaluate. If others are alarmed as well, move forward even if others do not have the courage, time etc. to act with you.

If the Board continues to place pressure on you and refuses to respond to your concerns, ask your state AG's office for assistance and your County Attorney (or equivalent) for assistance including protection from harassment.

After this step, if the Board refuses to change behavior, a lawsuit is warranted IMO.

What have I missed?

Since the question is general, the answer needs to be general.
I would say that the behavior would be inappropriate and likely not in the best interest of the Association.


Additional Liability? No
Additional expenses, perhaps.


Any legal action, if the member or lender does research on the Association, may make buyers and lenders concerned about purchasing property within the development (as they may be concerned of a special assessment to pay expenses related to the legal action). This may result in the property staying on the market longer. If the owner needs to sell, they may need to lower the price to entice a buyer to purchase and to lessen a lenders risk.

If there is a high number of properties for sale during this time and a majority of the owners drop their asking price, then this will likely reduce the sale price.

The value of the property, as determined by the local government, may not change at all.


Fiduciary responsibility is making decisions for the best interest of the Association. Therefore, this would depend on the on the actual issue involved and the resulting consequences and would be a case by case determination.

Example: Selective enforcement is not in the best interest of the Association. However, enforcement is.


Again, depends on the specifics of the issue.
If the board seeks legal advice and follows it, but the advice is bad, didn't the Board exercise reasonable care and caution by seeking that advice?



In VA, if it's a violation of the CC&Rs but not of any laws, the recourse is with the member or membership. If it's a violation of HOA or Corporate laws, a complaint may be made to the common interest community board for review and action. See Virginia Administrative Code 18 VAC 48-70




If they have truly tried all possible internal options, including an attempted recall of the board, then yes.

Mind you, having legal action be warranted isn't the same as deciding what is the best way to resolve the issue. The same consequences (both intended and unintended) are associated with any legal action regardless of who initiates it.


We all know what they say about assuming things.

In cases where the developer is in control and, because of voting power disparity, I agree that there is no way to remove them from the board. Therefore, there are fewer options. However, in this case, public pressure though the media may be a better and quicker option than through the courts.

In cases where the developer is not in control, it's likely that less than 50% participate. Therefore, I find it hard to believe that a member, through hard work and over time wouldn't be able to convince enough members that changes need to occur and gain enough votes/proxies to make that happen. Of course, if the issue is more perceived than real, it's possible that support won't be there.


If the issue is real, I can't help that others need to sell and move. If I'm the one who is staying and having to live there then it would be more important to me that things are resolved. Handling things internally is typically quicker and has less consequences on saleability of individual properties in an Association than any legal action.


I've given specifics in many other threads.

Basically I would gather support to the cause which would be measured in signatures on a recall petition, actual votes or the number of proxies I receive.

Support is typically gathered by educating the membership about the issue.
Education can be done in various ways, newsletters, individual mailings, meetings, door to door discussions, involving the media, etc.

Once support is gathered, changes can occur.


I've said it before. Not all issues can be resolved internally and not all issues can be resolved through the courts.

Gathering support takes time, energy and money. So does any legal action.

Typically resolving the issue internally is quicker and less expensive.

First off understand the line of being a board member and just a general @ss. Just to put it bluntly. Board members are to represent the HOA as a whole not as individuals. Which does end up getting very blurred many times. It's the nature of the beast. A good rule of thumb I try to follow is "Does law enforcement need to be called?" then it is NOT a HOA board issue. It's an individual one. Bad illegal behavior can't hide behind a HOA board mask.

Let's define what the actual "liability" they are talking about when we talk about the HOA insurance policy for board members. The liability insurance is there so that board members PERSONAL assets will NOT be taken away for their bad actions while acting as a board. Meaning that if they hire a bad contractor who was never licensed/insured that catches the clubhouse on fire, they can't be sued personally. The insurance would come in and process the claim. If the board member themselves did the work unqualified and caught the clubhouse on fire, the insurance may not cover them. Basically, that is the definition of what the insurance companies would define as bad board decisions.

An example in my area that is not HOA related but same concept. We had a huge air show a few years back. The organizers which dropped the ball completely. People were passing out. They were charging $3 a bottle of water ONLY available at the food tents. Could not bring in coolers and other items. So you were sitting in the blazing 90+ degree weather with an 30 minute wait for water. The final issue was that they rented some tents from a local company. Which they told that company NOT to set them up that they would do it. So they did. Needless to say, a freak summer storm came up. It caused the tents to injure several people and killed a 6 year old boy... The lawsuits came flying. Guess what? The Board of the event? Could NOT be touched or part of the lawsuit!!! The very people who were clearly responsible could not be sued for their actions. The vendor who supplied the tents was. Who by the way warned them NOT to install the tents themselves. The organizers insisted on doing it.

So I think of this scenario when I think about the importance of this insurance and what it means. I as a board member feel better knowing that my personal assets would not be taken away. However, it's not a comfortable feeling to be part of a bad decision that caused damage either. Either way, as a HOA member, I am going to be paying for it along with everyone else...

Actually Melissa, i think that the D & O insurance covers Directors and Officers from mistakes that they may make "In Good Faith". If a Director made a mistake, and it was in good faith of trying to do the right thing, then the D&O insurance would cover it.

In cases of willful bad faith or where malfeasance is present or part of the claim, then the D&O insurance will not cover the Director in question and their personal assets could be taken in a lawsuit. D&O insurance has limitations and the policy, as any policy should be read.

We had a director who thought they were totally immune because of the D&O insurance. This person stated to friends and others alike, that they could do whatever they wanted in the HOA to anybody they wanted to pick on and there was nothing the victim could do about it because of the D&O insurance.

That's a pretty bold and arrogant statement. For many members in this HOA who have never seen a D&O policy, they easily get bullied by statements such as these. Who in their right mind would speak up against such behavior if you had some quasi-official (the Board Member) stating this...? I know, it's all caveat emptor. But I saw many people fall for this line by the director because they did not want to be a target.

Melissa, Thanks. Good examples. But, using your example, if the tree was teetering and about to fall on a house, I can where the sense of urgency would cause a Director to come chop it down.

If no danger of falling, why would the director need to chop it down instead of waiting for a professional and licensed tree service to come to the job? There'd be no accident in that case. For they are professionals. If something did happen their insurance would cover it.

I could see that this would clearly be a case of "mis-feasance" and the insurance would cover. But I also think it could go both ways, because it was a voluntary act to chop down the tree when they could have waited for professionals to do it.

Anyway, like you said: "Hiding behind the board when you do bad actions, hurts everyone."

nope ... a known 'hazard tree' which is subsequently blown over is NOT considered an 'act of god'

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