Duty to Communicate to Members

We had a similar situation in our community five years ago. Our CCRs limit the amount to $2500. We discovered the lawsuit through the Annual Financial Review. We were lied to my the Board and PM. They said the money was spent solely on liens and foreclosures. The lawsuit which the Association started, not defended, cost us $200K. After I got on the Board, I found all the documents related to the lawsuit and will never trust another attorney in my life. Hope I never get in a situation where I am forced to use one.

Without reading your documents it would be impossible to respond directly to your question.

What is the $300 limit set for? Does this include legal actions?

What was the legal action regarding? Was it necessary or avoidable? What was the outcome of the action?

In general, I would guess approval of the homeowners is NOT required for taking legal action. That would be a board decision unless your documents state oherwise.

Does the clause in your documents regarding a $300 limit on expenditures apply it would depend on what that secion in fact said.

I would wonder how you might see an approval process taking place that required the approval of the owners with one of the onwers being the party that might now be sued? How would that be handled at an open meeting? My guess such legal actions lie within the authyority of the board.

Perhaps if you supply more specifics and details we can offer a more accurate response.

I am guessing the language in my documents are similar to others, where and if the language was included. Ours state the association may prosecute or defend, but if the costs can reasonably be expected to exceed $2500, then approval of a majority of the members is required BEFORE proceeding.

In our case, two homeowners didn't like one another, pure and simple.

In our case and according to our governing documents, approval WAS REQUIRED.

The initial cost was disclosed to the PM and the Board and discovered in an email years later. PM and attorney were "dressed down" and fired.

The same PM wanted to sue me for discovering the information and the attorney told them it would likely cost $50K to do so and they would likely lose. They were ready to proceed, even though they were told they had to have membership approval.

How it is handled would be the same as if we were filing a lien, APN or account number.

I will try and make it brief. Not in command of all the details, I have only what i have been able to gain through conversations with the locals. I am a weekender.

Tired of how things were being mismanaged over a number of years and unfair, selective bad treatment, etc., a petition was created to disband the association. The petition gained 75% of members and afterward was filed at the county courthouse. The minority included the BOD (no mystery there) and one officer. The treasurer was part of the majority. Word was passed that the association was disbanded and folks went about their business. The minority, assuming that they were still in charge, wanted the books and treasury and ignored the will of the majority. So unbeknownst to well over half of the membership, they summarily fired the treasurer and asked for the books. There is a little feuding and ill will between these parties that I will omit. The treasurer pointed to the result of the petition and assumed there was no reason for her to meet their demands. With no communication of any kind to the property owners, the BOD filed suit. The treasurer in turn filed a counter suit in defense of what she deemed correct and in keeping with the majority.

The $300 limit is for ALL expenditures. Our annual assessment collection maintains the subdivision roads. That is the only thing that consumes our funds and our assessments are set to meet that requirement and nothing more. It's just not that big a place. The bids and subsequent approval for the road maintenance is taken care of at the annual meeting. We only meet once a year and have no problems like an HOA that meets monthly and has alot of common areas, etc. Bad personalities that ignore the will of the PO's are the cancer. So if they had met this spending limit and sought the approval of the PO's to proceed, we could have avoided all that would follow.

Judge ruled in favor of BOD as he did not recognize the petition as valid. Turns out the petition needed to be notarized and the guy who failed to do that learned a hard lesson. The judge required that the 2 attorneys involved hold a POA meeting and elect a new BOD. A new BOD was elected - all members of the majority. I am one of the three new board members. I have a big mess to clean up.

The treasury was at $11K and is now spent down to $2K - all to an attorney and expenses the BOD incurred to get this done. So $9K later they were voted out and handed over the same set of books that they filed suit over - to the same treasurer appointed by the new BOD. Sweet, huh?

So my QUESTION was do BODs and officers have a fiscal or ethical responsibility to communicate their intent to pursue legal action (aka that will cost or otherwise risk alot of association money) prior to proceeding? And in light of the $300 spending limit, does anyone share my opinion that they acted outside the will of the PO's and should return the money.

May I ask how a HOA is to pay itself back for money it lost? A HOA is ONLY funded by its members for its members. You want money back then you all have to raise the money by a special assessment. The board has liability insurance protecting the BOD members from using their personal funds.

Next time use this as a learning experience to make sure does not happen again.

Wayne,

At our annual meeting, the Treasurer provides an income/expense report and a budget summary (budgeted vs. actual) along with the proposed budget for the following year. Believing that my Association is typical in providing these reports (perhaps I'm wrong) I would wonder why (since the issue has been over two years) the members didn't question the Board about an increased expenditure for legal fees at the meeting.