Virginia HOA recoup legal fees?

Started by VickiW3 • 27 replies • 2830 views

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VickiW3 (Virginia)
Posts: 7

Posted:

Hello all -
Our HOA is suddenly under threat of a lawsuit from two separate homeowners (and we are under 50 total) over architecture review board decisions. I'm confident in our stance on both, but my concern is our cost if we have to defend ourselves. Can we (the BOD) counter-sue for legal costs (we are in Virginia)? Our CC&Rs say nothing about litigation except that we have to carry a D&O policy, which we do. Anyone have experience in Virginia? We have such a small budget that we don't have an attorney on retainer (we only recently picked up a PM - who is cheap and maybe not great) and we are all concerned that a quick phone call to a lawyer to ask a few questions will cost us the annual dues of more than a few houses.

On a related note, our CC&Rs require a vote of 75% of the whole membership (not just those who show up to the annual meeting) to change the CC&Rs. We can usually barely make our 33% quorum requirement for the annual meetings with ~30% of the 33% being proxies. My desire is to amend our CC&Rs to say that if you sue and lose, you pay our legal costs. As the lawsuits are still just (hopefully) empty threats, I would love to make this happen before a suit is filed so that it would apply to said suit. Anyone have any experience to share in doing this and succeeding/failing?

As an aside, friendly talk and common sense are not an option with either of these two homeowners. I know personally of a long list of frivolous filings from one (we are a small neighborhood), and grumblings of stubborn, etc about the other.

JerryD5 (Colorado)
Posts: 218

Posted:

Virginia, I am sure TimB will be along shortly to give you the expert answer (he resides in VA too). As for our HOA (in Colorado), we do pass on legal costs to the homeowners. We have done so twice: Once to explain to a homeowner that they have an extraordinary amount of ongoing violations and again when they had their small claims court case dismissed for no merit. So now the homeowner owes $1200 in HOA legal costs. We too have an D&O policy but the deductible is $2500. It was cheaper for us to use a lawyer versed in HOA operations for our legal work in these cases.

Good luck with your 2 homeowners.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Vicki,

I am not an attorney and I do not work in the legal profession.

I would suspect that anyone can counter sue for legal costs to defend. If the legal action is determined to be without merit, the court may award those costs.

Keep in mind that a threat is not the same as actual legal action.
If the Board is so inclined, they could require that any further communications on the topic be sent via the Associations attorney. However, that can become expensive.

My advice when dealing with threats of legal action is to cease any oral communication. Require written communication only (goes for both sides). This way, there is always a record of who said what for the court. The Association should only address facts relating to issues at hand and not address anything else in those communications.

Have you provided an opportunity for the committee's decision to be appealed to the Board?
If not, you may want to consider allowing that to happen. Doing so does the following:
1) Allows the Board to fully review the facts of the case from both sides
2) Shows that the Board is willing to hear issues (which can help if it goes to court).
3) It will cost but, the Associations attorney could be invited to the appeal hearing and the Board could receive some valuable first hand advice on the issue.

Hope this helps,

Tim

LarryB13 (Arizona)
Posts: 4,099

Posted:

Vickie,

If you are sued you should immediately file a claim with your association's insurance carrier. The insurer will provide an attorney at their expense but you will have to pay your deductible.

You do not need to file a countersuit to recover your legal fees. The judge will determine who pays how much of the other party's costs when he renders his judgment. The courts have a great deal of latitude in deciding that question.

Your idea of amending your CC&R's is really not all that good. If someone sues and loses, the court will determine how much the losing party pays. If the court says he pays nothing you would create a difficult situation for yourselves if you tried to bypass the judgment and collect everything. A loser-always-pays-all clause would be seen by the courts as an unenforceable attempt at intimidating your members from seeking redress through the courts.

I do not mean to be rude about this, but maybe it is time to put an attorney on retainer. Your post implies that your association (or its ARB) is trying to control what homeowners are doing with their property without any legal guidance whatsoever. You indicated that your association cannot afford an attorney and that is nonsense. Obtaining legal advice is part of the cost of doing business. It is your board's duty to raise sufficient income to pay for business expenses. Since you seem to be operating without much legal advice, I would not be so quick to dismiss the two homeowners who are threatening lawsuits. It is possible that they know more than you.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By LarryB13 on 12/13/2014 10:07 PM

You do not need to file a countersuit to recover your legal fees. The judge will determine who pays how much of the other party's costs when he renders his judgment. The courts have a great deal of latitude in deciding that question.

This likely varies by State.

I have not done the research on this to know how any specific State works it. I would suspect that for some States, if you don't ask it won't be granted. The process required to reclaim reasonable legal expenses would be known by the Associations attorney.

The point both Larry and I are making is that the answer is yes, it is typically possible to recoup legal expenses from the party that lost the case.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By TimB4 on 12/13/2014 10:13 PM

I would suspect that for some States, if you don't ask it won't be granted. The process required to reclaim reasonable legal expenses would be known by the Associations attorney.

Normally when you file an Answer to a lawsuit you would request that the suit be dismissed and that the other party pay all your costs. Normally, if you fail to request your costs you won't get them.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

There are 2 choices for a HOA in going to court. They must have an attorney to appear in court to represent. 2. An assigned person preferably a board member can do it. However, not many choose option 2. It is too risky if that person does not know the process. Most prefer experts.

Remind the people threatening to sue that suing the HOA is suing themselves and their neighbors. It is best to work within....

Larry and Tim give good advice. Go to the insurance and see your options.

Former HOA President

JohnC46 (South Carolina)
Posts: 14,265

Posted:

99% of threats to sue never materialize. My typical reply is I will see you in court.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By LarryB13 on 12/13/2014 10:07 PM
If you are sued you should immediately file a claim with your association's insurance carrier. The insurer will provide an attorney at their expense but you will have to pay your deductible.

If we get a threat that we think could be real, we contact our insurance agent and discuss the situation. We don't wait for the lawsuit.

The question we ask is: "When should we be letting you know that there is likely to be a lawsuit and should we be doing anything different?"

These conversations are free. On one occasion, an attorney from the insurance company called us without us ever filing a claim.

These conversations with the insurance company sometimes help us decide whether to call our HOA lawyer.

Sikubali jukumu. Read all posts at your own risk.

VickiW3 (Virginia)
Posts: 7

Posted:

Quote:

Posted By TimB4 on 12/13/2014 9:26 PM
Vicki,
My advice when dealing with threats of legal action is to cease any oral communication. Require written communication only (goes for both sides). This way, there is always a record of who said what for the court. The Association should only address facts relating to issues at hand and not address anything else in those communications.

Have you provided an opportunity for the committee's decision to be appealed to the Board?
If not, you may want to consider allowing that to happen. Doing so does the following:
1) Allows the Board to fully review the facts of the case from both sides
2) Shows that the Board is willing to hear issues (which can help if it goes to court).
3) It will cost but, the Associations attorney could be invited to the appeal hearing and the Board could receive some valuable first hand advice on the issue.

Hope this helps,

Tim

We are doing the poor man's version by making sure that all our communications go through the PM.
Both people have invoked their BOD appeal and are threatening to sue based on losing the appeal.

Thanks.

VickiW3 (Virginia)
Posts: 7

Posted:

Quote:

Posted By NpS on 12/14/2014 6:04 AM

Ok, I think we will do this - I will need to ask our board. I hesitated to do this because I have heard of (non-HOA) insurance policies being canceled/premiums significantly increased after a "what if" phone call.

As to picking out a lawyer, I have someone in the legal profession who told me that HOA layers are *usually* only a step (in their law school class) above ambulance chasers (this comment was made after reading some of our poorly written founding docs). The comment was made that the HOA should find a contract specialist, rather than an HOA specialist in the event that one was needed. Has anyone out there picked a contracts lawyer rather than an HOA?

VickiW3 (Virginia)
Posts: 7

Posted:

Quote:

Posted By LarryB13 on 12/13/2014 10:07 PM

Your idea of amending your CC&R's is really not all that good. If someone sues and loses, the court will determine how much the losing party pays. If the court says he pays nothing you would create a difficult situation for yourselves if you tried to bypass the judgment and collect everything. A loser-always-pays-all clause would be seen by the courts as an unenforceable attempt at intimidating your members from seeking redress through the courts.

I do not mean to be rude about this, but maybe it is time to put an attorney on retainer. Your post implies that your association (or its ARB) is trying to control what homeowners are doing with their property without any legal guidance whatsoever. You indicated that your association cannot afford an attorney and that is nonsense. Obtaining legal advice is part of the cost of doing business. It is your board's duty to raise sufficient income to pay for business expenses. Since you seem to be operating without much legal advice, I would not be so quick to dismiss the two homeowners who are threatening lawsuits. It is possible that they know more than you.

Sigh, I always looked at the "loser pays" clause as encouraging mediation / settlement. Part of why I was looking for Virginia experience is that I grew up in a state that holds to "the American Rule," unless specifically stated in a contract, there is no restitution for the winner's legal costs. -- Any other votes on this?

Part of the reason that we (and others I have talked with) bought in this community was that it was small and had low HOA fees (there are few-non HOA areas here). The only thing our HOA offers is ARC regulations, it serves no other purpose (no pool, roads, etc). The ARB/BOD are doing our best (as laymen) to follow the rules laid out in our CC&Rs.

I'm sorry to be evasive about certain things, I'm trying to keep my nose (and those around me) clean in the event one or the other does go to court.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Vicki
You might get some interesting responses here if you post what actually occurred in the two incidents.

Sikubali jukumu. Read all posts at your own risk.

VickiW3 (Virginia)
Posts: 7

Posted:

Quote:

Posted By NpS on 12/14/2014 9:09 AM
Vicki
You might get some interesting responses here if you post what actually occurred in the two incidents.

I honestly would love to, and don't doubt that there is good advice out there, but I can't.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By VickiW3 on 12/14/2014 8:37 AM

As to picking out a lawyer, I have someone in the legal profession who told me that HOA layers are *usually* only a step (in their law school class) above ambulance chasers (this comment was made after reading some of our poorly written founding docs). The comment was made that the HOA should find a contract specialist, rather than an HOA specialist in the event that one was needed. Has anyone out there picked a contracts lawyer rather than an HOA?

My limited experience with HOA attorneys is that they are worse than the personal-injury lawyers. My board is made up of mostly blue-collar retirees who have never once in their useless lives hired an attorney.

There are several HOA attorneys in my area who will offer their services for a $50-a-month retainer. If anyone has ever hired a real attorney you know that no decent attorney would offer his services for so little. I concluded that what these attorneys do is offer off-the-cuff advice in the hopes that it leads to a lawsuit where they can charge their full fees.

The $50-firm my board hired ended up bilking us out of about $175,000 in an effort to collect no more than $25,000 in delinquent dues. In the end they collected less than $10,000 giving us a net loss of $165,000.

One place I go to evaluate attorneys in my state is to the appellate courts' website. I can search cases to see if that attorney was involved in an appeal and to see how well his client fared. The attorney we used to use was involved in four appellate cases and lost every one of them. In each case the court remarked on the law firm with comments ranging from derision for being unable to state just what their position was to accusations of filing frivolous complaints and perpetrating a fraud upon the court. These are clearly not attorneys who should be practicing law.

JerryD5 (Colorado)
Posts: 218

Posted:

Vicki, have these 2 homeowners given you and the board any indication if they are going to pursue in small claims court or going full on with regular court? I guess that would make a big difference. If it was small claims court, you could engage an HOA-savy lawyer to represent the association (ours charged roughly $1000 for prep and attend court) or a member of the board could easily represent in court (it is not really that intimidating). If they are suing you all in regular court, definitely engage your D&O policy to supply representation.

We had a homeowner submit an ARC request. It was denied by the committee and the homeowner appealed it to the board (as their right according to our by-laws). We held a hearing and denied their appeal. They were extremely unhappy with our decision and for several months afterwards continued to ask further questions on why it was denied. We laid out an extremely thoughtout response in our initial decision. The wife kept at us and kept at us. We continued to reiterate that their case was closed and there would not be any further discussion of the matter. They never filed suit (though they threw out the threat continuously). They did file a small court claim against the association on a different matter but had their case dismissed because it lacked merit.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By LarryB13 on 12/14/2014 1:38 PM
The $50-firm my board hired ended up bilking us out of about $175,000 in an effort to collect no more than $25,000 in delinquent dues. In the end they collected less than $10,000 giving us a net loss of $165,000.

How in the world did they get away with $175k in fees on a $25k recovery? Would like to hear more.

Quote:

Posted By LarryB13 on 12/14/2014 1:38 PM
One place I go to evaluate attorneys in my state is to the appellate courts' website. I can search cases to see if that attorney was involved in an appeal and to see how well his client fared. The attorney we used to use was involved in four appellate cases and lost every one of them. In each case the court remarked on the law firm with comments ranging from derision for being unable to state just what their position was to accusations of filing frivolous complaints and perpetrating a fraud upon the court. These are clearly not attorneys who should be practicing law.

I think what you experienced is rare. In a lot of places, appellate work is turning into a specialty that the typical lawyer isn't skilled at. So being good or bad at the everyday trial level does not necessarily mean being good or bad on appeal.

Of course, when a judge makes derogatory comments about a lawyer in a written opinion, that's a big red flag about anyone.

Sikubali jukumu. Read all posts at your own risk.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

I would be careful here. Once you have begun to defend on your own, your insurance company may have the right under your policy to back away from responsibility. Just a word of caution that may or may not be applicable in your particular situation.

Sikubali jukumu. Read all posts at your own risk.

JerryD5 (Colorado)
Posts: 218

Posted:

NPS, good advice of course. In our case, the homeowner chose the small claims court route because they were looking for $750 in damages and were representing themselves. The cap in small claims court is $7500 I believe. Any board has to weigh the pros/cons of activating their D&O policy.

In a previous case, we had a homeowner sue for a slip/fall. We had no choice but to engage our D&O policy. The case was settled before going to court (she prevailed with a 6-figure settlement plus her lawyer fees).

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By JerryD5 on 12/14/2014 2:48 PM
In a previous case, we had a homeowner sue for a slip/fall. We had no choice but to engage our D&O policy. The case was settled before going to court (she prevailed with a 6-figure settlement plus her lawyer fees).

Ouch.

Sikubali jukumu. Read all posts at your own risk.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By NpS on 12/14/2014 2:39 PM

I would be careful here. Once you have begun to defend on your own, your insurance company may have the right under your policy to back away from responsibility. Just a word of caution that may or may not be applicable in your particular situation.

This is good advice. Even though a case starts out in a lower court where an officer of the association may represent it, it could end up in a higher court on an appeal. Usually an attorney is required to represent a corporation in the higher courts and trying to save a few bucks with a DIY defense could backfire if the insurance carrier says, "You are on your own."

BanksS
Posts: 403

Posted:

From my own experience (HOA sued me in Iowa District Court, small claims limit here is $5,000) the attorney fees were what kept the case from getting settled before it did. The HOA would just not back off the attorney fees and we were just not going to negotiate for those. Our attorney advised us that judges rarely award attorney fees in contract cases. One must prove connivance, fraud, and/or deceit to be awarded attorney fees. That would be difficult to prove in many contract cases. You have to have to have complete and convincing evidence that the defendant's behavior rose to that level.

Eventually the HOA attorney convinced the HOA board to take the attorney fees off of the negotiating table. And the case was settled. Both parties spent a lot of money for an attorney. Best to try to work things out before you involve attorneys.

VickiW3 (Virginia)
Posts: 7

Posted:

Quote:

Posted By JerryD5 on 12/14/2014 2:11 PM
Vicki, have these 2 homeowners given you and the board any indication if they are going to pursue in small claims court or going full on with regular court? I guess that would make a big difference. If it was small claims court, you could engage an HOA-savy lawyer to represent the association (ours charged roughly $1000 for prep and attend court) or a member of the board could easily represent in court (it is not really that intimidating). If they are suing you all in regular court, definitely engage your D&O policy to supply representation.

We had a homeowner submit an ARC request. It was denied by the committee and the homeowner appealed it to the board (as their right according to our by-laws). We held a hearing and denied their appeal. They were extremely unhappy with our decision and for several months afterwards continued to ask further questions on why it was denied. We laid out an extremely thoughtout response in our initial decision. The wife kept at us and kept at us. We continued to reiterate that their case was closed and there would not be any further discussion of the matter. They never filed suit (though they threw out the threat continuously). They did file a small court claim against the association on a different matter but had their case dismissed because it lacked merit.

No direct indication, but our litigious neighbor has never used small claims. The second one is a wild-card.

VickiW3 (Virginia)
Posts: 7

Posted:

Quote:

Posted By LarryB13 on 12/14/2014 3:24 PM

This seems very reasonable to me. Although I've never called a vote, I'm confident in saying that the moment an actual lawsuit arrived we would agree to spend the $ to call a lawyer, no matter the location of the case. But thanks for the additional logic behind the decision in case I am wrong about everyone agreeing to spend the $

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