Worst thing a property manager has done

What's the worst thing that your HOA's property manager has done? And was the property manager terminated?

I am scheduled to sell a rental property, at a very good price, in 2 weeks.

Turns out that the property manager was served with process in a Federal lawsuit against the HOA. The property manager failed to turn the paperwork over to counsel. So the HOA didn't file a response, and the plaintiff has moved to get a default judgment against the HOA for over $500,000.

I don't know if the property manager turned it over to the board. And no announcement was made. The lawsuit turned up in a due diligence check.

The property manager is on the board.

No registered agent was needed; the property manager listed itself as the address of the HOA on state records.

Per Court Rules and/or statute, my understanding is yes.

Thanks. Yes, I got my real estate agent to send the court filings to the buyer. It’s certainly concerning so I thought that the buyer should know.

Hi Melissa, whenever I sell anything (my car, rental property, etc.), I disclose all material problems. Period. That way the buyer can’t come after me.

In this situation, the HOA did not disclose the lawsuit at all, neither to the buyer nor to owners generally. I found out about it by running a search on Federal court records. And the HOA still hasn’t disclosed it. The lawsuit is valid; I asked a litigator to look over the court filings.

I would be liable for fraud if I didn’t disclose that, particularly since the HOA has only a few thousand dollars in cash available, meaning that an assessment or HOA dues increase may be required.

If you bought a home and then there was an unexpected increase in amounts payable to the HOA, and the seller had known that and didn’t tell you, if you were me, you’d be as mad as a hornet for being defrauded.

Hi Melissa, you make good points, but I want to have a clean conscience and disclose everything. You are correct, but even if a shady HOA hides material information from members, I don't want to go along with that.

In my state the seller who fails to disclose something they know about is very much liable. The realtor also has some liability, but there can be things the seller knows that the realtor would have no way of knowing. Ohio has a disclosure form that goes on and on for pages, but at the bottom is a statement attesting to the fact that the information is complete and accurate to the best of their knowledge - and the person who signs that form is the seller.

Wait a minute... Who is getting sued exactly? You said something about the Property Management? If it's the Property Management getting sued or served then why is the HOA even involved? The HOA is a CLIENT of theirs. So if the Property management is getting sued that has nothing or little to do with the HOA.

You don't disclose information that isn't public or proprietary. The lawsuit information is still HOA business amongst its members. A potential buyer is NOT a member. You put yourself at risk of liable on the HOA's behalf for spreading information that is not for public consumption or knowledge.

My gut feel on this. Your fishing for a lawsuit against your HOA. Mark my words your wanting to find an angle to get a lawsuit filed. If not, then why you trying to stop the sale of your property???

The HOA is being sued. The complaint was served on the property manager, as agent for the HOA. The property manager didn't forward the complaint to counsel. Thus the default judgment is against the HOA.

It's a Federal lawsuit and the court filings are a public record. I now see that they turn up if you Google the name of the HOA, even, as numerous legal websites show then. So even rudimentary diligence would reveal them.

Yet the HOA has not disclosed this lawsuit to its owners and the HOA never disclosed it at all even though the property manager filled out some paperwork in connection with my sale of my property.

And yes, the property manager is on the board of this HOA.

You said it, ChrisE8. I sleep better at night, too, knowing that, after full disclosure, the chances of something going wrong post-sale are greatly reduced.

I think one of the beauties of craigslist is how so many (granted maybe not all) people post photos highlighting any flaws with whatever they are selling. They want a good transaction, with no complaints afterwards.

I think what the HOA's obligations are to members and on statutorily-required disclosure paperwork is an interesting question. Lots of web sites discuss this. The sites seem to lean towards the HOA having to disclose 'less, not more,' on account of attorney-client privilege; being able to strategize without showing their hand of cards to the other party in the suit; and so on.

I think a lot of the states that have "HOA/Condo Disclosure Statements" required actually require that the seller complete these statements. The HOA may help (and even bill a flat fee for this), but the onus legally may be on the seller.

North Carolina does not appear to have any meaningful requirements for a HOA itself to disclose information prior to sale. In NC, maybe covenants and the existence of the HOA are all that need be disclosed, and the burden appears to be on the seller and realtor/agents.

I am aware that one of my former HOAs did not disclose litigation it had recently begun in court to a buyer (or the seller, for that matter) the following month, before the sale closed. Yes, the lawsuit was public record.

Then again, I do not think I have heard of any appeals court decision involving a plaintiff suing a corporation over a failure to disclose litigation where the corporation was a party.

For corporations, lawsuit disclosure obligations seem to arise mostly in the context of financial statements.

I don't have any meeting records of the HOA. What I have are copies of the complaint and a few other filings from the plaintiff, on records of the United States District Court for the relevant portion of North Carolina, and other filings evidencing the default. I think that those are pretty reliable--they are official court records.

A Special Assessment imposed upon a home to pay the costs of a lawsuit is part of the home. This includes when the Special Assessment is imposed to pay ongoing costs of the lawsuit rather than just the possible, final court judgement against the HOA.

Well, this is one reason the property manager shouldn't be on the HOA board! Even if the documents allow it, that doesn't mean it's a good idea.

I suspect the main reason property manager is on the board in this community is because that's how the developer wrote the original documents. Which is another reason job one for a new HOA board is to review the documents with their own attorney and delete all references to the developer

As for disclosing the lawsuit, I believe the HOA law in my state now requires that the seller disclose certain information on the HOA to the buyer before the sale is finalized, so I can see Chris' logic and agree with it. This is something that would come out anyway and if he hadn't said anything the seller might not assume he didn't know about the lawsuit and go after him. It may mean he loses a sale and while that bites, it's better to be out of the earnest money than to be on the hook for a special assessment that may be necessary to pay this if the judgement stands.

I just say that I'm fairly spoiled when it comes to property managers. I know in the early days this community went through several before settling on the management company we have now. They'd signed that contract a year or two before I moved in, so the three we've had have been very good.

Don't know how this case will end - hopefully the association attorney will be successful in fighting the default judgement and then get down to the business of addressing the lawsuit itself. Unfortunately for the homeowners, this won't be pretty because I see the Fed 's handiwork in my job and can tell you when it decides to sue, there's usually a better than 80% chance they have you by the...cashews and You WILL have to pay a lot to get it settled

Yes Augustine something doesn't add up here. Seeing it online doesn't equal it not being something concrete in real life. Our HOA a lawsuit would not be ignored and a special assessment would be in place if needed. So for Chris to not mention anything like a special assessment or it being in HOA records smells of missing details.

Like do we know if the HOA is owner owned or still developer owned? If it is still under developer, then the developer would have the property manager on the board. Plus they would most likely be the one the lawsuit is against. It is still in the HOA's name. This scenerio would make more sense.

Have someone say they looked up online and found their HOA involved in a lawsuit isn't enough details to me. You can look up my HOA and see it was once involved in a lawsuit. It was when developer still owned it and they took back a bid from a lawncare company they promised to hire. This was over 25 years ago. 40K had to be paid out. However, it wasn't against us the owners so we didn't pay it or involved.

A federal court case not being discussed doesn't ring true or lacks context to me. Something is missing here...

You and I do not agree.

It's owner controlled.

I am aware of it because I looked in court records, but now I see that the lawsuit comes up when you Google the name of the HOA.

The property manager was served with process. It's the property manager's job to get the complaint sent to counsel. The property manager did not. Is a $500,000 default judgment not anything to worry about?

There is no newsletter and there has not been an annual meeting in 2020. Board meetings are not announced.

The HOA did not disclose the lawsuit to the seller in any paperwork that that the HOA provided to the seller.

And the HOA has not disclosed the lawsuit in any communications to owners generally; the other owners who I know confirmed that they had not been informed of the lawsuit.

None of this is my fault. It's the property manager's fault for not giving the complaint to counsel and the HOA's fault for not disclosing the lawsuit to the buyer in paperwork.

You all do know that when an estoppel is processed, there is the question of whether the HOA is involved in litigation, right?
That's where disclosure comes in...

Thanks. This is NC. The property manager can serve as registered agent as long as the property manager has an office in the state.

Kerry1, thanks. I thought that it needed to be disclosed. I haven't checked the law on it, but under common law, not disclosing something like this could be fraud.

Your post does not make sense to me. I do not see signs of anything having been estopped here. Default judgments may be set aside by motion and then an order from the judge. Typically the reason is to ensure justice happens and the lawsuit is not re-tried, wasting court resources further. Judges set aside default judgments all the time.

It would bother me. In general, there are enough property management companies out there who do not employ convicted felons that the board could chose from. Why introduce a risk when it is not necessary?

As you say, people can change. But the fact that this person is currently employed in a profession where they could repeat their previous unwise decisions should at least raise the possibility that perhaps they have not had a change of heart.