Lawsuit for HOA Board neglect to follow legal code.

Hey everyone,

An interesting question was posed to me today and thought I would bring this to the good people of HOATalk.

A homeowner in another local HOA community has had enough with the Board knowingly not following the state laws in governing his HOA community. After hearing details of the situation, I share in the opinion that they consistently disregards laws and rules that are affecting the community. All this homeowner is asking is for the Board to follow the law. Like almost everywhere, this homeowner is upside down on his mortgage and wants out because of how irresponsible and unfair this board is operating. In other words, he moved into the community based on the rules that the board willfully are not following. This board runs the community and it is a typical situation where nobody else wants to volunteer so they stay in power. He used to be on the board but quit because of this willful non-compliance.

The question asked was if I knew of any precedence bringing a lawsuit to their HOA because of a situation where someone owed more on their house than it was worth and seeking damages for the difference due to this type of willful non-compliance.

I hope this is clear enough and thought it an interesting question. To me all the reason for boards to follow their own rules. These trying times you never know what angle someone might come up with.

Thank you for your time.

CharlieM

I don't see any answer except Glens.
Speculate all you want, and jump in the pond if you must, but don't expect to not get wet.

Being "behind on a mortgage" and "upside-down on a mortgage" are two different things.

If one is behind on one's mortgage, then he/she has not been paying and is delinquent in payments to the mortgage holder.

If one is upside-down in one's mortgage then the home is now worth considerably less than the amount for which it is mortgaged.

One can be up-to-date in one's mortgage payments and still be upside-down in the mortgage because the property was originally valued at, say, $300,000, and that is the amount of the note the owner has and is paying on.

But now the property will only sell for $200,000. That leaves $100,000 in net "loss."

He now owes more than what the property is worth or can sell for. In other words, "upside-down."

Just to clear up a few points. This person has no problem with making payments. His point is that when he purchased the house it was with the agreement that his community would be operated with the rules he reviewed. When you purchase a home in an HOA in California, the HOA is part of the deed of the home. Every home owner is held liable for that language. Including the operation of the HOA. So if the HOA gets sued, everybody living in the HOA gets sued. A board only acts on behalf of all the homeowners. As we know, some board members only act on their behalf.

So the point being that this homeowner finds in essence a breach in contract. The HOA is not conducting itself in what legally was agreed upon. His point is that it would be much better in receivership than irresponsible board members operating the corporation. Without going into details it is plainly obvious that it is a board that only addresses issues they care about, or their friends in the community. The story he told was too long to write here but obviously one of incompetence. Unfortunately not uncommon in HOA's.

So if a homeowner buys in with the legal responsibility of an HOA, does it also follow that the HOA also has a legal responsibility to the homeowner?

I think it to be a good point.

It seems you answered your own question, and the homeowner in this "hypothetical" may be just as remiss, or in "breach," as the board may be. Since the homeowners are responsible for the operation of the HOA as well as the board, then failure of the homeowner to correct any violations, or to cite any violations that need enforcement, may be an issue as well.

What would be the first step is to have the homeowners replace the board with board members who are more "competent" than to have it go into receivership. I have no idea why people always want to go for the jugular, er, the nuclear option, first instead of taking a more reasoned approach and work within the scope of the governing documents, which, as you pointed out, all homeowners are bound to.

Charles as I stated before he could sue to have a receiver appointed but he would have to provide a preponderance of proof that the BOD was deliberately negligent. This could be very costly on his part while the HOA's D/O insurance would provide for the Board's defense unless they were found deliberately negligent.

But the homeowner has a responsibility to ensure that the covenants are enforced as well.

And I would venture to bet that the REAL reason for the upside-down has absolutely nothing to do with what the board does or isn't doing.

Six years ago you MIGHT have had an easier case making that assertion. But since that seems to be the case all over, due to a variety of economic issues, narrowing it down to simply Board error or negligence would seem to me to be an enormous uphill slog.

And if the homeowner threatens the board that they are going to pursue it, well, my guess is that it would cause a ripple of a chuckle as opposed to a shiver of fear.

Charlie,

I know of no cases where someone sued an Association for damages because the home lost value. I don't believe it would be winnable for the simple reason of proving that the damages based on failure to obey the rules vs. the economy or a list of any other factors.

However, there are cases that have been filed in small claims court (in VA anyway) where homeowners have successfully sued the Association for failure to follow the rules. The suites are based on specifics like failure to provide access to documents, failure to provide membership lists, etc.. From the ones I know about, usually after the Board is served, there attention is finally focused on the matter and a settlement is reached before going to court.

After saying all of that, filing a lawsuit against your Association should be the last thing that is done after all other attempts have been tried. These attempts should include things like: Sending letters (regular and/or certified), attending board meetings and/or requesting a meeting with the Board, gather support from the membership to apply pressure to the board, recall elections, etc.

Tim

Tracie,

Your posting had me look at my associations documents. After reading mine, I suspect that most HOA's are written the same way. Per my documents, any owner or the Association has the right to enforce the covenants but are not required to. This is an interesting point you brought up. Thank you.

Tim

The specific language for my Association is below:

Section 1. Enforcement. The Association or any Owner shall have the right to enforce, by any proceeding at law or in equity, all restrictions, conditions, covenants, reservations, liens and charges now or hereafter Imposed by the provisions of this Declaration. Failure by the Association or by any Owner to enforce any covenant or restriction herein contained shall in no event be deemed a waiver of the right to do so thereafter.

Tracie,

I actually checked our bylaws and the Articles as well as policy resolutions.

The only thing the Board is required to do is maintain common area, keep records and set the annual assessments. There are procedures on how to enforce the covenants and guidelines but even those do not require an enforcement of the issue, it only provides the option by using the word "may".

Specific language:

[Policy Resolution] The Association may make initial attempts to secure compliance through correspondence to the offending parties which states the time, date, place and nature of the violation and which sets forth the time period in which the violation must be corrected.

[Policy Resolution] Preliminary Investigation. Upon receipt and consideration of the written complaint, the Architectural Control Committee may request the Managing Agent, if any, or a member of the Architectural Control Committee to make a preliminary investigation as to the validity of the complaint and promptly report the findings to the committee. If the condition has been
corrected or the complaint is invalid for any reason, the committee shall determine the appropriate disposition of the matter and respond in writing to the Complainant. If preliminary investigation indicates the need for further action, the Architectural Control Committee may proceed as appropriate with the steps set forth below.

Again, this is a very interesting point of discussion.

Tim

Robert,

Generally speaking, the CCR article entitled "enforcement" usually speaks to delinquent assessments and CCR violations. My CCRs read:

"The assn, as agent and rep of the owner, SHALL hae he exclusive right, BUT NOT THE OBLIGATION, to enforce the provisions of this declaration. However, if the assn shall fail or refuse to enforce a mandatory rovision of this declaration for an unreasonable period of time (which shall exceed at least 30 days) after written request by at least 10 owners to do so, then the requesting owners may enforce them on behalf of the assn by any appropriate action, whether at law or in equity."

There is a famous case in AZ whereby an owner sued the assn for nonenforcement. The CCRs in question stated the assn had a DUTY to enforce. The court ruled in favor of the owner. The bottom line is this: if your CCRs state the BOD has a DUTY to enforce then they better do so. If they do not want to enforce a specific provision of the CCRs then they should seek an amendment to remove that particular covenant from the CCRs.

BTW, my CCRs do not say anything about the BOD being resp. for "protecting" the assn. Actually what does that mean? My bylaws state: "The business, property and affairs of the assn shall be managed, controlled and conducted by a BOD." Nothing about "protecting"

Robert,

The section about assessments is separate and says that the Board shall collect assessments. It also states the process to be followed, in detail.

In my dealings with legalize, the term may gives an option to do something, whereas the term shall gives no option, they must do it. Of course I'm not a lawyer. From http://dictionary.law.com

may
v. a choice to act or not, or a promise of a possibility, as distinguished from "shall," which makes it imperative. 2) in statutes, and sometimes in contracts, the word "may" must be read in context to determine if it means an act is optional or mandatory, for it may be an imperative. The same careful analysis must be made of the word "shall." Non-lawyers tend to see the word "may" and think they have a choice or are excused from complying with some statutory provision or regulation.
See also: shall

Being on the Board myself, we are enforcing the covenants, etc. I suspect most associations are. Tracie brought up an interesting point. However, despite the legalize, I believe that most Associations are using common-sense as well. Of course, I could be wrong about that.

Tim

Robert,

Of course the BOD has a legal obligation to the assn. The bylaws outline what resp. the BOD has and also the duties and resp. of all officers of the board. The CCRs may say they are not obligated to enforce the covenants but that does not absolve them from the resp & duties specified in the gov docs. As a judge ruled in the case I mentioned, ONLY if the gov docs state the BOD has a "duty" to enforce the covenants are they obligated to do so. Remember, enforcement of the covenants is only one of the obligations of the BOD.

The only reason they need D&O ins is to protect them from lawsuits instigated by the members.

Mary,
I can buy into most of this if we agree the actions by the Board are also subject to intent, meaning the Board must act in a fashion that demonstrates good intentions to preserve the association. I also think this issue of "may or shall or will." is subject to the whims of the court. I don't believe there is amply evidence that establishes our documents are "Law". This can be argued I am sure and case law can be cited, and this may mean something, but it is hard to imagine that our documents are as clearly defined as: say; "speeding."

Regards D & O insurance, I do believe there are many devils lurking in any business venture, especially HOA's, and concern about owners suing is part of the package, not the whole package.

Susan,
Can't argue with that, I certainly agree.

Very interesting points. Thanks for everyone getting involved.

First this isn't involved with my community. But it certainly has me getting out our documents.

To clear up a point, the homeowner in question does not blame the association for the loss on his home. His point being that he is unhappy in the community due to the unfair and inconsistent enforcement of rules and it is affecting the quality of life he expected by the documents of the HOA. I have no idea if there is a lawsuit in this but found it to be an interesting angle and expect more interesting angles while this housing depression continues.

After reading all the great comments, I got our our documents and it doesn't indicate either way of shall or may enforce rules. It only says that the board shall have the power to enforce the rules. So if a community knowingly enforces some rules and not others, wouldn't that be a good case for discrimination by not fairly enforcing the rules for everyone?

Our HOA is a non-profit, mutual benefit corporation. If run improperly, how is that different from any other corporation from issues like discrimination and incompetence?

CharlieM,
First, I think Michele has given a pretty good synopsis of the issue here. You are searching for perfection, she is explaining why this is too much to expect. Second, the issue as raised was another HOA that makes it impossible to really find out what this other person questions.
What you are really asking, it seems, is: if a board knowingly breaks a law to the extent that an owner is justified in suing them, can they do this, or is the board wrong. You must establish intent when you go to court. So if the Board acted with the intent that caused damage to the membership, then a judge might rule sanctions against them. But nearly all court cases filed never go to court, 0ver 95 % if I remember right. Whether it is an HOA or a private party suing, you have to prove damages. I went to see a lawyer once about a similar issue in my HOA. His first words were, what do you want me to do for you? You better have it solid in your mind what that is because the next thing he asks is what what do you want out of this. Then the conversation went to why did I think I deserve what it is I want. He ended up writing a letter to my board that did two things. It put the Board on notice that I cared enough to seek legal assistance and it caused the board to re-think their position and adjust the steering wheel a little and pay some attention to things they were neglecting to notice. I won because I received and paid for good council and the association won because I was an interested member.
You can beat some things to death and it still comes down to a qualified leap of faith. The documents you cite are not enough for anyone to go to court over. But if you feel you have been damaged and want to pay the freight, go
ahead and hire a lawyer. Michele has pointed out there are other ways to skin the cat. I would also suggest you stay away from using the term discrimination. You could be right as rain about all this stuff and we can say sue their ears off, but we don't because we don't know enough to make that call and we give opinions, not legal advice.

Mary,
Regards your "what is contained in our documents is upheld by the courts." Not my experience and probably not much relevance. Nearly all the enforcement of conditions or actions at HOA's and condos are settled by reference to the documents. If every question about the documents went to court, well, you can finish that. But we as a society usually try to do the right thing and abide by the rules and restrictions as we can interpret them and stay out of court. But that doesn't make our documents law. In fact there is more rules and restrictions in our documents than law, and there-in lies the reason for variability in court assessments. There are some strong enforceable laws in our documents but that does not paint the whole documents with the Law brush.

Then we have to consider different state laws. Our documents are bred and conceived in some lawyers office and copied in part from some other document and tweaked to meet any special interest desires and accepted by the developer/builder and then at some point passed onto the membership as our Bible written on the Mount. They are not. They are what we have to work with and in fact many of the "Laws" as written in our documents can be changed by a majority vote. Laws are not adopted this way by our general legislatures, and they carry the mandate to make Law.
None of this means I disagree with your position that there are issues when a court will uphold the wording of our documents, they also have to accept this is what they have to work with and that also endorses the fact that nearly all HOA disagreements are settled by arbitration, whether in the courts, judges office, court house steps or a simple visit to a board meeting.

Charlie,

One must be very careful what words you use to describe what one believes to be wrong.

This what you have described from a neighboring HOA is NOT!!! DISCRIMINATION. It is called
"SELECTIVE ENFORCEMENT" Huge difference in what you have described as unequal enforcing of the rules.

But the court will not likely recognize it as discrimination.

It is generally treated as "selective" enforcement, and it is not a good practice in HOAs.

But, again, regardless of how 2 cases may appear identical, there are any number of variables that could legitimately come into play.

And, it's also likely that no 2 neighbors are going to share their versions of violations and/or violation notices without putting their own spin on it.

It's human nature.

So, again, from the outside looking in, it's darn near impossible to determine "selective" enforcement without further information.

True. "Usually," however, if the Member Homeowner who is involved in the suit is an attorney . . . the "deep pockets" point is moot.