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An Article
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Homing In On HOAs
September 12, 2000
By
Bob Lewin
Copyright © 2000 The Orange County Register
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The Orange Grove
We need to look beneath the surface of homeowners' associations [Your Money section, Register, Aug. 27]. While the articles were informative, they didn't go into a lot of depth.
I would like to elaborate on an oversimplification in the article, "Hammer your questions home,'' in which the author wrote, "Are there any pending lawsuits against the association? If the answer is yes, that means someone will have to pay the lawyers, and that someone is you.''
This is not necessarily true.
If a homeowner (member) or third party files a lawsuit against an HOA, or if the HOA files a lawsuit against a member or third party, the loser often has to pay the legal fees of the prevailing party.
Three things are for sure: 1) The lawyers always win, 2) homeowners usually lose and 3) homeowner association board officers know that, even if the association loses, board officers only have to pay their share of the legal fees - or insurance rate hike - even if they were the cause of the fiasco.
Board officers aren't likely to be sued personally, as long as their act(s) or omission(s): 1) Are performed within the scope of the officers' or directors' association duties, 2) are performed in good faith and/or 3) aren't willful, wanton or grossly negligent. (In other words, if board officers aren't bad on purpose.)
Even then, they're not likely to be sued.
At least four-fifths of HOA boards in California have millions of dollars of directors and officers liability insurance that doesn't even exclude "unlawful'' acts and provides "duty to defend'' coverage. If the board is sued, a multi-billion-dollar insurer - with its own in-house, high-dollar lawyers - can swoop down on the unsuspecting plaintiff and rapidly run up tens of thousands of dollars of legal fees.
The total cost of paying the lawyers of both sides can be a six-figure sum.
If you believe you have cause to file an action against your association, don't do it unless you are independently wealthy. It's a gamble, and the stakes are high. They're so high, in fact, the rulers of homeowners associations are the ultimate untouchables - and they know it.
How much justice can you afford?
Evan McKenzie - author of "Privatopia'' - recommends, "Go to the courthouse and see how frequently the association is involved in lawsuits. I wouldn't move into one unless I did that,'' he says. "Some of these associations sue people at the drop of a hat." (See www.kiplinger.com/magazine/archives-/2000/September/managing/hoa3.htm.)
According to an article that appeared a few years ago in Smart Money magazine, "Experts estimate that in California, 75 percent of the homeowners associations are embroiled in a legal tangle of some kind.''
So, even though it may pay you to go down to the courthouse to see just how sue-happy the association you are considering buying a home in has been in the past, you must still accept the fact that HOAs have a litigious character.
Past performance is no guarantee of future performance.
Board officers, property managers and lawyers are often replaced with new faces over time. (Sometimes a long time.)
So what can homeowners who find themselves in associations with unaccountable, out-of-control boards do?
The trick is to elect board officers who will exercise reasonable care and who will hire a managing agent who will do likewise (if the board does decide to hire a managing agent).
This may be harder than you might think. The author of "Guilty by association,'' a companion article in the same section of the Register, pointed out one reason. "It isn't always possible to spot a difficult board.''
Another reason is that most HOAs have no secret written ballot process collected and counted by an independent third party and managing agents have an incentive to keep a "friendly" board in power.
Notwithstanding the difficulties, a board that believes reasonable care is a part of its fiduciary duty, and one that it should take seriously, will be less likely to overexpose the association's homeowners to unwarranted liability - and less likely to pursue inadvisable lawsuits.
The homeowners will be less likely to end up on the losing end of a lawsuit and "have to pay the lawyers."
Unfortunately, homeowners aren't advised of contemplated or pending lawsuits. As Smart Money magazine pointed out, HOAs "are more secretive than the CIA.'' (See, www.smartmoney.com/ac/home/buying/index.cfm?storyten#secretive.)
I don't blame the author of the above-mentioned articles for barely scratching the surface.
If you look below it, you may not like what you see.
Reader responses:
The points in your article are well taken but you need to raise a few more.
For example, all homeowner associations are De Facto governments.
All De Facto governments violate the constitutional right to due process and equal protection so all of them are unconstitutional
Last but not least, there is a serious property tax discrimination because you put infra-structure costs plus property tax and others only payone property tax.
Thus citizens in a HOA are not given equal treatment.
Last but not least-they do not comply with the mutual benefit statutes and any other corporation would be closed down for failure to comply so the state is allowing rogue corporations to violate state law just because of the free property tax windfall.
That is illegal, unethical and a violation of public trust
Willow Vance |
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