Legal Pitfalls of HOAs

guest blog by Deborah Goonan

One often-overlooked fact about homeowners associations (and condo, too) is that they are legally classified as corporations, separate and distinct from cities and towns. And just like any other corporation, anyone can sue the HOA or be sued by the HOA for any number of reasons.

What does this mean for the HOA owner? It means the Board has a duty to protect the Association against the very real risk of expensive lawsuits. Insurance policies can help, but only if the Board purchases the right coverage with limitations high enough to cover the risk. Even then, insurance companies have been known to refuse to pay some or all legal expenses or judgments, especially when Board or Manager actions have been deemed insufficient or reckless. When that happens, homeowners are often on the hook for unpaid insurance claims, hefty legal expenses and any other awarded damages.

Want some examples?

1) In the video linked below, you can watch what happened when the deck of an Indiana clubhouse collapsed during a December 2013 family gathering, hurling twenty-four people to the ground below, seriously injuring several of them. The builder claims the deck is beyond its ten year warranty period, and the HOA is responsible for its maintenance. If the HOA failed to maintain and repair the deck, the Association might be found liable for injuries resulting from its collapse. Will the HOA have sufficient insurance coverage for multiple lawsuits brought by the injured and their insurance carriers? Or will the insurance company deny payment because of something the HOA failed to do? Will insurance even cover replacement of the deck? All of that remains to be seen.

2) In the second news video linked below, in April 2014, neighbors in a Florida HOA said they were concerned because a man drowned in a retention pond. The HOA owns this pond as part of its common areas and is responsible for its maintenance. Retention ponds like this one are very common in Florida, and, as the attorney points out in the interview, it would be impossible to protect all of them with a barrier. Nevertheless, according to the attorney, the HOA can face liability for not adequately warning of potential danger, or knowingly or unknowingly creating any “unsafe” condition. There is very little this Association can do to prevent any child or adult from walking up to the pond and either jumping or falling in. Draining the pond is probably not an option in Florida’s tropical climate. The Water Management District requires retention ponds to prevent flooding and environmental contamination from storm water runoff. It is doubtful that all adjacent homeowners will agree to install a fence to prevent another drowning accident because, in many HOAs, lots adjacent to retention ponds are sold at a premium price as “water view.” Some HOAs expressly forbid fences of any kind, for any reason. All of these factors increase liability risks and insurance premiums for those living in an HOA.

3) Sometimes when an owner sues the HOA, things get out of hand. Such was the case of Maria and Sam Farran and their Virginia HOA, whose legal battle began in 2008, over the display of an Obama presidential campaign sign (that, according to the rules was four inches too big). After a protracted dispute spanning nearly four years, Fairfax County, Virginia judges ruled in favor of the Farrans in two lawsuits: the first over the HOA’s lack of a legal right to issue fines, and the second over the HOA’s secret meeting denying the owners’ requests (in apparent retaliation) to add a new roof and a deck. During the ongoing feud between the HOA and the Farrans, assessments reportedly increased from $650 to nearly $3,500 annually, mainly to cover legal expenses. After the dust settled in 2012, the HOA found itself unable to pay $100,000 in legal fees awarded to the owners, and had to declare bankruptcy. Now the community square, once used for neighborhood gatherings, is awaiting a new buyer.

Bottom line: if you own property in an HOA, due to no fault of your own, you may be on the hook for thousands of dollars in legal expenses, not to mention neighborhood strife, and possibly even bankruptcy of the Association.

(link to KSDK news story on deck collapse)

(link to News4Jax story on retention pond drowning)

 

Please follow & like us :)

About

Ward Lucas is a longtime investigative journalist and television news anchor. He has won more than 70 national and regional awards for Excellence in Journalism, Creative Writing and community involvement. His new book, "Neighbors At War: the Creepy Case Against Your Homeowners Association," is now available for purchase. In it, he discusses the American homeowners association movement, from its racist origins, to its transformation into a lucrative money machine for the nation's legal industry. From scams to outright violence to foreclosures and neighborhood collapses across the country, the reader will find this book enormously compelling and a necessary read for every homeowner. Knowledge is self-defense. No homeowner contemplating life in an HOA should neglect reading this book. No HOA board officer should overlook this examination of the pitfalls in HOA management. And no lawyer representing either side in an HOA dispute should gloss over what homeowners are saying or believing about the lawsuit industry.

1 thought on “Legal Pitfalls of HOAs

  1. Cynthia

    Thank you Deborah Goonan for this insight into law suits that have involved Homeowner, Condo and Property owner associations. How, too can we forget Trayvon Martin and the usurped power of an HOA board volunteer neighborhood watch appointee, as I recall. A tragedy that never should have happened, that took a young person’s life.
    I posted a comment today to a poconorecord.com article about a financial advisor who has been accused of a range of improprieties.”Scotrun financial adviser charged with fraud,” http://www.poconorecord.com/apps/pbcs.dll/article?AID=/20140826/NEWS/408260324. Why are these same, or similar investigations not being done in the HOA, etc., frauds and property thefts? I could only post parts of my entire comment to their webpage, but here is the entire comment:

    What is different about investigating and charging this man and not investigating and charging the abusive and criminal Homeowner association (HOA, COA, POA) boards and their accomplices for the legal abuses, including the filing of knowingly false lawsuits, selectively targeting homeowners for alleged abuses, to cover up their criminality, and then, alleged fines and extortion legal fees, from this very conflict they have created to steal homes? Yes, steal homes. These abuses are real and in most cases criminal. Please, it is important to read this comment posted recently on neighborsatwar.com, 08.21.14, “Red State vs. Blue State Conundrum,” by Robert, of Madison Hill HOA (http://neighborsatwar.com/2014/08/republicans-think/#comment-9259). The links for the two people he posts about, are Professor Evan McKenzie, http://www.privatopia.blogspot.com and Shu Bartholomew, http://www.onthecommons,us. These two names, along with some other’s in HOA,etc., truth, accountability and advocacies are two names every American should know!

    From Robert:
    “So you can enact all of the “rights” you want, but it won’t make a difference. As former H.O.A. attorney Evan McKenzie told Shu Bartholomew back in June 2010:

    It’s like something you would see in Nazi Germany or Soviet Russia. People think these things don’t go on. But we know they go on every day in condo and homeowners associations.

    These people who have no idea how to use power at all. They won’t even accept limits on their power. They don’t know what the law requires of them, these directors. They go by what some lawyer tells them to do, which the lawyer tells them to do only because he or she knows they can get away with it. Because the only recourse you have is some civil suit….

    There’s nowhere for owners to turn. If the lawyer tells them “Oh, just jack ‘em around. Who cares what the rules are? Who cares what the law says?” it doesn’t make any difference. The transaction costs of enforcing an owner’s rights are so great that they are hardly ever able to it.

    That last line “Who cares what the rules are? Who cares what the law says? It doesn’t make any difference. The transaction costs of enforcing an owner’s rights are so great that they are hardly ever able to do it” is why most H.O.A. reform is worthless. Your idea of legislated “rights” depends on an owners ability and willingness to protect them. How many people, when threatened by their H.O.A. corporation, simply pay the extortionist fees, because they can’t afford — financially and/or emotionally — to do so? Those of us who have done it know that it’s not for the faint of heart.

    When confronted with the Gordian Knot, Alexander didn’t untangle it — he cut it.”

    Wake up Monroe County residents before this happens to you, someone you are related to, or someone you know. The criminality, corruption and homeowner abuses have to be exposed for exactly what they are, or have been, who the perpetrators are, regardless of who they are, or what “license” they hold and especially if they are “officers of the courts,” or are affiliated with the courts. The press has to do a better job on reporting these crimes, just like every other crime that can happen to innocent and unsuspecting people in their homes, due to no fault of their own.

    Reply

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.