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)
