Common Causes and Outcomes of Homeowners Association Lawsuits
Homeowners Association Lawsuits – A Fact of Life
Unfortunately, lawsuits against Homeowners Associations (HOAs) and their volunteer board members are widespread and becoming more frequent as inflation rises. Minor disagreements between homeowners and HOA boards often turn into legal disputes or demands of the board. Disgruntled homeowners may believe suing an HOA will pressure the board into making concessions. If the board has failed in some part of their fiduciary duties—upkeep of the common areas, for example—they may be liable in a suit.
In the event of a suit, inexperienced board members may act on instinct and make things worse. Therefore, avoiding litigation in the first place should take priority. HOAs can begin by creating and following a plan that includes the association’s attorney. Additionally, having proper insurance is vital protection against Homeowners Association lawsuits.
Common Causes of Homeowners Association Lawsuits
When homeowners feel frustrated with their board, they may be quick to sue. That’s why it’s a good practice to maintain open communication with homeowners before they feel the need to litigate.
HOAs can take all the recommended preventative measures, which we covered here, and despite their best efforts, some homeowners may still sue. Here are a few of the most common causes of lawsuits against Homeowners Associations:
- Insufficient or deferred maintenance efforts – HOAs must maintain common areas. Failure to do so can lead to lawsuits. In the case of a natural disaster that damages common areas, the HOA board is still responsible for upkeep and life safety issues.
- Fine disputes – Some homeowners may contest fines in court rather than paying violation fees. This is a potential claim issue depending on the state involved. Some states differentiate between collection of assessments and fines. Accordingly, boards, must get an opinion from legal counsel when it comes to fines.
- Architectural change denials – In most housing communities, members must submit requests to the HOA board to make changes to their homes. For example, a homeowner may submit a request to put an above-ground pool in their backyard. But some communities have strict architectural standards and may deny requests, which may cause a dispute between homeowners and the board.
- Bodily injury/Property Damages – These are pure negligence suits. If a homeowner, homeowner guest, or a third party, such as a delivery driver, slips on an icy sidewalk in the HOA’s common areas, they may sue for negligence. Note that these claims fall under general liability and are not included in standard D&O policies.
- Pets – If an HOA has established rules about pets, they can expect some homeowners to challenge those rules. For example, residents may want to adopt a restricted dog breed or care for more cats than the established limit. Boards should seek counsel for claims regarding Service Animals and Emotional Support Animals as the laws and regulations are complex.
Learn more: The Risks of Aging Infrastructures for Community Associations
How to respond to a lawsuit
Staying calm is the key to responding productively to a lawsuit against the Homeowners Association and/or its board. Calling an emergency board meeting, while an understandable gut reaction, is probably the wrong choice unless it’s to discuss logistics—such as contacting legal counsel and the association’s insurance provider. After being served, any communication between board members—especially email and texts—are subject to discovery and may be used as evidence in a lawsuit. This doesn’t apply to communications between the HOA and its legal counsel or communications made in the presence of that counsel.
The first step to responding to litigation should be to contact an attorney and insurance provider. Why call the insurance provider? If a lawsuit is covered under the policy, they may be able to assign an attorney to the case. Consulting experts such as an attorney and your insurance provider is the best way to mitigate damage and create a strategy. Also, suppose an expert such as an attorney, an insurance professional, or a reserve specialist is consulted prior to making a decision. In that case, raising the Business Judgment Rule defense may be a strong basis.
When board members are named in lawsuits
A homeowner might name a specific board member in a lawsuit. However, these suits are seldom successful and often amount to little more than legal intimidation or posturing. Real estate law in most places operates under the assumption that board members are protected from personal damages by the HOA as an organization (similar to how a corporation as a legal entity protects its stakeholders).
But there are two steps that HOAs should take to mitigate the risk of individual board members being personally liable for damages.
- Make sure the HOA Bylaws and CC&Rs indemnify board members.
- Invest in Directors and Officers (D&O) liability insurance with involvement from the whole board.
D&O coverage protects board members from this type of litigation and the associated legal fees.
Typical outcomes of HOA lawsuits
Most Homeowners Association lawsuits are either settled outside of court or dismissed outright. In fact, if a lawyer recommends taking a lawsuit to court, you should seek a second opinion. Losing a case is potentially disastrous for an HOA board and for the housing community they represent. A losing HOA board may be forced to reverse a decision or pay out damages.
When the HOA has appropriate insurance, this can help cover the cost of litigation and damages. But uninsured boards may end up with unpaid damages and, as a result, have no choice but to issue a special assessment, tap reserve funds or take operating funds. All of these could have restrictions based on the governing documents which may require a supermajority vote by the entire association membership. Therefore, it’s in the board’s best interests and the interest of their homeowners to avoid taking litigation to court.
Learn more: How to keep your community association board from getting sued
Protecting against HOA lawsuits
Most lawsuits against Homeowners Associations end well before they ever see the inside of a courtroom. Others are dismissed outright. Suits are relatively standard in the world of housing communities. If your HOA has been targeted by litigation, don’t panic. Contact your lawyer and insurance broker to form an action plan. And avoid communicating about the case without a lawyer present. Meetings with a lawyer fall under attorney-client privilege and can’t be subpoenaed.
The threat of litigation is a good reason to review insurance coverage routinely. McGowan Program Administrators (MPA) is a leading source of community association insurance products. Whether a community association umbrella policy or D&O liability, MPA has the insurance products and the know-how to protect your HOA from costly litigation.
