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Foolish board decisions can cost everyone

October 23, 2011|By Stephen Glassman and Donie Vanitzian

Question: Our homeowners association was sued when a slate of board directors misused its authority. The directors embarked on projects that only they wanted. They hired different lawyers for each director personally and other attorneys for the association and board, paying exorbitant fees to push their projects onto owners. They were determined to amend our covenants, conditions and restrictions to prevent owners from renting out their units. The board directors' actions were eventually deemed illegal, but not until they had incurred at least $100,000 in association debt not covered by insurance. To keep our insurance, the premiums were raised substantially, and the lawsuits affected unit sales. The director who started the campaign to stop rentals moved and rented his unit out. In addition to higher monthly fees, owners will suffer otherwise unnecessary special assessments for years to come. As an owner, I was powerless to prevent this. Can I sue this one director to return the money I was forced to expend because of his illicit actions?

Answer: Foolhardy actions by directors can prove costly to owners. Yet those same directors often overlook the fact that, as owners, they will be subject to the same restrictions or costs they seek to impose on owners.

Once the directors' actions were deemed illegal, they should have been required to repay the association for costs incurred.

Homeowner associations are typically governed by majority rule, and assessments are inherent in any type of common-interest development ownership. Projects charged to titleholders must follow the governing documents. For example, a majority of a quorum of owners may approve certain projects, while in other situations, such as imposing assessments, a two-thirds vote of all titleholders may be required.

Board decisions must be approved by motion and vote of the majority of directors. Board votes that end in ties are the same as a "no" vote.

Even if owners vote against special assessments, the board would be able to initiate assessments against all owners to fund the association's declining operational account and to meet paying its bills. As an owner you would have had difficulty preventing the board's actions without the assistance of the majority of owners willing to step up and hold directors accountable.

Before suing the association and/or its directors to recover reimbursement for their own expenditures, titleholders should consider a cost-benefit analysis.

Yes, you can sue the one director, but your lawsuit will have to show that you were personally damaged by the individual's actions, such as your being required to pay a special assessment to cover damages incurred by the association because of that director's actions. You may even be able to use the earlier determination, if there was one, of illegal acts against that director in your lawsuit.

All board actions, even those that were illegal or ultimately declared illegal, should have been reported in the official minutes of board meetings, in which individual titleholders would have been forewarned. Only vigilance by owners can prevent board directors from spending association funds on unwanted projects.

Send questions to P.O. Box 10490, Marina del Rey, CA 90295 or email noexit@mindspring.com.

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