Q&A: Homeowner association board listened to bad legal advice
Question: Our homeowner association lost several big lawsuits in a short time, and I feel it was the board’s fault. We were too quick in hiring a lawyer through a website and should have conducted better research.
The lawyer and his associate, who said they were experts at homeowner association law, gave us advice on how to handle our issues and what needed a vote. I have doubts about their reasoning and advice.
In the end, we realized we got really bad legal advice that led to unwise, if not illegal, behavior by board members. We ended up paying out millions of dollars in attorney fees and hundreds of thousands of dollars not covered by insurance.
In addition to ongoing special assessments, everyone’s dues rose to $425 a month from $250. We still don’t understand how this happened to us. Do you?
Answer: Litigation is always risky, but losing several big lawsuits in a short period of time is definitely a wake-up call. Worse, owners could pay for the board’s poor decisions for years to come.
This happened because the board gave too much credence to online advertising and flashy attorneys at seminars while failing to perform proper due diligence and careful deliberation. Performing due diligence is ongoing. Even after those mistakes were made, the board failed to take remedial action when it suspected it was receiving bad advice.
Professional vendors such as lawyers are merely resources for the board and do not replace common sense or directors’ fiduciary obligations. When advice seems bad, no matter whom it’s from, you owe it to the association and titleholders who fund its operations to reconsider your actions and get a second, even third, opinion.
Websites and seminars are merely advertising and solicitation tools meant to impress and attract prospective clients. Due diligence requires the board to pull back the veil put up by solicitations and sales tactics and ask questions tailored to their association. That includes negotiating fees.
Sure, to some extent a firm’s experience and size might matter, but what type of legal representation do you need? Are you trying to stave off litigation, are you headed for it or are you already in it?
Because titleholders fund the association’s bank accounts, owners should be included in the decision-making process. The decision to retain counsel should be made at an open board meeting with an opportunity for input and discussion from all titleholders.
Most association-related problems can and should be resolved without litigation. Problem solving at an early stage is more efficient and less costly. As your issues progress toward and through litigation, the more the resolution slips out of your control.
Don’t let that dissuade you from considering settlement at all stages of a case. Just as the board voted to enter into lawsuits, the board can vote to end them. Sometimes cutting your loses is the best course of action.
Zachary Levine, a partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian, JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.
