Board must tell homeowners how it pays legal bills
Question: I own one of the more than 130 units in my cooperative, which was recently sued in a personal injury suit. We won the case, but the court awarded only a little more than $4,000 of the more than $20,000 legal bill to our cooperative’s association. I heard through the grapevine that the board is not telling owners these facts and is instead just going ahead and paying the bill. Can the board unilaterally do that or does it have an obligation to inform homeowners that we will be paying this? Can the board take the money out of our reserve account to pay this? Or does the amount have to be divided equally among the units?
Answer: This award reduces the total amount of attorneys’ fees that must be paid and, if not covered by the project’s insurance policy, it must be paid by the association. If an assessment is required, the expense must be shared equally among titleholders.
In most lawsuits brought against an association, the costs of defense are typically paid by the association’s insurer. You are entitled to see and obtain a copy of the association’s insurance policies. Make a demand in writing to the board under Civil Code section 1365(f)(4) asking to see a complete copy of your association’s insurance policies, invoices and correspondence. Then try to determine what is and is not covered. If necessary, you can hire an independent attorney for assistance in deciphering the policy’s coverage.
Payment of legal fees from an association’s reserve fund is generally not permitted. Under Civil Code section 1365.5(c)(1), the payment of legal fees from reserves when those fees are associated with the repair, replacement or maintenance of the common area, is allowed. Section 1365.5(d) does allow the use of reserve funds to pay legal expenses but requires the association to notify all titleholders of that fact in its next available membership mailing. In making the decision to use reserve funds for these purposes, the board must follow the law in disclosing to the titleholders how much it intends to “borrow” and how it plans to repay that money to the reserves. Even if your board fails to disclose the amount of the association’s legal bills, you are still entitled to view the invoices and the repayment plan.
Discussions involving association litigation are often held in executive session, meaning the contents of those discussions are generally available to titleholders only in a brief topic statement. However, when it comes to an assessment for paying legal bills, that must be discussed at an open meeting at which owners are given an opportunity to hear and participate in the discussion and decision. The association must also make an accounting of those expenses on at least a quarterly basis and make that accounting available for inspection by any titleholder.
Owners can obtain copies of the judgment from the court and seek their own legal opinions regarding interpretation of that judgment.
Send questions to P.O. Box 10490, Marina del Rey, CA 90295 or e-mail noexit@mindspring.com.
