HOA stands for homeowners' association. It is a private organization that consists of members of...
Association homeowners may foot the bill if their HOA loses a lawsuit. Typically made up of member residents, many residential communities have homeowners’ associations to help keep the neighborhood unified and clean. The terms of the association’s covenants, conditions, and restrictions often allow the association to pass on extraordinary expenses that exceed the association’s operating and reserve funds to the homeowners. Almost 3,000 HOAs, or common-interest communities, currently exist and operate in Nevada, according to the state’s Department of Business and Industry. In exchange for access to the association-maintained common areas, membership in these organizations requires homeowners to adhere to the association’s rules and to pay assessments.
Who Pays When a Nevada HOA Loses a Lawsuit?
If an HOA loses a lawsuit and must pay damages as a result, the costs often disburse to several areas – from insurance policies to special assessments charged to members. Homeowners’ associations must maintain at least four types of insurance policies – commercial general liability, property, crime, and directors and officers liability insurance. A commercial general liability policy will typically cover claims involving personal and bodily injury, property damage, or other such negligence-related claims. The property policy should include coverage for no less than 80% of the community’s actual cash value for issues such as damage to HOA facilities. Crime insurance policies provide some financial protection in cases involving dishonest or criminal actions on the part of HOA board members or other employees. State law requires associations to carry coverage equal to the lesser amount of $5,000,000 or all the HOA’s reserves plus three months of assessments. A directors and officers policy, on the other hand, covers individual board members personally named in HOA lawsuits.
What Are Special Assessments?
Special assessments refer to additional fees levied by common-interest community associations. These fees come in addition to the monthly, quarterly, or annual assessments that the association levies for the upkeep and care of landscaping, common areas, and shared amenities such as fitness centers, swimming pools, or basketball or tennis courts. HOAs must sometimes impose special assessments to cover the costs of lawsuits by members, as well as to cover shortfalls resulting from nonpayment by a number of homeowners, improper budgeting of the community’s expenses, and unexpected or unusual maintenance needs. Groups also occasionally assess these extra fees to upgrade or replace sidewalks, roofs, or community amenities, or to add shared facilities such as clubhouses or walking trails.
Unpaid assessments run the risk of increasing the costs for other community members or resulting in collections or legal action.
What Happens When Homeowners Fail to Pay Special Assessments?
Depending on the terms spelled out in the covenants, conditions, and restrictions, HOAs have differing protocols for handling unpaid assessments. Some associations have formal policies for when members must pay and how the group will handle late or nonpayment. In some cases, this may include working with HOA general counsel to file a lien or to take civil action against the homeowner. Before taking such extreme measures, however, common-interest community groups must send delinquency notices, assess late charges and fines, and employ other such methods to reach a resolution with members. Sometimes, the organization will work with members who cannot afford financially to pay the assessments, and the association may accept partial payments and/or create payment plans.
What Are the Top Reasons HOAs Get Sued?
Various disputes between common-interest communities and association members reach the seriousness of filing lawsuits. Just as HOAs expect homeowners to follow the shared community rules, association members expect that the organization will uphold its obligations under the covenants, conditions, and restrictions. Some of the most common reasons homeowners take legal action against common-interest communities in which they reside include contract violations, remodeling disputes, repair disputes, discrimination, and the misappropriation of HOA funds.
Contract Violations
Members may consider filing lawsuits to enforce their interests under the HOA’s covenants, conditions, and restrictions. These documents essentially exist as contracts between homeowners and common-interest community organizations. While these associations generally exist for the betterment of the community, sometimes actions they take violate the rights of members under these contracts, or they may fail to uphold their obligations to the communities. For example, despite including landscaping in the HOA fees, the group does not provide regular service. Consequently, one or more members sue the association.
Remodeling Disputes
Homeowners occasionally sue common-interest community organizations over remodeling disputes. In some cases, HOAs refuse members’ requests to remodel their homes, despite the covenants, conditions, and restrictions not directly addressing the matter. For instance, if an HOA’s CC&Rs do not specifically prohibit additions but the association denies a homeowner’s request to add to his or her home and extend the kitchen, a homeowner may perceive a violation of the CC&Rs. To gain authorization for the build, the member may file a civil lawsuit.
Repair Disputes
If an HOA fails to make repairs or does not make them in a timely manner, homeowners may take legal action. Members pay association dues in exchange for community benefits such as the use of shared swimming pools or outdoor grilling areas. Should something go out of order and require repairs in the areas under the purview of the HOA, then the organization bears responsibility for having it fixed. Excuses, delays, neglect, and other factors relating to handling such repairs sometimes lead homeowners to pursue their options for enforcing their rights and obtaining solutions.
Discrimination
Some lawsuits by members against common-interest communities allege discrimination. HOAs have the ability through their covenants, conditions, and restrictions to establish wide-ranging rules – from restricting members from renting their properties to specifying the height of their mailboxes and the colors they can paint the exteriors of their homes. These rules cannot, however, have protected characteristics, such as race, number of children, or marital status, as their basis. Therefore, homeowners may take legal action when HOAs violate the state’s housing discrimination laws.
Misappropriation of Association Funds
If HOAs do not appropriately spend the money paid by members as monthly dues, some homeowners take legal action. Homeowners’ association boards have an obligation to allocate the funds paid as dues in the manner they say they will and for the betterment of the shared community. Members, then, may file misappropriation of funds lawsuits to stop board members from using the monies in unacceptable ways, such as for excessive attorney fees or board lunches.
How Do Members File Legal Complaints Against HOAs?
Members in disputes with common-interest community boards may file civil, equity, or federal lawsuits to resolve their issues. Often following the same sequence, such actions typically involve homeowners filing complaints with the appropriate courts, responses from the HOAs, fact-finding, and eventually, a ruling on the matter by the judge or jury. The court jurisdiction for such cases depends on factors, such as the type of complaint. For instance, a federal court may hear a discrimination claim while an equity court hears a conjunction case, and a small claims court rules on a personal injury claim.
Before filing lawsuits, homeowners should review the HOA covenants, conditions, and restrictions to ensure they have the right to sue the association. Sometimes, such contracts limit members’ rights to file lawsuits and instead require them to submit to binding arbitration or another dispute resolution process. Through arbitration, a third party will listen to arguments from both sides and draft a written opinion specifying the winner of the claim and the resulting award, if any. In binding arbitration, the sides must adhere to the process findings and generally cannot pursue the matter any further. In Nevada, disputes between members and the association related to the HOA’s governing documents must also first undergo alternative dispute resolution under the Nevada Real Estate Division before a lawsuit may be commenced.
The dynamics between HOAs and homeowners sometimes bring challenges – providing community benefits while imposing rules and costs on members. When faced with a homeowner’s association dispute, people may find it helpful to understand their rights and responsibilities, as well as the options available to them for remedying violations of their interests.
