Special Assessment
Hello! My HOA ran a vote for a special assessment for $10,000 per unit to be paid in a year. My community voted no & is wanted alternative options. However, the HOA didn’t care about our vote and is ultimately forcing us to still pay the special assessment and hired an attorney with our funds without notifying us. Is this legal?
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Alysia,
Your CC&Rs dictate the approval authority for any special assessment, typically 67% of all eligible voters. Without that approval, the association has absolutely no authority to charge a special assessment. This is an irrefutable fact But the association and your attorney don’t care. The association uses your money to defend their actions in court and the attorney will make a substantial amount of money even if they are wrong and lose. The association is simply betting that no one in the community will risk their own money to sue the association for this clear violation. If no one sues, they get away with it, and you all end up paying that illegal assessment. Poll your money together, get a good attorney from The Desaulles Law Group, and sue the association. The association will lose, and you can sue the board of directors directly and personally for this clear violation and breach of duty.
Dennis
Dennis , what Arizona statute does one cite if they sue their board for breach of duty?
And don’t most HOAs have a CCR clause that protects individual board members from personal liability for their “official” acts (even if wrong)?
Fish 7
I’ll say this you have a lot of nerve to continue to ask me questions after involving me in a frivolous lawsuit fishing expedition that cost me hours of work for no real benefit. The indemnification clause of all governing documents protects the board from liability for all acts done in good faith and in compliance with their duties. Breach of duty is not protected and in fact is not protected by any D&O insurance as well. The problem is what exactly is their duty. The common interest community acts do not currently specify what a board members duties are and to whom they are owed. Association attorneys take advantage of this and simply apply the duties cited for non-profit corporation act board in ARS 33 10-3830 and 3842. The Restatement of law Property servitudes established that the typical business judgement rule for corporation does not apply to these community boards and established the true duties of a board to the members and to the association in 2000. Arizona case law established in 2007 via Teirra Rancho v Kitchukov invoked the provision of the restatement section 6.13 and by default 6.14 to all association boards in Arizona. Those provisions also include the burden of proof required to establish a breach of duty. I’ve tried to codify these requirements into statute for three years now and will try again next year. This is necessary because while it is clearly established as case law for Arizona association attorneys and community manager fail to tell any board members about these duties. Because the business judgement rule favors then and the association boards.
Dennis
Dennis,
Thank you for your detailed response and for highlighting the importance of the Restatement of Law, Property (Servitudes). Good to know! I was not aware of those and have now familiarized myself with those two you cited. Thank you.
For the benefit of others reading this, I wanted to add some clarification regarding D&O insurance. While these policies may exclude coverage for settlements or judgments and while they have extensive “exclusion” lists for things like breach of duty, fraud, bodily injury, libel, etc., they often still cover attorney defense costs to fully litigate these cases. Look in the insurance policy for a phrase like this “these exclusions shall not apply to the Insurer’s DUTY TO DEFEND AND PAY DEFENSE COSTS.” That means that even if the insurance won’t pay for the final judgment or settlement, it will cover the costs associated with defending the board members throughout the pre-trial, trial, and post-trial process.
However, it’s important to be aware of the potential consequences of the board filing a claim with the D&O policy. The insurance company may respond by significantly increasing the annual premiums (say, doubling them), raising the deductible by a substantial amount (say, 25-fold), or canceling all (not just the D&O) insurance coverage for the HOA – or a combination of those.
Thanks again for your insights.
Is taking out a loan without homeowner signatures the same as a special assessment.
Janet,
It absolutely is the same as a special assessment, but the problem is that most CC&Rs do not address the approval requirements for loans. Common sense would dictate that they receive the same approval as a special assessment, but common sense is totally lost in these communities, especially if a lawyer is involved. I proposed legislation last session that would have mandated that loans be approved just like special assessments, but it was held in committee based on objections by the Association attorneys. I’ll be proposing similar legislation this session. While you can always challenge the association in court right now without specific protection in law that would be a risky proposition. You can always contact an attorney and get their direct opinion on the viability of your case. I’ll continue to work to make the laws of this state protect the actual interest of the homeowners in these communities.
Dennis