027 | How To Avoid HOA Lawsuits

When you get sued because the elevators not acting properly, that you have a good team and that you know that oh we'll have a fix for you we have elevator teams set up to take care of situation. So not be elevator make too much noise Okay, no, no, what are the noise in elevators and acceptable, acceptable parameters? It's okay. Even though again people live in these things have a right to complain and have a right to make claims against the association. The board of directors job is to say, we did our job properly.

Common Sense for Common Areas exists to help all 2 million volunteer board members nationwide have the right information at the right time to make the right decisions for their future. This podcast is sponsored by four companies that care about board members Association Insights & Marketplace, Association Reserves, Community Financials, and Kevin Davis Insurance Services. You'll find links to their websites and social media in the show notes. Hi, I'm Robert Nordlund of Association Reserves. And I'm Kevin Davis of Kevin Davis Insurance Services. And this is HOA Insights where we promote common sense for common areas. Welcome to Episode 27, where we'll be speaking with insurance expert and regular co host Kevin Davis on the top reasons boards are being sued nowadays, you need to know what's going on in order to minimize your exposure. Well, in case you haven't had a chance to listen, I want to encourage everyone to check out our last episode number 26, which was another one of our popular board hero episodes. If you missed any other prior episodes, take a moment after listening today to subscribe to this podcast on any of the most popular podcast platforms. You can also listen directly from our podcast website, HOAinsights.org, or watch on our YouTube channel. And if you have a hot topic, crazy story or a question you'd like to have us address, you can contact us at 805-203-3130 or email us at podcast at reserve study.com. So Kevin, I thought we could start today's program with an audience question. And this one is from George in Jacksonville. Things are going well at our association except for regular threats of lawsuits from one particular owner, unpredictable owner, what can we do? Well, that that is the one call I get most of times understand that boards of directors will get sued, they'll get sued, no matter what kind of job they do. They can be the best board of directors out there enforcing the documents, collecting assessments, maintaining any common area where they can be sued. And we talk about Sues suit or claims against board members of committee Association, we can kind of divide up the five categories. Okay, the first category is breach of fiduciary duty. Okay, because again, as board members, they have a duty to act with reasonable care was in the best interest of the association without any conflict of interest. That's their job. So as a maintaining the common area, passing a special assessments and everything they have to do they have to do it within the certain parameters you have to do, you have to be reasonable about it. The problem is, you know, just as well as I do. A lot of these board members don't understand the business. And they don't act like it's a business. So they make decisions that are not in the best interest of the association's they don't get experts, they don't count on their lawyer or their accountant, the insurance professional reserve study specialists, they go out and they just make decisions based on sometimes purely emotional reactions. We see it, we hear it, it happens all the time. The second one is in what doesn't go by them first and then we go into more deeply. The second one is fair to maintain the association. So the board responsible is to maintain the association. So when not maintaining when the roofers are leaking, the pole has been repaired the fences have been taken care of. We asked situation where they had ponds out there where they've been maintained the ponds and the dredge the ponds up fair to maintain the association. S is is number two. The third one is selective enforcement of the documents ouch yeah, yes, yes. Where they look and say, okay, you've been parking your car in a wrong spot for all these many weeks. We're going to tow your car away, but the person who's on the other end that we like we enjoy like they go into their house all time. We let them sit in parking, we let them park with anyone for the fourth reason, financial matters. And I'm not talking about theft or embezzlement. That's part of it. But more about collections, you know, collections. That becomes a big issue right now when you collect How do you collect? Are you collecting people should collect from me this management of funds and following. The last one is reputational damage. This is a big one. How dare you must treat me this way. I have You're interrupting my standing in the community Those are your five, if you're gonna get sued is gonna be either one of those two of those, or guess what's impossible to be sued for five of all five of them. I'm a baseball fan. So, you know, could be a single a double A Triple, or it could be a Grand Slam touch all the bases, take them all this, oh, gee, Kevin, I have enough years in this industry that I'm thinking all the minefields that the board members have the fiduciary duty, that is their responsibility to take care of the common areas. And then there's the specific money things, the collections, I think of elections, I think of online meetings versus in person meetings. And I was gonna say, a perceived slight, how come he welcomed, she welcomed everyone by name, but they didn't welcome me. No harm, reputational harm, or whether it's true or untrue. So you lead out with that, I want to follow up on that. Even if you're the best board, even if you've done your best intentions. And let's say you've had good training, you say you have you, you have a great manager at your side, guiding you, correcting you filling you with the right information. That doesn't prevent you from a perceived harm or perceived slight. And again, a lawsuit. And perfect example of that is that if you did the best job you possible that somebody will come to you and say what authority you have to tell me, I can't park my car or have a pet, I can't go swim in three o'clock in the morning, what gives you that authority? And that's where your most of your losses come? I'm challenging the board's authority, who are you to tell me this, they would give you the authority. And that's where the big issue comes, we talk about breach of fiduciary duty, who has the authority with authority company, and we know it comes from the governing documents, we come to the state laws, we know it comes from all different kinds of places. But those, those rules are constantly being challenged. And that's the one thing without breach of fiduciary duty. Where do you get the authority to tell me I can't do it, even though you're doing the most perfect job? Is that a little bit of the incivility in society that we see? Yes, yes. Because not only I don't believe even though, is it the documents, you can't do certain things and you sign off the documents? I'm challenging those documents because I don't think you have the the ability, you don't have the knowledge, you have the training, you know, you don't have it to be able to say that we shouldn't do it and you're doing it because not because it's the rules, but because I been discriminated against. I'm being harassed, you're harassing me with these stupid rules of yours. You know, these rules are you know, inconsequential, don't you realize that right now. We're going through a lot of financial issues right now. And you're forcing me to do deal with more things I can handle. So yes, that's the issue right now. You know, I'm thinking about, again, the perceived a slight or even the bully. You could have the bully on the board, or you could have the bully in unit number 13. Who says, Let me let me challenge them. Let me just push back on 60 days late on my assessments, yes. And I really don't give a rip about what my dog does in the common area. Let's see if they have the nerve to make a stink about it. I'm challenging you board members, because here I am in unit number 16. Alright, are you upset with my dogs barking because I have a you know, I bought a COVID pet and my dogs barking two o'clock in the afternoon and up there. So I'm challenging you because you don't have the authority telling me I can't have a dog at six o'clock. So it's a breach of fiduciary duty. And just like enforcing it on me. My dog is barking but guess what? I hear other dogs bark at two o'clock when I come home at four o'clock There's dogs barking so you select the the forcing me. And it's reputational harm because you're doing it because I happened to be a protected class. Yes. And I'm I was working at home, it was all fine. And now I'm back in the office two days a week. So it's only two days a week. Why are you making such a big deal about this? You can excuses and things like that. And then clenching my fists just because I'm starting to feel tense just talking about these kinds of things. But we're talking about conflict. You started out again, probably gonna come back to this a few times. You can be doing all the right things and still be subject of a lawsuit. What about the chemistry the character the association? Can you do something to make it a more inviting association? So even for the bullies in unit number 13 Or number 16? Is there something you can do to soften that up? So it may not be a rule thing, it may not be a fiduciary thing, it may not be a reputation type thing, but can you at least Make it a friendlier place. So there's not so much tension and conflict. Is that or is that measurable or reasonable? Well, I this and I tell you the, it's so important to have be able to communicate properly. So when you communicate privately, you can be sued for breach of fiduciary duty because you're not notified them or got on a grief. But by communication, you're not talking about damages. You're not saying now you lost $100,000, or my unit value has lost $100,000? Well, I can't sell anybody goes to the horrible place live, while we're talking about here is damages. If you have a well run Community Association, if you're talking about I've been sued for breach of fiduciary duty, because I failed to maintain, you know, some of the hedges. Okay, well, guess what? You're right. Let me maintain the hedges right. Now. Let me get on it right now. Guess what, it's a claim against me. No damages, no lawsuit? No, nothing. So the key thing is to when you hear about the situation, because, you know, you had that one person in that community we talked about earlier, who's upset about everything he is that person will be set, because you select leaving force, you put your fiduciary duty, your accounting is not right, you, you know you're sending these letters to me, because I'm in violation of the pool hours, whatever. But if you communicate gets to that one person, you give them the attention that they need, and no lawsuit. Because what's that lawsuit was filed, guess what's going to happen? That lawyer on the other end, wants damages he wants to be repaid. So once that happens, somebody has to pay that to be damages. So our goal here today is to talk about how we eliminate the damaged part of it. So when there are lawsuits for breach of fiduciary duty, we can we can go in there and say, we understand and let's work together to solve the problem. I think that one word that you said was communication. And that seems like that can be the needle that pops the balloon and that all of a sudden, can reduce or eliminate tension that can your words, give them the attention that they need to show them that they matter that the board cares about them? The board hears that? Is that? Is it as simple as that. So and this is why I love talking to you about these things when we talk because the answer to all these questions are pretty simple answers. I said there are five different things you're gonna get sued for those five things can be hundreds of 1000s of dollars at the end of the day. Okay, just something as simple as there's too much noise, your kids are making too much noise outside it up for you to tell me there's too much noise and not. So you had to hire somebody to come in and test the decibel levels to see is it noises or loud or high there? You got to do all these different things to figure out what's going on and and all of a sudden is 20-30 $40,000. Later, you go okay, it's noise. Is it acceptable levels? Well, I don't feel that here set the levels, but they are. Okay, so the case is close. We spent $50,000 defending him no damages at all, because the board did their job. Yeah, the Board did mention, this tension in there has had consequences. And those people still upset the who live there. Because the kids are still making noises. Even though everybody says they within the boundaries, you have a tot lot out there. The kids are supposed to make noise out there, you know, you agreed to put a tot lot out there anyway, because you wanted a tot lot for the association. So that was out there. Because you hear kids out there, there's noise. But the key thing here is that we have to make sure that their communication is there. So we can just lessen the temperature, as we're going to do is lower the temperature. And think back when I bought my condominium association. The My entire focus was can I afford it. And this is my first home purchase. And it was just an incredible process getting approved for the loan. Getting all my tax statements together. And I remember going to the in California, the escrow office to sign all the papers and they gave me this big stack of documents. And they basically said, Just sign here that you've read all these documents and we'll give you the keys. And I was thinking there's no way I can read all these documents and understand what I'm agreeing to. And I bet that's the situation of most community association homeowners that they hadn't really appreciated what they got themselves into. And it may on a sunny day when they took a tour of the unit. The vista out the linear window is open grassy area and like you said a tot lot. And oh what a peaceful place to live. Until someone's kids come home from school. And they play they're noisy, and it could be wonderful kid noises but if you're trying to take a nap, boy, that could be it. is incredibly annoying, or two o'clock at afternoon and I get to work. We five years ago, we bought the place. You weren't home at two o'clock in the afternoon with the kids were out there play. Now you're there you have to work at it creates the problem. Yeah. Okay. Is there a simpler solution where there are some people that I don't know if I'm treading on dangerous ground here, but some people that just need to appreciate that they're not well suited for Community Association life. And that's the issue is that first of all, they don't read the documents and you hit the nail on the head. When you have all those documents, you see a sign on the escrow papers, you have it, then all of a sudden you're giving two rules of dissociation, right? Last thing you do is read it and you find out the hard way. When you watch a car, you have your pet, or you know, the things that you shouldn't be doing. You're at the gym at the wrong hours. So what do you mean it's closed right now? Well, didn't you read the documents? Well, sure, I read them, but I don't think they unfair. I don't think they're unfair. I have a doctor's note that says I need to have therapy at five o'clock in the morning, and you're not allowing me so you beat your fiduciary duty, or you're selectively enforcing the documents against me, because nobody else has a problem that I have. So you're selecting you selecting me, as it now does reputational damage done. And we talk about reputational damage. Now sudden, I'm talking about dollars. I want money from me. Until a libel, slander, defamation, all that stuff. I hear now the happy guy because I get to go to the lottery right now. And you get okay, I get millions of dollars from you guys that I've been reputational harm and my standing communities. I love what it used to be. Kevin, okay. You're talking about something that is surprising me? I'm a business owner, you're a business owner. And if someone steals from my company, that's a measurable number. But you and I have been in this in our community association industry for a long time. We have reputations, good reputations. And how do you? How do you put a reputation on someone being offended? Because it wasn't their dog that pooped on the grass? It was someone else's dog? Is that? Is that five grand? And how does that really solve anything? Because you'd have had a fight? And does five grand or 10 grand? Make you feel any better? Or am I just not appreciating what we're talking about here? What we're talking about a new area, you're talking about things like liable slander. So now all of a sudden, I'm, you know, I'm in so I'm the president sociation. And I'm labeled five people, I took five people out and association hasn't paid their assessments. They didn't pay us for assessments in six months right now. And then we know it's in 1000. You know, the documents? Or is this item newsletter, something like that. So now sudden, this person has been harmed this week, they, they wrote their names in a public place? Well, they didn't write their names and public pays. But they say there are five members out there who haven't paid. And all of a sudden, those five people will say, it's about me, I know they talking about me. How dare they talk about me? You know, it's you said earlier, it's perceived. Okay, proceed wrong. We're talking about proceed wrong, more so than actual wrong. It's percent perception. Now you do have situations where and we've seen situations where there's the collections area, this violation, the bankruptcy laws, it goes, once you file bankruptcy, you can't put anything in there saying they owe the money, they have a right to privacy. Well, a lot of boards and understand that their right to privacy, and they will say that person still late, are they still in back, and all of a sudden that creates a violation right there that we start to see a lot more, because they got these boards of directors don't know, bankruptcy law, they don't know law, they don't go to the attorney and find out can we do this? Or can we not do it? And it goes back to one of the issue talks about getting experts out there to get their opinion before you make decisions. That's what I was about to say you talked about consulting your attorney, because board members or board members, I was a board member. Kevin, you are a board member, right? Yes. Board Member, my God, okay. And you realize you're making decisions about an entire spectrum of subjects. And you don't know you're not the expert on landscaping around the expert on collections, you need to be appreciating that you are running on potentially a multimillion dollar not for profit business. And you need to be reaching out to those experts to guide your association correctly. Because you just there's no way you can know all the things that you do need to know as a board member and I hope the board members listening are shaking their heads like you're right. There's so many things they're asking us to, to know and do and execute. Well. Well, Kevin, let's take a quick break right here for a sponsor message. And we'll get right back to this topic. Are you part of a homeowner's association or condominium board? Making the right financial decisions for your community's future is crucial. At Association Reserves. We're proud to serve communities nationwide, specializing in reserve studies tailored to your community's unique needs. Our expert team helps you accurately assess your property's assets, forecast future expenses and develop a solid funding plan. Whether you're a small HOA or a large condominium association, we've got you covered. Visit reservestudy.com, to learn more and get a proposal for your association. And we're back with Kevin, I wanted to follow up on some of those ideas, the perceived wrongs, you can do everything right, and still get into trouble on this area. And it can be a minor issue, a minor lawsuit can be a big time lawsuit where you've made something incredibly uncomfortable for someone to reside there or rent their home there. And then they perceive loss of home value and loss of enjoyment that can get into big deal. So are there some are there some simple keys that we can communicate to the audience to try to minimize the tension here and minimize the exposure, we talked about communication and communication is great, except for communication about the knowledge hurts you. And I think that's one of the problems, you have to have communication with knowledge. And if you don't have knowledge, hire the professional who has the knowledge, a professional manager, a lawyer, accountant, these people you're gonna rely on because if you are sued for breach of fiduciary duty, and you relied on them for advice, you're gonna bring them sitting right next to you and say, Guess what, he's when he told me it's okay, to tow the car away. He's went told me I could have a special assessment or I needed special assessment. So what you want to do is have communication with knowledge, to me is the key. What about behaviors? We spoke a moment ago about bullying. And that could be the bullying by the unit owner, or it could be the bullying by the board of directors. How do you defuse that? How do you as a, as a board member, tactfully tell one of your fellow board members to, you know, back it down, tone it down, because they are, they're making things uncomfortable. The key to that is somebody has to do it, what happens is you have, you wait for the other board members to say something. And if I say something, so that bully gets more and more power, until somebody stands up and say, tone it down a little bit. Our association is it doesn't operate. This way. We operate, this is more of a peaceful Association, or we've been peaceful for a number of years, we all know that every Association has that one person in there, you know, that has that guy that this disrupt every meeting. And sometimes they just want to be heard. And sometimes you got this, listen to them, say thank you very much, we'll take it under advisement. But if the board member doing it is more challenging, because they're the ones have the authority, unit owners, just listen to them, given the day in court, let them be heard, and sometimes you can defuse the situation. The key though, is that you have to be doing your job the right way. If you do your job the right way, if you do it, it was in the best interest Association. You may be sued, but you don't care. Because it's 5000 $10,000. defense costs only no damages, you want to stay away from damages and damages occur, we did not act in the best interest in association, you acted your own self interest. You didn't care, you didn't use that reasonable care, you didn't care. That's when your damages come into play. That's when you also you look at as a quarter of a million dollars in damages, because you defame somebody, you know, maybe the libel slander, somebody's been mistreated somebody. You know, defamation is that key word if you defame somebody as a result of defamation. Now all of a sudden, there are damages. That is the key part of it. Definition leads to damages. And another thing you said was doing your job, so doing your job period, technically, but also doing it the right way. So gathering the information, so you know what you're talking about. So you have an expert, firm ground to stand on, and also doing it. Can we say with a smile on your face and doing it too often? Having the Open Board Meeting since Thank you, Mr. Smith. And I think of our government legislators, people who say, and now we'll cede the floor to the right honorable that I did. And you know that behind closed doors, they hate each other. Yeah, that gets civil and respectful. And they give each other the time of day they give each other treat each other fairly cordially. And that can boy civil discourse, treating each other well, politely, respectfully, that can go so far, I would imagine. And again, we talked about breach of fiduciary duty is reasonable care. That's that is this standard. You got to be reasonable. The other end you have to care. reasonable care is one of the things I look for reasonable care without conflict of interest in the best interest sociation the act in good faith. Those are all the things you have to do if you do those things, guess what's going to happen? Yes, you could be named in a lawsuit. But yes, you're gonna say this. I use reasonable care. I acted in good faith I use judge Then, and in the best interest of association, so, you know, Can we can we shut this thing down? Can we close off on it? And that's the key. That's what you want to do. Okay? So, because of because people are people, there's always a chance of being sued, right or wrong perceived slights perceived that you know, they your your, you lost somehow in a file management you lost the financials for March of 2020 or 2022 an absolute mistake. And it's not that you've buried some embezzling, it's just literally a mistake, that can be perceived as a problem. And so there's lots of things people can sue for, but exuding the character of the association where we as happy villas are known for XYZ, and maybe have that position statement of guiding the board forward and reminding each other this is what we're all about here. We're embracing neighbors, we're moving, enjoying the freeway access and join mass transit, enjoying the adjacent park access to see facilities whatever it is focusing on what we are for, rather than the tension that will come with humans being in close proximity to another, there will be tension. And you talked about the one homeowner and I there's many associations where it's not just one that is making things difficult for the board. Yeah. And the go further, what you just talked about is that if you have a policy lets you write this stuff down, we just said that our association is dedicated to what we're for, and you write it down what we're for, and let everybody know what you're for, guess what, you're in a lot better shape than people guessing or hearing about what you for this is the policy, that we we have anti discrimination, anti harassment policy, we treat people as human beings. I just have a policy for this, write it out and let everybody know, because now all of a sudden, if I know that this is our policy, remember, this is our policy that we treat people reasonably we treat people with care. This is our job. And we do what happened and refer to it exactly. You refer to you go back to it. Yeah. And with those missing financial statements for that one month? Well, that's when we transition management companies. Yes, yeah, we made a mistake, we made a mistake. And guess what we'll let everybody know that the mistake was made. we've corrected it. And guess what we're taking care of it And Ok. Good, good, good. And go back to the policy. Go back to the policy. This is our policy. Remember, this is who we are as Association. Right. Okay. Are there types of associations that have more exposure? I would imagine larger associations with more people. More exposure, but high rise versus mid rise versus townhomes versus planned developments. Are there. Special? Sure. don'ts. Yeah. Yeah. I mean, planned developments. The problem there is enforcing the rules. Because when you live in the planned development of your own home, and you believe you can do whatever you want to do. I want to have a new fence want to paint my house different color, I want to have a deck, I'm gonna do all these different things. And guess what? No, you're not allowed where to where you have you live in a high rise, or you live in a condo, you have rules you have the rules to obey. If people understand the rules, you have to have it you got to pick your dog up and carry them through. You can't be a walk your dog through certain things you know, you have to do and you live with them or you don't you get mad at him. But in a con, if you live in a homeowner's association. You don't want to break any rule. You know, you don't care about any rules. You know, I remember back then when I had to roll away basketball courts a roll them out there in the front yard shoot baskets. Leave them out there all night long. And then the association then forced it to know you can't leave them out there. Who are you to tell me I can't get a homeowner's association has a problem with rules. They just don't like the rules. Yeah. And there will be problems because you will have someone that they left their basketball goal out one night, and there wasn't a board member who saw it wasn't documented. And yeah, there was an exception. But the policy is this. It's not a matter of catching this is not a militaristic or punishment type of place. But if you can point to a rule that says we are here for the peaceful enjoyment of our community, and it's it's not perfect. Well, we as the enforcers are imperfect but we are guiding towards peaceful enjoyment and that means these loud noises after 10 o'clock. That's not what we're all about. This lack of enforcement is number one and HOAs also, you see a lot of breach of fiduciary duty in no I tell you failure to maintain is difficult in the high rises because you have water intrusion as your biggest problem in high rises, water intrusion that goes to failure to maintain it leads to mold issues and leads to property damage issues it leads to all kinds of issues. Failure to maintain is big in the in the high rise area. So select that are the five areas yeah breach of fiduciary duty selective enforcement HOAs failure to maintain in high rises because they have lot to maintain a higher, higher it is the more you have to meet maintain and the more issues you're gonna have a walk down the steps, all of a sudden, the railing is loose, because you know, you haven't maintained it properly, then put the signs out because you had wet floor, you have lots of failure to maintain issues in more of a high rises than you do anything else. So, yeah, five, those are two things you have there. Yeah. And high rise, just plain is more complicated. So there are more things. And as you suggested earlier, the board is not gonna know everything, you need a good building engineer, you need a good HVAC contractor, a new a good elevator, contractor, all these kinds of things that you need to arm yourself with. So if you're building a good team, if you have a good team, aren't you then you know, a better position When you get sued because the elevators not acting properly, then you have a good team and that you know that oh, we'll have it fixed for you. We have elevator teams set up to take care of situation. Elevator, you know, we have some time to elevator makes too much noise. Okay, no, no, are the noise in elevators an acceptable, acceptable parameters? It's okay. Even though again, people live in these things have a right to complain and have a right to make claims against the association. The board of directors job is to say we did our job properly. Yeah. And if you can say if that noisy elevator, or we had two outages last year. One outage is the year before you can say that. Yeah. Well, we're on schedule in our reserve study to get it modernized next year. No surprise, It's under control. We are good to go. And yes, as we approach that time, we may have one more, but we are taking good care of our building. And that's it. We'll be down for four weeks next year when we are modernizing the elevator. So inconvenience is part of life. Well Kevin we could spend so much time on this. It's always fascinating to chat with you. And we hope you learned some HOA Insights from our discussion today that helps you bring common sense to your common areas. We look forward to having you join us for another great episode. Next week. You've been listening to HOA Insights, Common Sense for Common Areas. You can listen to the show on our podcast website, hoainsights.org, or subscribe on any of the most popular podcast platforms. You can also watch the show on our YouTube channel. Check the show notes for helpful links. If you liked the show, and want to support the work we do, you can do so in a number of ways. The most important thing you can do is to engage in the conversation, email your questions or voice memos to podcast@reservestudy.com Or leave us a voicemail at 805-203-3130. If you gain any insights from the show, please do us a HUGE favor by sharing the show with other board members you know, you can also support us by supporting the brands that sponsor this program. Please remember that the views and opinions expressed by the podcast do not constitute legal advice. You'll want to consult your own legal counsel before making any important decisions. Finally, this podcast was expertly mixed and mastered by Stoke Light Video and Marketing. With Stoke Light on your team, you'll reach more customers with marketing expertise that inspires action. See the show notes to connect with Stoke Light.