Real Estate & Property Law

ATTORNEY FEES IN AN HOA OR CONDO DISPUTE - WHO GETS THE $$?

Here are two unusual questions about financing a lawsuit - and who is suing whom?

Question 1: "I'm not sure what to do about my Board of Directors. In our Budget we have attorney fees listed in a column and should be accumulating and we do have a management company. Can my Board of Directors utilize the Budgeted attorney fees to obtain an attorney, if I decide to file a lawsuit against the Board of Directors for not performing their Fiduciary duties? If not, how can I stop the Board of Directors from taking the money from the Budget for attorney fees?"

Answer: Yes, the board can use money budgeted for attorneys fees for attorneys fees incurred to defend the association or any board member(s).

Question 2: "Is there a California Civil Code that I can reference the management company for them to review before they release the money to the Board of Directors? I feel the money for attorney fees should be given to the person who prevails in the lawsuit."

Answer: No, there is no Civil Code that supports your position of withholding funds, and in addition, the management company releases funds at the Board's direction, and would not generally have the right to withhold funds, as the manager is acting as agent for the Association and has no decision making power other than that granted by the Board.

When an owner sues the association, it is in essence suing itself as well as all other members, as the Association is it's members. In most cases, the Association documents provide the directors with protection (called indemnity) by containing a clause that says the Association will pay for the defense of board members if sued. And Boards that are savvy and wise will make sure that the Directors and Officers Liability Insurance is kept up to date for their own benefit and the benefit of the entire membership. The members would not want to pay for defense of a lawsuit or damages resulting from a lawsuit.

Such protections generally apply to acts and decisions of board members made in good faith and within their capacity of their role as a board member. So there is in most cases little hope of successfully pursuing any lawsuit against a board member, unless their conduct is really eggregious.

There is a statute that says in an HOA or Condo lawsuit relating to enforcement of the documents the prevailing party would be entitled to recover attorney fees; however, the "award" would come after the "prevailing" part, which can only be determined at the end of the lawsuit.

As for more particulars, this does not constitute legal advice - an attorney would have to know a lot more about what is occurring to determine if the conduct gives rise to the possiblity of an individual judgment or an attorneys fee award.

Full post as published by California Condo & HOA Law on July 28, 2009 (boomark / email).