HOA board members are always concerned about getting sued. The good news is that this does not happen as much as we think. A lawsuit is a severe matter; it can drain one's time, energy, finances, resources, and emotions. Many of us ask, "Why volunteer as a board member if it will only bankrupt me?" To further clarify this matter, we'll answer the question, "Can you sue HOA board members for bad decisions?
Can a Homeowner Sue an HOA Board Member?
Yes, because anyone can sue a person for anything at any time. A disgruntled homeowner can always choose to sue both the condo or HOA board and its members. However, if the question is, "Are HOA or condo board members personally liable for their bad decisions?" — the answer is not as straightforward.
An HOA or condo board member can be protected from liability in case of a lawsuit which will be clearly stated in your association's articles of incorporation, bylaws, or
governing documents. Other provisions offer protection when homeowners are suing the condo board of directors or the HOA board of directors.
What do State Laws Say?
A lot of states have laws in place that protect board members from personal liability to an extent. These damages can include property damage, emotional distress, bodily injury, and even wrongful death. Board members must meet specific requirements to qualify. Therefore, you must research state laws to check which ones apply to you as a board member. You can also consult an HOA attorney for clarification.
The Business Judgement Rule
When a homeowner is suing the HOA board or condo board members, they can use the
Business Judgement Rule to protect themselves from liability. According to the law, the board of directors is immune from personal liability when it can be proven that their actions or decisions were reasonable and made in good faith.
More often than not, the Business Judgement Rule rules favor the board of directors, which means when homeowners sue condo board or HOA board members, a judge may throw out the case if the board member acted within the scope of their authority. Such an argument may stand even if the board member's decision was, in the end, wrong.
The key here is to establish whether the condo board member upheld
their fiduciary duty and acted in the association's best interest. If they didn't, it could lead a homeowner to sue HOA for breach of fiduciary duty.
It's also important to note why the Business Judgement Rule favors the board. Board members are ultimately volunteer positions and are not compensated for the service they provide to the association. So if there were no legal protections for the members, no one would volunteer to join the board.
The courts understand that board members are not perfect. People won't always make the right decision every time. However, if it is clear that the board member did not act fraudulently or unconscionably, the judge will not proceed with the suit.
Can HOA Board Members be Held Liable?
A question like the one above holds back many residents from volunteering to run for positions on the board. HOA and condo board members should know that they are not entirely immune from personal liability. If the court finds that a board member engaged in fraudulent or malicious behaviors, they will be held accountable for their actions.
One issue could be when a board member takes advantage of the benefits unavailable to non-board members. It also could be when a board member borrows or uses the association's funds for personal use.
A board member could be personally liable if they were negligent in their duties. If there are problems because the board treasurer did not check financial reports against bank accounts, they can potentially get sued.
Homeowners can also sue a board member if he puts his interests above the community. For example, a board member will hire a service provider owned by their family members rather than one that is most qualified for the job.
What Can an HOA be Sued For?
Although it's not uncommon to find homeowners suing condo board of directors, you must know that such lawsuits are usually unsuccessful. Still, as a board member, you shouldn't become lax or abuse your power.
While homeowners can try to sue board members for just about anything, the most common reasons include the following:
- Failure to maintain common areas or elements. HOAs are responsible for the maintenance and upkeep of common spaces and features. When they fail to do that, homeowners can sue.
- Selective enforcement. If an HOA board does not uniformly enforce rules, homeowners can sue HOA for selective enforcement.
- Misuse of funds. Theft, embezzlement, or fraud happens all the time — even in an HOA or condo association setting.
- HOA Discrimination. When an HOA board violates federal and state
Fair Housing laws, homeowners can sue for discrimination. Can I sue my HOA for discrimination? Yes.
- HOA board members harassment. Board members who harass other members or abuse their power can use the law as a weapon to protect themselves and seek retribution.
- Negligence. Can I sue my HOA for negligence? Board members have specific fiduciary duties to uphold, which include the duty of care. Failure to enforce these duties can result in homeowners suing HOA for negligence. The same goes for condo associations. Owners can sue the condo association for negligence.
Are there Reasons to Sue an HOA Board?
Can you sue HOA board members for anything? More specifically, homeowners might sue an HOA board for the following actions:
- Failure to maintain community amenities and common areas
- Inadequate or lack of security (such as placing security cameras at gates or on private roads)
- Remodeling disputes or denial of architectural changes
- Holiday decoration disputes
- Flag restriction disputes
- Election disputes
- Pet disputes
On the other hand, here are some possible reasons for suing condo association boards:
- Failure to maintain common elements, such as walls, plumbing, etc.
- Failure to ensure safety in common or shared spaces (such as security cameras in hallways, fire alarms, removing fire hazards, elevators, etc.)
- Election disputes
- Pet disputes
How Can HOA Board Membres Protect Themselves?
It is comforting to know that HOA and condo board members have some legal protections. However, whether the judge votes in their favor, board members still worry about the legal expenses and resources needed to respond to an HOA lawsuit.
Your condo association's insurance should cover all your legal expenses. Some insurance companies may cover legal costs under the general liability policy. However, board members should consider adding Directors' and Officers' insurance.
With D&O insurance, board members can expect their insurance company to provide the money for legal counsel and other expenses. This insurance type also protects board members' personal assets from litigation.
If a homeowner sues the board and its members, a board member can seek separate counsel that will protect the board member's personal interests. However, the board member can still ask the association or insurance company to cover the legal expenses.
Meanwhile, condo associations should consider Crime and Fidelity insurance coverage or Employee Dishonesty insurance coverage. These will protect the association should a board member commit a criminal act such as fraud or embezzlement. With this kind of insurance, the association will not be held liable for the money that may have been stolen or misused by the board member.
What Should You Do if You've been Personally Sued?
Can a nonprofit board member be sued individually? The short answer is yes. Try as you may, you can't please everyone in your HOA or condo community. Disgruntled homeowners can still choose to take legal action against you even if their claims are baseless. Still, it would help if you were prepared for whatever they throw at you.
If a homeowner personally names you in a lawsuit, your first reaction should be to contact your HOA insurance agent. Using certified mail, send copies of the case to your agent. Provide the agent with pertinent details, including when you were served the papers and the deadline for a response.
Your insurance carrier will usually defend you in cases like this. But, sometimes, they will recommend that you hire an attorney to represent you personally, which usually happens when your interests don't align with the association's interests. In that case, you can't have the exact attorney defending you and the association. Remember that your HOA's insurance will not cover the cost of your attorney.
Suing the HOA Board of Directors — is it Possible?
To put it simply, homeowners can sue HOA or condo board members and even name them personally in the lawsuit. But, there's no guarantee that they will win. Board members are afforded a certain level of protection from personal liability through state laws and the association's governing documents. Additionally, insurance usually covers any legal costs associated with the suit.
Still, that doesn't mean you should ignore such actions; if a homeowner sues your board for a wrong decision — even if there's a chance that the lawsuit will be dismissed — this could drain association funds and resources. Worse yet, the association could spell more financial loss if a homeowner wins a case against HOA.
