When a homeowners association (HOA) loses a lawsuit brought by a homeowner, it can lead to major changes in how the community is governed. HOA boards are given a lot of power to enforce rules and collect assessments, but what happens when an HOA board loses in court?
This article will examine the potential consequences when a homeowners association loses a legal battle against a homeowner. We’ll look at what can happen to the HOA board, how assessments may be impacted, and what options homeowners have when their HOA fails to uphold its duty.
HOA Board Members May Resign or Face Removal
One of the most common outcomes of an HOA losing a lawsuit is that board members choose to resign. Serving on a community HOA board is typically a volunteer position, and the legal action may prompt board members to step down rather than deal with the fallout.
If the entire HOA board resigns, this can create a serious governance issue for the homeowners association. The community governing documents usually outline how vacant board seats must be filled. Typically, the remaining board members will appoint replacements until an election can be held.
If the entire HOA board resigns at once, the homeowners association management company may be empowered to appoint interim board members. Or a special meeting may be called so homeowners can elect a new board.
In some cases, the court may remove the HOA board members from their positions if there is evidence of misconduct. The judge can appoint a receiver or trustee to manage the association until homeowners elect a new board temporarily.
Replacing an entire HOA board at once can be a difficult transition for a community. New board members may not fully understand all the legal obligations and governing documents immediately.
Unpaid Assessments Can Pose Financial Hardship
When a homeowner successfully challenges their HOA in court, it often means they don’t have to pay certain assessments and fines they were previously required to pay. If enough homeowners stop paying their HOA dues, it can have a major financial impact.
The homeowners association depends on assessment revenue to cover common area maintenance, amenities, insurance policies, and other shared expenses. If many homeowners refuse their assessments, the HOA could have trouble paying for essential services.
Sometimes, the HOA may be forced to take out loans or draw from reserve funds to meet their financial obligations. Special assessments may also be issued to collect additional funds from homeowners. Having multiple homeowners not pay their fair share places an extra financial burden on the other homeowners.
To recover unpaid assessments, the HOA does have the right to place liens on properties and even foreclose on homeowners who are delinquent for a long period. However, foreclosure is a costly and lengthy process. The HOA may be forced to increase assessments and cut services to stay financially stable.
Homeowners Can Take Further Legal Action Against the HOA
In some situations, homeowners may seek additional legal action against a homeowners association that loses a lawsuit. One option is an injunction to force the HOA board to comply with their governing documents. The homeowners can also sue the HOA for damages related to mismanagement, breach of contract, or discrimination issues.
If the HOA does not have adequate insurance coverage, it may be responsible for paying legal fees and any damages awarded to homeowners out of its operating budget. This could require a special assessment being charged to all members.
Homeowners can also file complaints with state regulatory agencies against HOAs that fail to meet their legal obligations. Seeking intervention from an outside agency can sometimes motivate a dysfunctional HOA board to correct problems.
In extreme cases, homeowners may even try to dissolve the HOA completely if the community cannot operate properly. This is an expensive and difficult process, but it could be an option if the HOA fails to govern the neighborhood.
New HOA Board Can Be Voted In
Once a homeowners association loses in court against a homeowner, many association members may want an entirely fresh start. Homeowners can vote in an entirely new HOA board during the next election.
Homeowners should carefully review candidates to ensure qualified volunteers are running for the board. Candidates with professional skills like accounting, management, and legal expertise can be very helpful for a rebuilt HOA board.
The new HOA board can work on rebuilding trust with homeowners by improving communication, transparency, and listening to input. Updated governing documents and management practices may be needed to prevent the same issues from repeating.
It may take multiple election cycles to replace the HOA board completely. However, each new board member can bring positive changes. Voting participation is critical to ensure the best candidates win seats on the board.
Court May Appoint Professional Management
As a last resort, a court may appoint a professional third-party manager if a homeowners association is completely dysfunctional. This only happens in very serious cases where the HOA board cannot govern the community.
A judge may determine that an independent, professional manager needs to disband and replace the HOA board. The appointed manager takes over all responsibilities for the association’s maintenance, finances, and operations.
Homeowners must continue paying their normal assessments to the professional manager. Although expensive, this can resolve conflicts of interest and power struggles between homeowners and poorly performing HOA boards.
However, homeowners lose control and influence over their community when the courts appoint a property manager. Therefore, most homeowners would prefer to resolve differences with the volunteer HOA board if possible rather than turning to outside management.
Options When an HOA Fails to Govern the Community
In a worst-case scenario where an HOA completely fails to uphold its duty to govern the community, homeowners do have options to seek resolution:
- File complaints with state agencies to report HOA violations
- Pursue mediation between homeowners and the HOA board
- Vote in an entirely new HOA board of directors
- As a last resort, file a lawsuit to appoint an independent third-party manager
- HOA board members may resign or be removed after losing a lawsuit
- Unpaid assessments can create financial issues for the HOA
- Homeowners can take legal action for HOA mismanagement
- Electing a new HOA board can help rebuild homeowner trust
- Courts appointing professional management is a last resort
- Homeowners have options like complaints and mediation if an HOA fails to govern properly
Losing in court serves as a wake-up call for dysfunctional HOA boards. While the consequences can be serious, homeowners have legal options to demand improved community governance.
Frequently Asked Questions
Q: What happens when a homeowners association (HOA) loses a lawsuit?
A: When an HOA loses a lawsuit, the association board may be responsible for paying any monetary damages awarded by the court. The HOA’s insurance coverage may pay some of the costs, but the HOA will likely have to use funds from HOA fees and assessments to cover legal fees and remaining damages. This could result in increased HOA fees or special assessments on homeowners.
Q: What can happen if a homeowner doesn’t pay HOA assessments?
A: If a homeowner doesn’t pay HOA assessments, the association has the right under its governing documents to place a lien on the property, charge late fees, and eventually foreclose on the home. Before foreclosing, the HOA will usually try to work out a payment plan. But if the homeowner refuses to pay, the HOA can take legal action to foreclose and force a sale of the property to collect unpaid assessments.
Q: What happens when the entire HOA board resigns?
A: If the entire HOA board resigns at once, the governing documents usually outline a process to appoint an interim board. If not, remaining homeowners may petition a court to temporarily appoint an interim board or receiver to manage the association. A special election would then be held to elect a new permanent board. The HOA’s daily operations, finances, and maintenance could be disrupted during this transition time.
Q: Can an HOA foreclose on a homeowner still making mortgage payments?
A: An HOA can foreclose on a home even if the owner is still making mortgage payments. Unpaid HOA assessments are a legal debt tied to the property that the HOA can collect through foreclosure. Mortgage payments go to the lender, while HOA fees cover maintenance and services that keep property values up. Not paying HOA fees can result in foreclosure.
Q: What happens when nobody wants to run for the HOA board?
A: If nobody runs for open seats on the HOA board, the current board members’ terms may be extended until new members step up. If all seats become vacant, the HOA governing docs usually allow remaining homeowners to appoint interim board members until an election can be held. Worst case, if the board dissolves, a court can appoint a receiver to manage the HOA until residents elect a new board. A lack of volunteers can disrupt HOA governance and operations.