HOA member liability under court verdict: $90,000 each

So, you like your HOA. Nothing to worry about.  All those complaints by homeowner rights advocates won’t affect me in my HOA. I love my HOA. The HOA board does no wrong, and anyway, the HOA has insurance. Not so!  Well, as the tide is slowly turning. HOAs are now being exposed as not so perfect and not so liability free.

A recent Las Vegas court decision awarding $20,000,000 – that’s right — to a Lamplight Village homeowner based on a seemingly trivial failure by the HOA to maintain a swing set will cost each member of $90,000.[1]  According to the report by KTNV, 13 Action News, the HOA insurance company and HOA refused to settle for a mere $2,000,000. The membership was never told about the lawsuit and the question is now being raised regarding intentional misconduct and negligence.

Seeking relief, members are looking to their Homestead Exemption laws to shield them from non-consensual liens.  In Arizona, and in other states, homestead exemption does not protect HOA members from HOA claims. While the suit is against the HOA, it has authority to collect special assessments, and this is one special assessment, to cover the court damages.  Or, it can file for bankruptcy and be run by a court appointed receiver.

HOA members are playing Russian roulette with their HOA, as my comments above show.  Members seem to have adopted an attitude of, I’ll take my chances.  But, an unchecked HOA board, a rogue one especially, and widespread apathy by the membership leaves the member at risk that can amount to a huge risk.

I brought this looming liability to the attention of the public several times.  In my analysis of the 1964 HOA “bible,” I wrote in 2006,

It [the Handbook] advises that the states will protect the HOA from any homestead exemption because of this priority of liens (p. 322) but urges the need to insert wording to grant the mortgagor a priority lien before this “developer” lien (p. 321). The home-buying public protections, as was the intention of the various state legislatures when creating the homestead protection, was intentional disregarded by the advertising of this technical oversight.[2]

In 2007 the Arizona Legislature rejected SB 1330 that would have restored the homestead exemption.[3]  The loss of this protection that was enjoyed by citizens not living in HOAs, this special law for special entities, is an instance of cruel and unusual punishment against the homeowner in favor of the survival of the HOA. I made this argument in HOA Common Sense, No. 8,[4] which included arguments against consent to be governed, in No. 4.[5]

Did the homeowner consent to have his rights to the exemption denied with the full knowledge that he gave his consent by accepting his deed? Is the HOA lien indeed a bona fide consensual lien that allow the denial of homestead exemption? Read the arguments presented at the Arizona legislative hearing.[6]

 

Living in HOA-Land, that

“collection of fragmented independent principalities within America, known in general as “HOAs,” that are separate local private governments not subject to the constitution, and that collectively constitute a nation within the United States,”

is fraught with hidden liabilities.

 

References

[1] Homeowners under cloud of $20M swing set verdict demand answers from HOA.

[2] Analysis of The Homes Association Handbook,

[3] Arizona SB1330 restores lost homestead protection in HOAs.

[4] HOA Common Sense, No. 8: Draconian punishment and intimidation.

[5] HOA Common Sense, No. 4: Consent to be governed.

[6] SB1330: Reflecting Fundamental Principles of the Arizona Constitution.

Published by

HOAGOV

"The Voice for HOA Constitutionality". I have been a long-term homeowner rights authority, advocate and author of "The HOA-Land Nation Within America" (2019) and" Establishing the New America of independent HOA principalities" (2008). See HOA Constitutional Government at http://pvtgov.org. My efforts with HOAs took me to a broader concern that was deeply affecting the constituionality of HOAs. Those broad societal and plotical concerns caused me to start this new blog for my commentaries on the State of the New America.

9 thoughts on “HOA member liability under court verdict: $90,000 each”

  1. George, excellent points. Homeowners need to get involved, know exactly what their HOA and BOD are up to and stop being so trusting. If there is litigation, they need to ask what is the status or go to the court county records and look up the cases. It is public information available to anyone. HOA Boards might not be sharing when they lose a case, they might even make a statement such as “the case has been settled” without telling the homeowners that they lost the case and had a pay a huge settlement fee and then lost their insurance and had to get a new policy with a higher deductible… When HOAs and BODs fail to be 100% transparent and honest and do not communicate the facts with the homeowners, they deserve to be held personally accountable and should be asked to resign from the Board or have the dignity to resign on their own. Homeowners need people on the Board that they can trust. It is not fair to any homeowner when any HOA Board fails to communicate the truth that can affect their homes, the values and their lives. The case you noted is a perfect example.

    1. I agree. But, as long as the board only gets a slap on the wrist for its violations, they just have another Bud and watch the Bachelorlette. In AZ a few years ago, a “teaser” bill was introduced calling for holding directors personally responsible for wrongful acts. It got nowhere.

      1. George, you are correct. This is why every homeowner has to pay attention, question every expense, audit the expenses independently once a year and question every action. Board members must be held accountable if they fail to behave in an honest and transparent manner. Gone are the days of trusting blindly if there is a rogue Board or Board members that lack transparency and are not 100% honest with the homeowners. An unchecked Board can mean lower values, lawsuits, ruined communities. slower sales, lower prices, more homeowners wanting to escape and selling … we have been seeing it happening in HOAs across the USA. If the laws do not protect the homeowners then it is up to the homeowners to stand up for their rights and insist on Board acting properly. They should not be intimidated or fear that they will be retaliated against. This court decision awarding $20,000,000 against the HOA is going to be the game changer HOA homeowners needed. These types of Boards must be held responsible for their actions. Otherwise, homeowners across the USA will continue to suffer. It is not fair or right.

  2. Although attorneys might succeed in appealing the amount of the verdict, or shifting part of the liability to other individuals, the management company, or the insurance carrier, I doubt homeowners will be able to avoid taking a financial hit. What a mess.

    If home buyers knew this was a potential risk, would they be so eager to buy into HOAs?

    1. I agree that an appeal may be in order that might lower the amount. That would require an argument based on the 8th Amendment of no cruel and unusual punishments. You know, the argument that I’ve been making against HOA foreclosures. Now, that would be interesting indeed! Now understand that if gross negligence or intentional violations of the CC&Rs are found, then that could allow the insurance company to deny coverage, as these issues are not covered by insurance. No rewards for breaking the law.

  3. This is a question for a CA lawyer as the statutes are not clear, but I haven’t heard of anyone saved by the homestead exemption.

    In short, homestead exemption protects the homeowner from forced sales and court ordered sales, as failure to pay CID/HOA debt. See CA Civil Code Sec. 704 et seq. In general, as an attorney put it, “Liens assessed by an HOA are superior to your homestead exemption, as the property was encumbered with the HOA restrictions prior to your purchase of it.” That’s a NO.

  4. That is interesting. Does the Homestead Exemption Act protect members living in a HOA in California?

    *Carolyn Haynes-Thomas* *Director of Housing & Community Development* *The Greater Sacramento Urban League* *3725 Marysville Blvd. Sacramento Ca 95838* *A HUD Approved Affiliate of **The National Urban League* *916-286-8652-Office* *916-720-0424-Fax* [image: Inline image 1]

    On Tue, Mar 6, 2018 at 6:45 AM, HOA Constitutional Government wrote:

    > pvtgov posted: “So, you like your HOA. Nothing to worry about. All those > complaints by homeowner rights advocates won’t affect me in my HOA. I love > my HOA. The HOA board does no wrong, and anyway, the HOA has insurance. Not > so! Well, as the tide is slowly turning. HOAs” >

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