Use of ins. proceeds

Started by DorothyT2 • 7 replies • 1848 views

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DorothyT2 (Florida)
Posts: 16

Posted:

Our HOA (F.S.720) was awarded over $10 mil this year in a lawsuit settlement case with F.I.G.A. (ins co. went bankrupt after paying us approx. $2mil). From 2006 - 2008 owners paid 3 special assessments for repairs that were done which included insured damages and some uninsured damages. Our BOD has apparantly decided that all repairs have been completed, so they voted at a recent BOD meeting to establish reserve accounts and fully fund them with the $10 mil. Prior to this we had no money in reserves and have voted each year as required by FS 720 to not fund reserves. Our governing documents state that ins proceeds must be used to repair damages incurred, but the BOD requested an amendment change earlier this year, before the award was made, that added the sentence, "However, if any
insurance proceeds remain after complying as stated herein, such proceeds may be used for any proper Association common expense.
It passed because the majority of owners had long forgotten about the lawsuit, if they even knew of it, and owners were told the need to amend arose because of a "profit" of $35,000 that had incurred a few years earlier when a building had an explosion. Homeowners
who are aware of the $10 mil award (it was announced at a BOD mtg. only, with about 12 owners present) seem to be OK with what the BOD decided to do with the money. I feel the BOD actions, done without voter approval or any owner input, is illegal on many fronts. A few owners stated that refunds of spec. assessments paid earlier should be made, but the BOD found that too legally complex, after all the time that has passed, to consider it. How should owners who feel they were taken for a ride by the BOD proceed?

Based on some of his postings on this site, I would love to hear from FredB4(Ohio) on this situation.

TimB4 (Tennessee)
Posts: 21,047

Posted:

Dorthy,

When I started reading your post, I was of the opinion that the insurance proceeds should go to the the members (and perhaps some current non-members) who actually paid the special assessments. Then when I got to the part about your Association having zero reserves, I thought that the Association was in for major issues in the future.

A Board of Directors has a fiduciary duty to the Association and it's membership. Fiduciary duty is defined as an individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another's benefit.

I believe that by establishing the Reserves, your Board is fulfilling it's duty to the membership. Granted, if I was one of the members that could use some of that special assessment money back, I would be a little ticked. However, I also hope that I would understand that by establishing Reserves the Board is doing the following:

1) Probably preventing future special assessments
2) Showing financial stability which will encourage lenders to make loans to potential buyers for the development (as current FHA guidelines has banks considering the financial stability of an Association in it's decision process now).
3) Hopefully some deferred maintenance will be accomplished which should maintain or increase property values.

I'd still be a little ticked, but I could understand the decision.

To answer your question as to what could be done:

1) You could show your dissatisfaction by recalling the Board. However, that won't change the decision to create Reserves with the money.
2) You could take the Association to court and argue that the money should be returned. However, this will require you to incur legal expenses and the Association to possibly pass another special assessment to pay for their legal expenses in defending their decision.

There may be other options, but none that I see at the moment.

Hope this helps,

Tim

CarolF (Florida)
Posts: 435

Posted:

You are speaking as though the $10 million award could come to fruition. Is that possible? The company went bankrupt after they paid you $2 million........so isn't that the figure that the board wants to go into the reserves?

DorothyT2 (Florida)
Posts: 16

Posted:

Carol
The $2mil we recieved from the ins. co b/4 they went bankrupt. We were awarded $10 mil more after filing lawsuit with FIGA.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By DorothyT2 on 10/25/2011 1:12 PM

I feel the BOD actions, done without voter approval or any owner input, is illegal on many fronts.

This is what a BOD does. What authorities (statutes or case law) are you relying on to support your belief that the BOD's actions are illegal?

Quote:

Posted By DorothyT2 on 10/25/2011 1:12 PM

How should owners who feel they were taken for a ride by the BOD proceed?

Try attending the board meetings. Present a detailed plan for refunding the special assessments. Run for a seat on the board. Organize a special election.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Ask for a detailed accounting of where the 10 mil is to be distributed within the Reserve Fund of any other accounts.
(I doubt if you will net 10 mil - surely the lawyers will take their cut)

SheliaH (Indiana)
Posts: 6,964

Posted:

I agree with Tim - I suspect part of the reason you had to pay special assessments in the first place is because you didn't have reserves. After paying three, don't you think the association should do something to prevent these in the future?

As for for homeowner imput, why didn't these questions come up when the Board proposed the amendment? It was the homeowners' responsibility to read it and ask questions if they didn't understand it (and how does one forget about a lawsuit???)

It's great you were awarded $10 million, but as some have said, it's possible you won't get it of the company's bankrupt (hopefully it had its own insurance or there were enough assets sold off to pay creditors, including your HOA). If the money comes through, your board may be able to hold fees at their current level for a year or two, depending on your expenses and how well you're funding reserves.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

A few owners stated that refunds of spec. assessments paid earlier should be made, but the BOD found that too legally complex, after all the time that has passed, to consider it.

If I was a homeowner and was charged 3 special assessments for defective work, then the HOA was awarded an insurance settlement for this same work, you can bet I would be looking for a reimbursement, even if I didn't live in the HOA anymore. Be prepared for lots of lawsuits. I would seek professional advice from a lawyer about this.

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