should HOA pay attorney fees

Started by HappyJ • 7 replies • 1300 views

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HappyJ (Tennessee)
Posts: 21

Posted:

Our Hoa has been part of ligation w/ a board member that sue on the basis that he was improperly removed. Both parties reached an agreement prior to going to court) that the board member would be reinstated and another special election conducted in within 60 days. Can this board member take his attorney fees from the HOA reserve acct.?

TimB4 (Tennessee)
Posts: 21,046

Posted:

Legal expenses should not come from the Reserve Accounts.
They might come from a contingency fund (which may or may not be kept in the Reserves).

As to who pays for who's attorney fees, this would have been determined at the settlement. Because it was a Board bringing action against a board member, any claim on the Directors and Officers Insurance policy will typically be rejected. Therefore, the membership will need to pay for legal expenses on their own.

If there is not enough money in the Operating Budget or the contingency fund, then a special assessment would be warranted.

BradP (Kansas)
Posts: 2,640

Posted:

nope

HappyJ (Tennessee)
Posts: 21

Posted:

I am the treasurer , that was not recalled and now that I am back working with this group.. I find it unethical to write a check for their attorney fees and hide this from the membership. We are only a 3 member board, and the other 2 will override my vote. Am I obligated to write this check, if they vote to do this? I dont want to resign because they will have sole custody of the association funds and that scares me

TimB4 (Tennessee)
Posts: 21,046

Posted:

Someone has to pay the attorney fees.

I suspect that the Association paid for the Board members sitting on the Board, so that would be a non-issue. If the agreement in settlement said to pay the attorney fees for the other member, the Association must comply with that agreement. If the settlement was silent, you could argue that the individual would not be entitled. However, since the Association, through the agreement, said that the individual was improperly removed and was placed back in their seat on the Board, it can easily be argued that the individual was a member of the Board at the time and therefore, legal fees should be paid by the Association.

On a personal level, I agree with you. However, from a laymans opinion, I think the law would most likely side against my personal opinion.

As treasurer, you can argue that the Association doesn't have funds to cover the legal expenses. That the Reserves are for the expected maintenance, repair and replacement of common elements and that legal fees do not fall within that definitional. Therefore, the proper way to cover this expense is with a special assessment. If you are outvoted, you may resign as treasurer but keep your Board position - therefore, you would not be the one writing the check and would still be a voting member of the Board. You may then inform the membership why you resigned.

Unless your a condominium, Tennessee doesn't have HOA laws that might assist you in your position.

HappyJ (Tennessee)
Posts: 21

Posted:

The agreement contends that no party, entering this agreement agrees to any conclusion of law with respect to the status of various parties and claims or otherwise waives any position or agrument that it might take with respect to any issues involved in this lawsuit
It reinstated the old directors. So my understanding is that anything he did in the interim was not as a BOD and thus not the responsibilty of the HOA. Also we are not a condo unit, so there are no laws other than the nonprofit statues. I would like to ask the associaiton attorney, but that would have to be called to a vote and they won't approve the expense. They asked the mgmt one time for a blank check with her signature on it. I'm just wanting to protect myself and the association. Can i stand on my ethics and just say no to some of these expenses that don't seem legit

TimB4 (Tennessee)
Posts: 21,046

Posted:

Quote:

Posted By HappyJ on 12/22/2011 3:44 PM
Can i stand on my ethics and just say no to some of these expenses that don't seem legit

Yes.

However, there are consequences that come with any decision and you would need to be willing to pay those consequences. I suspect that one of them would be for the remaining Board members to remove you from the office of Treasurer for taking such stand by the other board members.

Until anything happens, I don't think you should play the "what if" game a whole lot (it can drive you crazy).
Do the research in your governing documents and State laws and be prepared to make your argument against paying the fees from the Reserve funds. Insist that your name is listed in any vote as voting against using those funds so there is documentation and insist that your research be attached as an addendum to the minutes of the meeting.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Contact the lawyer again and ask him how to include a stipulation of payement in the settlement. Your still talking about the same case, so its valid.

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