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Subject: Responsibility of Board to Disclose Lawsuit?
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SusanS9
(California)

Posts:56


04/03/2010 5:27 PM  
If a lawsuit is filed naming a homeowners association (California) as one of the defendants, is the board or management company legally required to disclose the lawsuit to homeowners, no matter whether it or its insurance company believe the lawsuit has merit or not? Is there a law on this? What responsibility is there for the board or management company to disclose the existence of a lawsuit to real estate agents or prospective home buyers, or does their responsibility end with disclosing the lawsuit to homeowners who then, as sellers, have the responsibility to disclose the lawsuit to buyers?
GlenL
(Ohio)

Posts:5491


04/03/2010 9:27 PM  
Susan after combing through the Davis-Stirling act I can find no duty to disclose a lawsuit except for when monies are taken from the reserves for litigation it must be disclosed quarterly.

Civil Code §1365.5. Financial Duties of Board; Reserve Transfers.
(d) When the decision is made to use reserve funds or to temporarily transfer moneys from the reserve fund to pay for litigation, the association shall notify the members of the association of that decision in the next available mailing to all members pursuant to Section 5016 of the Corporations Code, and of the availability of an accounting of those expenses. Unless the governing documents impose more stringent standards, the association shall make an accounting of expenses related to the litigation on at least a quarterly basis. The accounting shall be made available for inspection by members of the association at the association's office.

However even if it is discussed in executive session there should be a reference to it in the regular Board minutes and once a suit is filed it is public record and should be available on the court website. I know that by using our Association name in the search feature of the county court website brings up a list of every time our HOA has been involved in a lawsuit or even an eviction. If asked about it in the homeowner participation part of the BOD meeting then the Board must acknowledge it, they don’t have to be specific but they can’t deny its existence. If a homeowner is aware of a lawsuit that might impact a purchaser then they MUST disclose it.

Studies show that 5 out of 4 people have problems with fractions
RobertR1
(South Carolina)

Posts:5164


04/04/2010 7:56 PM  
Well,
I thought I knew the answer for this. My answer anyway. But I don't.

I would think that this foreclosure business would require any perspective buyers to be privy at least to the fact the property is under foreclosure. But, maybe a condo would be involved prior to the sale and an HOA not as far as board. In a condo and an HOA, I would believe that any lawsuit that threatens the association would have to be disclosed by the realtors involved.

I also think that in a large condo the onus for the disclosure to the buyer might be less than the Board of a small condo. You are going to have to face this buyer every day for a long time normally after the sale.Board should stay out of the whole thing officially. But people talk, and if the board is approached maybe then, they have to take a position.
Is that clear? No to me it isn't.
RichardP13


Posts:0


04/04/2010 8:54 PM  
Posted By SusanS9 on 04/03/2010 5:27 PM
If a lawsuit is filed naming a homeowners association (California) as one of the defendants, is the board or management company legally required to disclose the lawsuit to homeowners, no matter whether it or its insurance company believe the lawsuit has merit or not? Is there a law on this? What responsibility is there for the board or management company to disclose the existence of a lawsuit to real estate agents or prospective home buyers, or does their responsibility end with disclosing the lawsuit to homeowners who then, as sellers, have the responsibility to disclose the lawsuit to buyers?




Susan

I know as a lender, if a lawsuit is filed against a HOA, then there is a very strong likelihood that Fannie Mae or Freddie Mac would not lend on that property while the lawsuit is pending. Both those agencies are tightening their lending to buyers moving into an HOA making sure that there isn't an immediate risk to their investment short term.
RobertR1
(South Carolina)

Posts:5164


04/04/2010 10:53 PM  
Robert,
After taking a short nap on this I think the practical side of this for an HOA is: In the legal implications of any lawsuit involves the association vs an individual unit, the board is obligated to make public any law suit that involves the association. If the suit is filed in court, that is a public announcement and the public is notified. I would say other than that, there would be no requirement and the Board makes the decision about anything up to the public announcement. If, the common property is involved in any contemplated legal action, notification of the membership would be through Board meeting or reports and any special announcements.

Our condo has been effected by the changing of the set-back lines adjacent to the ocean, along with some common properties and private residences. Notice has been given to all homeowners and if that particular property was to be sold, I would believe that is the Realtor doing the offering responsibility to notify the perspective buyer.

Also to be considered, at some point prior to sale a clear title must certified or restrictions listed by the Mortgagor. Talk on the street is FHA and Fannie mae is going to enforce some abritrary percentage of rentals vs non-rentals on condos. Been on the books for a long time I believe. Lots to be ironed out about that little item; for one: if the limitation is a % figure who picks which units make up that %. I would think then that the Board would be required to enforce a rental restriction that would float and it would be first come to the level is reached then it would be dependent upon the desires of the next buyer. Some units may never be rental units and some units could turn out to be always rental units.

What say you Glen or anyone else.

Robert (wrote this to myself.....pretty neat)
SusanW1
(Michigan)

Posts:5202


04/05/2010 5:18 AM  
When a lawyer had her house up for sale, she wanted all the paperwork: bylaws, financials, and a letter stating whether or not the HOA was involved in any lawsuit.

While this is single family homes in a private subdivision, I think that revealing that information to Members or perspective buyers is not an unreasonable request.
GeraldT4


Posts:1022


04/05/2010 6:27 AM  
SusanS9 - It would not be wise for the management company to disclose anything other than basic information of pending litigation. Just the facts, and only upon written request from a member of the association.
MicheleD
(Kentucky)

Posts:4491


04/05/2010 12:23 PM  
Posted By RobertR1 on 04/04/2010 10:53 PM


What say you Glen or anyone else.

Robert (wrote this to myself.....pretty neat)

Sounds surprisingly rational and logical.

Are you sure you wrote that?

;D


RobertR1
(South Carolina)

Posts:5164


04/05/2010 1:24 PM  
Damn Michelle,
You are sharp. I had my "Ghost" write it, some may recogonized the name, "do da name Steven King ring a bell?"
DonnaS
(Tennessee)

Posts:5671


04/05/2010 2:10 PM  

Susan,

Real Estate laws in Florida require a disclosre and on that disclosure sheet, it is asked "Are there any litigation/lawsuits against the HOA currently". I would have a real issue with an agant and or HOA for not disclosing that informationi
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