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Subject: No. VA Seeking of funds from the CIC Recovery Fund
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JohnS125
(Virginia)

Posts:1


11/13/2021 6:29 PM  
How hard is it to seek restitution from a recovery fund when an association was poorly managed?
Last year a member in the association filed a lawsuit against the BOD for various violations of the covenants. The lawsuit was dismissed and the appeals court wouldn't agree to hear it, so the case is over with now. When the lawsuit was filed, the BOD had sought legal counsel through their errors and omission insurance, so there were no attorney fees charged to the association to represent them.
If the Board had not ignored the complaint that was filed to the community manager before going ahead with a special meeting, the lawsuit could have been avoided. When the lawsuit was filed, and the EO attorney got involved, the Board stepped into action and tried to fix everything sited in the complaint to bring themselves and the violations into compliance.
To do this, they leaned heavily on the association attorney and community manager to get them out of the lawsuit by rewriting ballots and declarations, had called two additional special meetings among other things. The Board President vowed to seek restitution for all these additional attorney fees ($35,000) while naming the homeowner in the neighborhood newsletter.
This of course led to an increase in the HOA fees, and an increase on the 2021 budget for attorney representation from $5,000 in 2020 to $20,000 in 2021.
I requested to examine the invoices billed to the association from this attorney during the period that the complaint and lawsuit were active. I was shocked when the invoices actually totaled $59,000 with a coded line item for the lawsuit that totaled $21,000.
A lot of questions here. First one, is the property owner responsible for any of the attorney fees? The Board was advised by their defense attorney to fix everything they did wrong. The BOD authorized the charges. Second, I know we live in a country of free speech, but did the Board President overstep by misleading the association in the newsletter as to the actual amount of money the attorney actually billed the association to bring them into compliance? And, then calling the homeowner out for restitution? The Association attorney was not representing the Board in the lawsuit. Third, I agree with the Board President, they should seek restitution for the attorney fees, but not from the property owner. The homeowner did a good thing to raise awareness to the membership of how the BOD was managing the association. If the community manager and Association attorney had done everything in compliance with the covenants, before they proceeded with the first special meeting, the homeowner would not have had a case to take to court. Evidenced by the Boards own actions by feverishly trying to "make everything legal" before they went to court.
On a final note, the notice of the 2021 annual meeting was received, and guess what? Their is an additional item added to the agenda to "fix" an error on the ballot that was voted on at the 2020 meeting regarding election of Board members (part of the noncompliance issue sited in the lawsuit). So, I am sure their were several meetings, emails edits and conversations with the Boards attorney to fix this error too.
What would be involved in seeking funds from the Common Interest Community Board Recovery Fund for my association to get some or all of attorney fees back?
AugustinD


Posts:1904


11/14/2021 9:05 AM  
Layperson here. The following statute section talks about this "Recovery Fund":

https://law.lis.virginia.gov/vacode/title54.1/chapter23.3/section54.1-2354.5/

Excerpts:

-- The fund is "to be used in the discretion of the [Common Interest Community] Board to protect the interests of associations."

-- Upon proper application to the [state] Director [of yada yada], in those cases in which there are not sufficient funds to pay an award of reasonable fees, costs, and expenses to the receiver or to restore all funds that were or ought to have been held in a fiduciary capacity by the subject common interest community manager, the Director shall report to the Board the amount of any shortfall to the extent that there are not sufficient funds (i) to pay any award of fees, costs, and expenses pursuant to subsection G of § 54.1-2353 by the court appointing the receiver; or (ii) to restore all funds that were or ought to have been held in a fiduciary capacity by the subject common interest community manager, as certified by the court appointing the receiver.

The Virginia Department of Professional and Occupational Regulation appears to oversee this Board. The Board "regulates common interest community managers, as well as certain employees of licensed management firms."

My take --

First, mistakes the HOA made do not appear to involve "funds that were or ought to have been held in a fiduciary capacity by the subject common interest community manager." Second, what the OP describes appears to involve mistakes made by the HOA Board (including poor supervision of a HOA manager).
AugustinD


Posts:1904


11/14/2021 9:08 AM  
Bottom line:

I think the OP is misunderstanding the purpose of this Recovery Fund. I think the OP has no chance of obtaining any money from this Recovery Fund for him/herself or for his/her HOA.
JohnC46
(South Carolina)

Posts:11659


11/14/2021 9:11 AM  
Posted By AugustinD on 11/14/2021 9:08 AM
Bottom line:

I think the OP is misunderstanding the purpose of this Recovery Fund. I think the OP has no chance of obtaining any money from this Recovery Fund for him/herself or for his/her HOA.



This is my belief also.
SheliaH
(Indiana)

Posts:4284


11/14/2021 9:15 AM  
I suspect TimB4 will weigh in on this, but this doesn't sound like something this fund would cover. if you haven't already done so, read up on the fund's history, what it's designed to cover, how claims are filed, etc. I'm guessing a claim would have to be filed by an ASSOCIATION, not an individual homeowner.

This situation is why many of us on this website suggest people think carefully before taking legal action because nothing is guaranteed. You have a 50/50 chance of winning, and then it's possible the losing side will file an appeal and then more time and money is spent to address that. Mistakes can be made throughout all this, as you've seen, and unfortunately that leads to more time and expense.

It does appear your board made some bad moves. You said they and the attorney rewrote the ballots and declarations - changes in the documents should be approved by the homeowners, so if the board tried to go around that, the homeowners should hold a special meeting and sack the board if warranted. Naming the homeowner who filed the lawsuit wasn't a good idea either - even though anyone could have looked up the lawsuit and found out who was involved because it's public information, the board president may have published it to embarrass the homeowner and indirectly encourage others to intimidate or shun him/her. That's unprofessional and downright petty. That may also be why the lawsuit lingered as long as it did.

Is the losing homeowner responsible for the association's legal expenses? If the association didn't countersue and ask for reimbursement if it won, probably not. When these things start, it's hard to know how much legal fees will cost because you don't know if it'll be settled before the judge hears the case, or if there will one continuance after another - despite what you see in TV, lawsuits don't end as quickly as you may think.

You don't say what side you're on - if you're the one who lost, going to the internet won't really help - you need to go to your attorney RIGHT NOW and discuss options. If you're unhappy with his the board handled this, you could rally together your neighbors, vote out the current board and then review the property manager's performance in all this and decide if your like to change ut. Just remember property managers work at the board's direction, so you might not be able to hold them responsible for something the BOARD told them to do.

Ditto for the attorney - if you feel they did something unethical, you may be able to file a complaint with the bar association. However, attorneys don't work for free - if the board instructed him/her to go hard on this and they did, there's nothing that guaranteed a win. This is why in the end, the attorneys are the only people who win, because they get paid regardless of how foolish the board - or the homeowner - may act.

Never get angry at your enemy - it affects your judgement - Michael Corleone, Godfather, part three

In the end this may be an expensive lesson your association will have to learn from.
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Forums > Homeowner Association > HOA Discussions > No. VA Seeking of funds from the CIC Recovery Fund



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