So, you want to sue your HOA?

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Individuals or groups may get to the point where suing their HOA may seem to be the only course of action to right some wrong. And in any one particular situation, that may indeed be the case. But before you charge off in battle, here are some things you should be aware of.

 

Got $240,000?

That’s the size your war chest should be to take on an HOA. Minimum. 

It’s pretty easy to arrive at that number. $40K for your lawyer for the initial trial. $40K for the HOA’s lawyer for the initial trial should you lose (CA law, for instance, mandates losing side pay attorney fees for HOA lawsuits). $40K each lawyer for the appeal process (whoever “loses” at trial, will appeal). $40K each for the retrial after the appeal. That’s $240K right there, and you know, it could go further than that.

You might think that $40K is a lot for an initial trial, but the HOA will likely push for arbitration, and six hours of lawyer time isn’t cheap. Appeal lawyers are expensive. And lawyers send lots of motions back and forth to decide on the simplest thing. 

Of course if you (eventually) win, it’ll cost you nothing. Well, that’s assuming the recovery fee statute covers your particular type of lawsuit (better check on that!). But you can never be 100% sure you’ll win, because…

HOAs Usually Win

Unless your suit involves actual malfeasance, courts tend to side with an HOA over homeowners. HOAs are given wide latitude to interpret their governing documents. If an HOA generally follows outlined policies and procedures, that gives it quite a measure of protection. 

Got Three Years?

Motions, discovery, arbitration, appeals, more motions, more trials. It’s going to take a long time….

You Are Suing Your Neighbor

Something people don’t often appreciate when they launch such a lawsuit is that you are effectively suing your neighbor or golf buddy. The defendant is everyone else who isn’t a plaintiff. And people tend to get their dander up when they’ve been sued, even if only as a member of an association. No matter how just your lawsuit is, expect negative sentiment against the suit.

Be Wary of Getting Sucked In

In researching this story, I found a lot of law firms that discuss suing your HOA. It reminded me a bit about personal injury lawyers trolling for clients on late night TV. Motorcycle Accident? Call 1-800-GET-CASH Now! My point is that even scrupulous lawyers are likely to paint a rosier picture of a potential lawsuit than what the reality might be.

Take precedents for example. You may think you have an ironclad court precedent that totally applies to your case. But that’s actually unlikely. No two cases are exactly alike. They all have slightly different specific situations which a good opposing lawyer will exploit when defending the HOA. 

Groups Must Have Structure

If you are a group of people who have banded together to sue your HOA (and, presumably, have raised the requisite $240,000 up front), then draft and execute a member agreement. You really shouldn’t go into such a battle with an informal arrangement and handshake agreements, lest you court lawsuits within the group itself due to disagreements. At a minimum, such a member agreement should spell out:

  • The funding arrangement
  • What happens when people move away (and no longer want to be part of the lawsuit)
  • How to include new people
  • Who is making decisions, what decision authority do they have, transfer of authority and related matters
  • How and when will information be disseminated
  • Capital calls for when the initial funding runs dry
  • Mechanism to vote on substantive decisions, and define what those are
  • And many other items (dare I say, consult a lawyer?)

Money Makes You … Lazy?

In entrepreneurial circles, there is an old adage, “Money makes you stupid”. If you had two side by side startups, each trying to launch,  one having $10M of VC funding, while the other scrapes by with $500K of family and friends money, you can bet the VC funded startup is going to waste a lot more money than the underfunded company. If you don’t have to do something, like running efficiently, then you generally won’t.

Similarly, with wealthy people, the easiest path to achieving something is usually to spend money. If you can hire a lawyer and have them deal with the problem, well, that’s pretty easy (if not cheap). But often the same problem could have been tackled through other means.

An Alternative

And here’s where I mention an alternative to the rather depressing picture I’ve painted about suing an HOA.

Rather then sue, consider accumulating a large coalition of like minded homeowners. Maybe get some elected to the HOA board. Petition to have a vote, either at the board level or community wide, to change whatever policy is irking you. And when I say a coalition of homeowners, I mean like at least 40% of the HOA members.

Use the press to your advantage. Disagreements are fundamentally about what people believe in, and a well crafted, relentless PR campaign can change a lot of minds. 

All this takes time, and energy, and work. But the outcome is probably more assured doing it this way than through a lawsuit. It has the upside of interacting with a wide cross section of your community. And it won’t have all the pitfalls the legal strategy does like pissing off neighbors, not to mention cost. And as far as time spent goes, well, the lawsuit is going to take a minimum of three years anyways.

Conclusion

With over 350,000 HOAs in the United States, it is easy enough to find examples of completely insane HOA policies, bad governance, malfeasance, arrogant boards, the whole gamut. But regardless of the problem, a lawsuit really should be the absolute last resort.