You’ve Discovered HOA Fraud: When Is It Time for Legal Advice?

Last week, we discussed how to react when you discover HOA fraud. This week, we discuss when it’s time for legal Fraudadvice. The short answer is, never! Going to court against your homeowners association is equivalent to suing yourself. Amazingly, the aggrieved homeowner is simultaneously paying for both the prosecution and the defense at the same time. It’s a no-win situation. The association always has the upper hand in terms of cost. They have the money – your money – and they have the big-gun, high-powered lawyers that recoil from representing the minority of small unit owners. Further, the attorney gets paid whether he or she wins or loses a case, so it’s not uncommon for an association attorney to take on a patently frivolous or clearly unwinnable case in order to rack up substantial fees. In that regard, most attorneys will go where the money is, preferring to work for larger associations with big bucks, not relatively inconsequential individual homeowners.

Occasionally, an owner will “win” a lawsuit, but at what cost? He or she often spends all of his or her savings and many times bankrupts not only him – or herself, but his or her association as well. Lawsuits can take years – many years. And then there’s the crapshoot of trying to collect damages.

Suspecting board fiscal misconduct, Gary Palm, a Chicago attorney, University of Chicago professor emeritus of law, unit owner, and prior board member of the 2800 Lake Shore Drive Condominium Association, fought a recalcitrant board for 13 years to get access to financial records he rightfully was entitled to view within three business days under city and state statutes. Legal fees were in the hundred of thousands of dollars. Experts speculated that because of Palm’s advanced age, the association was waiting for him to expire and give up the good fight. The association appealed. Out of money and running out of time, Palm could no longer afford to hire an attorney and self-represented before the Illinois Supreme Court. In April 2013, the Supreme Court ruled in his favor.1

Like it or not, attorneys serve an absolutely critical function in community associations – and some of them are superb at problem solving and facilitating agreement. Often a well-worded demand on an attorney’s letterhead is more powerful than all other options.

When the time comes to hire, always choose an attorney skilled not only in real estate, but specifically in your state’s condominium and HOA statutes. Avoid attorneys standing in the “breadline” – those who take on assignments without specific areas of knowledge. The practice and interpretation of condo and homeowner association law is a specialty. Just like surgeons, attorneys have specialties. You wouldn’t want a heart surgeon performing your brain surgery. Likewise, you wouldn’t want an attorney who specializes in traffic law represent you in community living disputes. Interview your attorney and do not be afraid to ask questions. (One Supreme Court justice once said that in his opinion, less than 20 percent of the attorneys in the United States were qualified to practice law.)

An experienced attorney will respect you for asking questions and is always pleased to dwell on his own accomplishments. Further, you want to make certain the relationship is a mutually good fit from the very beginning. Some of the questions to ask in the initial interview include:

“Does your company represent individual owners”

“Do you have any conflicts of interest in representing me?”

“Are you experienced in litigation?”

“Specifically, are you experienced in community association law?”

Honest answers to these questions will help you make the right choice in retaining a lawyer. Sometimes it is urgent to hire an attorney. If fraud has been discovered and the perpetrator(s) might be a flight risk, it may be necessary to get an immediate court order to freeze the association’s assets. Far too often embezzlers are caught fleeing the country with dyed hair and their passports and thousands of dollars in cash in hand.

 


Palm v. 2800 N. Lake Shore Drive Corporation, Illinois Supreme Court decision, April 2013.

 

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