When an HOA Loses a Lawsuit: Who Pays the Attorney Fees?
The question of who pays attorney fees when a homeowners association (HOA) loses a lawsuit is complex and can vary based on many factors. Here, we explore the intricacies of this scenario and provide insights that can help HOA members and boards make informed decisions.
General Rule
In the United States, the general rule in litigation is that each party pays its own attorney fees regardless of the outcome. This principle is often summarized as the American rule. However, there are exceptions to this rule, known as fee-shifting provisions.
Exceptions - Fee-Shifting Provisions
Fee-shifting provisions can be included in various documents, such as state laws, contracts, or the HOA's governing documents. These provisions may require the losing party to cover the prevailing party's attorney fees. For example, if an HOA is involved in a lawsuit and loses, the HOA may be required to pay the attorney fees of the opposing party if the lawsuit falls under a fee-shifting provision.
What’s in it for You?
Understanding the nuances of attorney fee arrangements is crucial for HOA members and boards. Knowing whether a fee-shifting provision applies can significantly impact the financial considerations of pursuing or defending a lawsuit. For HOA members, it's particularly important to be aware of these implications to ensure they are making informed decisions regarding their community's legal matters.
HOA Governing Documents
It is essential to review the HOA's governing documents. These documents sometimes include clauses related to litigation and the allocation of attorney fees. The terms of these documents can play a decisive role in who pays attorney fees in the event of a lawsuit. If the governing documents do not specify who is responsible for attorney fees, it may be necessary to consult with a legal professional to understand the implications.
Insurance Coverage
HOAs often have liability insurance that may cover legal costs associated with certain types of lawsuits. Whether the insurance policy includes coverage for attorney fees depends on the specific terms of the policy. Understanding the extent of your HOA’s insurance coverage can help in evaluating the financial risks and benefits of engaging in legal action.
Impact on HOA Members
If the HOA is required to pay attorney fees, whether its own or the opposing party's, this financial burden may ultimately fall on the HOA members. This can take the form of increased assessments or special assessments. When evaluating the risks and benefits of an HOA engaging in legal action, it is important to consider the potential impact on membership fees. Ensuring that all members are aware of these potential costs can help in making informed decisions.
In conclusion, whether an HOA has to pay attorney fees after losing a lawsuit depends on the specific circumstances of the case, including any applicable laws, the presence of fee-shifting provisions, the terms of the HOA's governing documents, and the details of the HOA’s insurance policy. It is advisable for HOA members and boards to consult with a legal professional to understand their potential financial obligations in a lawsuit. As an individual member of an HOA, being aware of these factors can help you make informed decisions about your community's legal matters.