By: Barbara Holland, CPM, Regional Manager, FirstService Residential
Are you aware of the fact that many homeowners’ associations are either being served ADR (Alternative Dispute Resolution) claims with the Nevada Real Estate Division or being served with lawsuits filed in District Court? Your community manager may have had the unpleasant task of sending your board notification that they have been served with one of these ADR claims or lawsuits.
So what are some of the claims? With the Nevada State Supreme Court deciding that the nine month superior lien, also known as the super priority lien, only included assessments, some of the claims state that the associations improperly included other expenses, such as late fees, legal and collection costs in their demands during the foreclosure process. Other claims state that the association sold the foreclosed homes well below their market values, and that the association failed to follow their governing documents or the state law as to the actual foreclosure process.
How is your association protected? Your Directors and Officers Insurance, commonly referred to as D&O insurance, covers both the association and the board of directors. D&O insurance defends associations that are being sued by homeowners or by third parties (in these cases, the lending institutions and investors) based on the allegations that associations failed to comply with their governing documents or with their state laws.
Unfortunately, Nevada has had the highest number of D&O claims in the United States for the past three years. How will these D&O claims affect your association? When it comes time to renew your insurance policies for your association, you may find that the current insurance company covering your D&O insurance will be excluding coverage for all claims related to foreclosures, title to property or lien issues. There are still a few insurance companies that will provide coverage for these foreclosure issues, but at high deductibles ranging from $25,000.00 per claim to $35,000.00 per claim. This means that the associations would be required to pay the defense costs until the deductible is met, at which time the insurance company would assume the defense expenses.
As we prepare our 2017 operating budgets for our associations, boards may have to re-evaluate their allocated funds for legal expenses. Your association may want to consider establishing a contingency fund in the event that you are faced with an ADR claim or lawsuit. One way of evaluating the possible risk of your association being served is to review how many homes were foreclosed on by your association in which your association received a foreclosure deed and more importantly where your association sold the foreclosed home to a buyer.
Working hand-in-hand with your community manager, you can prepare your association by being proactive in forecasting your possible risk and planning now as you review your finances in developing an operating budget that can sustain such higher deductibles, if necessary.
Previous Article Table of Contents Next Article
Are you aware of the fact that many homeowners’ associations are either being served ADR (Alternative Dispute Resolution) claims with the Nevada Real Estate Division or being served with lawsuits filed in District Court? Your community manager may have had the unpleasant task of sending your board notification that they have been served with one of these ADR claims or lawsuits.
So what are some of the claims? With the Nevada State Supreme Court deciding that the nine month superior lien, also known as the super priority lien, only included assessments, some of the claims state that the associations improperly included other expenses, such as late fees, legal and collection costs in their demands during the foreclosure process. Other claims state that the association sold the foreclosed homes well below their market values, and that the association failed to follow their governing documents or the state law as to the actual foreclosure process.
How is your association protected? Your Directors and Officers Insurance, commonly referred to as D&O insurance, covers both the association and the board of directors. D&O insurance defends associations that are being sued by homeowners or by third parties (in these cases, the lending institutions and investors) based on the allegations that associations failed to comply with their governing documents or with their state laws.
Unfortunately, Nevada has had the highest number of D&O claims in the United States for the past three years. How will these D&O claims affect your association? When it comes time to renew your insurance policies for your association, you may find that the current insurance company covering your D&O insurance will be excluding coverage for all claims related to foreclosures, title to property or lien issues. There are still a few insurance companies that will provide coverage for these foreclosure issues, but at high deductibles ranging from $25,000.00 per claim to $35,000.00 per claim. This means that the associations would be required to pay the defense costs until the deductible is met, at which time the insurance company would assume the defense expenses.
As we prepare our 2017 operating budgets for our associations, boards may have to re-evaluate their allocated funds for legal expenses. Your association may want to consider establishing a contingency fund in the event that you are faced with an ADR claim or lawsuit. One way of evaluating the possible risk of your association being served is to review how many homes were foreclosed on by your association in which your association received a foreclosure deed and more importantly where your association sold the foreclosed home to a buyer.
Working hand-in-hand with your community manager, you can prepare your association by being proactive in forecasting your possible risk and planning now as you review your finances in developing an operating budget that can sustain such higher deductibles, if necessary.
Previous Article Table of Contents Next Article