The downside to construction defect litigation for Homeowner Associations (HOAs)

The wonderfully insightful David McLain recently wrote an article for an HOA-oriented magazine. McLain is a partner at the Colorado law firm of Higgins, Hopkins, McLain & Roswell, and typically defends builders and other construction professionals from lawsuits brought on by homeowner associations. Despite this fact, the editors at Common Interests magazine went ahead and published the article. His article serves as a word of warning to HOAs considering legal action against their builder.

When an HOA settles for less than 100% of the amount necessary to fund all repairs outlined by its experts, plus attorneys’ fees and litigation costs, there will obviously be a shortfall in the amount necessary to fix the development. The HOA board must then choose to impose a special assessment to cover the shortfall or to make some, but not all, of the repairs outlined by its experts. In choosing the latter, the conflict arises with respect to which homes get fixed and which do not. In this situation, the HOA board has acted as the attorney-in-fact for the individual owners by bringing claims on their behalf, and has compromised those claims without their knowledge or consent. If, after the fact, the HOA board decides not to make certain repairs, that will have a negative effect on the property values of the individual owners who may then bring a claim against the HOA for acting in a manner not in their best interest, and in doing so without their knowledge or consent.