COLUMN: Settlement disclosure suggested

Q. Our board of directors verbally requested the backing of the entire community association before filing a defect lawsuit against the builder. Now that the lawsuit was settled in our favor, are the directors required to discuss all repairs and bids with the entire association before signing the contracts for the repair work?

A. An association may commence a civil action only upon a vote or agreement of the majority of the homeowners, with some exceptions. Exceptions are for civil actions which pertain to: enforcement of the payment of assessments; enforcement of the governing documents; proceedings with a counterclaim; and protection of the health, safety and welfare of the membership.

If, for example, a civil action is commenced pursuant to the health, safety and welfare exception without the required vote of the homeowners, the action must be ratified within 90 days after the commencement of the action by a vote or written agreement of a majority of the homeowners. If the association cannot obtain the required vote, the association may seek to dismiss the action without prejudice.

Some associations have unfortunately found themselves in the position where a construction defect lawsuit is inevitable. It is very important for boards to ensure complete disclosure of the issues. What are the problems? Why is the developer responsible? What can be done to correct the defects? Who are the attorneys? How much money will it cost for the association to file a lawsuit from beginning to end?

The board does not need the approval of the homeowners in the selection of contractors. It only makes for good relations for the board to inform members as to the names of the contractors and what work each plans to complete. Some jobs may involve a number of subcontractors under the supervision of a general contractor.

When signing agreements for the correction of construction defects, the board should use the appropriate expert to develop specifications and to oversee that the work is being performed according to the contract.

Q. Our legal counsel is the son of one of the association's board members. Are there guidelines to prevent a conflict of interest in this type of situation?

A. It is not against the law for a relative to receive compensation for services rendered to an association. However, it is prudent for boards to realize the sensitivity issue and perception from other homeowners that a conflict of interest may exist.

When board members are looking for contractors or professionals, boards should always try to obtain three bids. The director who is related to the applicant should not be involved in the discussion or the actual vote to select the person or company. If a relative is selected, the board should disclose the fact to the homeowners that in a closed bid, without the relative director's participation or vote, the relative was selected.

A subsequent problem can occur if the relative does not adequately perform the services required. In any discussions pertaining to lack of performance, possible termination or potential legal action, the relative board members should not be allowed to participate in the discussion or the voting.

Questions for Barbara Holland may be sent to Association Q. & A., P.O. Box 7440, Las Vegas, NV 89125. Her fax number is 385-3759.

Barbara Holland, Certified Property Manager, is president and co-owner of H&L Realty and Management Co. She is a member of the Institute of Real Estate Management and is the author of two books on the subject. Holland is a past president of the Greater Las Vegas Association of Realtors.

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