HOA Attorney Fees: The Bill That Hits Boards Out of Nowhere

Ask a board to name the expenses that could blow up its budget and you will hear about roofs, plumbing, and asphalt.  Those get planned for, because they are physical and visible and a reserve study puts a date on them.

The expense that actually catches self-managed associations off guard is HOA attorney fees, and almost nothing about them can be scheduled in advance.

Why HOA Attorney Fees Hit Self-Managed Associations Hardest

Nevada HOA attorney Troy Isaacson has a clear answer when asked which bill arrives without warning.

“I think the most common unexpected bills that I see hit HOAs are honestly attorney’s fees, because the HOAs get hit with legal problems,” he says.  “A homeowner complains about something, files a complaint with the Real Estate Division or a lawsuit.  That is not accounted for in the association’s budget.  Therefore, they are hit with an unexpected cost.”

The mechanics explain why the cost feels so sudden.  A roof degrades over fifteen years and gives you a decade of warning.  A homeowner complaint has no lead time at all.  One resident becomes frustrated with a decision, files with the Division or in court, and the association is now obligated to respond on someone else’s schedule.

Responding is not optional.  The association has deadlines whether it has budgeted for them or not.

Two factors compound the exposure for self-managed associations specifically.

The first is that they face more legal problems to begin with.  Isaacson notes that a professional manager’s core function is knowing and applying the routine obligations required under NRS Chapter 116, and that in the cases where the Division has found violations, management may have caught them.  Fewer procedural errors mean fewer complaints, which means fewer invoices.

The second is that a self-managed board is more likely to call an attorney later than they probably should have.  When something goes wrong, the board tries to handle it internally, then escalates only after positions have hardened and a filing has already been made.  The same question asked before the fact would have taken a fraction of the time.

The Second Problem Is Worse Than the First

The unexpected invoice is only the beginning.  Isaacson describes what happens next.

“Now, in addition to facing the complaint itself, they are looking at going back to their membership and asking for more money in the assessments to pay for the lawyer.”

This is where a legal issue turns into a governance issue.

A board that has to raise assessments mid-year to fund a legal defense is having a very different conversation with its members than a board that has a line item.  Homeowners who were neutral about the underlying dispute now have a financial stake in it.  Trust erodes.  Turnout at the next election changes.  The board that inherited the problem often inherits the blame as well.

A budgeted expense is administration.  An unbudgeted one is a crisis, and the difference between them is frequently just planning.

What to Do 

Put a line item in the budget.  A legal contingency line does not need to be large to be useful. What it needs to be is present.  An association that has never budgeted for legal expense has no mechanism for absorbing one.

Treat early consultation as prevention, not expense.  A short call before a board makes a contested decision is cheaper than the response to a complaint about that decision.  Boards frequently spend more litigating a position than they would have spent confirming it was defensible.  Some associations address this with an ongoing outside general counsel arrangement rather than calling an attorney only in emergencies.

Confirm what your insurance covers. Directors and officers’ coverage and general liability policies vary considerably in whether and how they fund a defense.  Boards often assume coverage exists that does not, and they discover the gap at the worst possible moment.

Fund reserves properly. A fully funded reserve is not a legal budget, but an association raiding reserves to pay a lawyer has converted one problem into two.

The Underlying Point

You cannot schedule a homeowner complaint.  But you can decide, in advance, whether one will be a manageable with a line item or default to an emergency special assessment.

Most associations have not made that decision.  They have simply not encountered the problem yet.

Frequently Asked Questions

Should an HOA budget for attorney fees even if it has never needed a lawyer? Yes.  A legal contingency line is what allows an association to absorb a complaint without a mid-year assessment increase.  Associations with no history of legal issues are often the ones with no mechanism to handle the first one.

Can an HOA raise assessments mid-year to pay legal fees?  Associations do this, but the process and any limits depend on your governing documents and Nevada law.  It also carries a governance cost, because members are being asked to fund a dispute they may not support.

Does insurance cover HOA attorney fees? Sometimes, and when so, it varies significantly by policy.  Directors and officers’ coverage and general liability policies differ in whether they fund a defense and under what conditions.  Review your actual policy rather than assuming.

When should a board call an attorney? Before a contested decision, not after a complaint is filed.  Early consultation is generally far less expensive, and it supports the presumption that the board acted in good faith.

Talk to a Nevada HOA Attorney

If your board has no legal contingency in its budget and no clear picture of what your policies cover, a conversation now is considerably cheaper than the one you will have later. Contact Isaacson Law, or start with our Nevada HOA rules, regulations and resources page.