Community Associations
THE MOST EXPENSIVE FORECLOSURE IN THE HISTORY OF MANKIND!
An owner of a condominium for over 20 years became delinquent in the amount of approximately $4,000 in his monthly dues owing to the fact that he had suffered a stroke and could not afford to pay both his dues and his mortgage while he was unemployed and recovering.
After almost a year of non-payment, the owner, having regained his health, offered a payment plan for his arrearage which would have resulted in payment in full of all back due and current dues within less than one year. The Board of Directors of the Condominium Association (“Association”) hired counsel to advise them how to proceed. Their lawyer, in his infinite wisdom, advised the Association to reject the owner’s offer. Further, the lawyer advised the Association to initiate foreclosure proceedings immediately to collect the dues. The Association, some of whose Board members had known the owner for 20 years, followed its lawyer’s advice.
On the advice of a foreclosure consultant, the owner attempted to stop foreclosure by engaging in an unsuccessful, age old tactic involving bankruptcy proceedings. Ultimately the owner’s unit was sold at a trustee’s sale after more than six months’ delay.
From the proceeds of the sale, the Association collected all principal sums due, interest, attorney’s fees, trustee’s fees and ended up with a moderate surplus. Instead of giving the surplus to the now homeless owner so that he could rent a new abode, the Associations’ lawyer advised that the surplus be deposited with the Superior Court to be determined whether the owner was entitled to his own surplus funds. The Association (along with the foreclosure Trustee) once again followed its lawyer’s advice.

Then, rather remarkably, the Association, again upon the advice of its counsel, filed an action in court against the owner claiming that somehow there were still sums owing to the Association and questioning title to the now foreclosed unit even though the Trustee’s deed had been duly recorded.
The owner at this stage hired his own counsel, Mr. Dallinger, who contacted the Association’s lawyer and asked him to dismiss the baseless lawsuit against the owner and to release the owner’s funds held by the court. The Association’s lawyer, again in his infinite wisdom, refused both of Mr. Dallinger’s requests.
With no other practical alternative, Mr. Dallinger defended the owner pro bono in the lawsuit against him by the Association and responded to the proceeding in which his surplus finds were held by the court. After over a year of litigation, the owner prevailed in the action brought by the Association and persuaded the court to release his surplus funds. The Association unsuccessfully appealed the action which it had filed and lost. Based upon certain language in the Association’s CC&Rs, the court awarded attorney’s fees to the owner against the Association, though not the entire amount that would have represented the true value of Mr. Dallinger’s services.
The owner, still represented by Mr. Dallinger, then sued the Association, the Trustee and the lawyer who had represented both for malicious prosecution in two separate actions – one related to the surplus funds and the other related to the Association’s action.
The action regarding the surplus funds was settled by means of the Trustee and the lawyer jointly paying the owner a moderate sum to obtain a dismissal of the action.
In the other action for malicious prosecution against the Association and the lawyer arising from the Association’s baseless suit, the Association early on settled with the owner and agreed to pay him a hefty sum to obtain dismissal of the action against it. The lawyer, again in his infinite wisdom, refused to settle and the malicious prosecution action against the lawyer proceeded to a full five-day trial by jury. The owner prevailed and the jury awarded hefty sums for damages for emotional distress and attorney’s fees in addition to punitive damages against the lawyer personally. The lawyer’s appeals were all unsuccessful.
When all was said and done, the foreclosure proceeding by the Association which started this entire affair generated approximately $125,000 of gross sale proceeds of which only $4,000 represented the principal portion of delinquent dues owed to the Association.
The jury verdict (which was collected in full) and settlements in the malicious prosecution actions combined, in addition to attorney’s fees and sanctions awarded to the owner, amounted to in excess of $850,000!
Needless to say, the Association sued its former lawyer for malpractice and obtained a judgment as well.
The simple lesson for all Condominium and Home Owner Associations here is never to engage in ruthless tactics against owners and always to act reasonably in operating the associations. Simple common sense in the face of a stroke victim’s reasonable offer would have saved the Association, the Trustee and the lawyer for both over $850,000.
 
 
 
11870 Santa Monica Blvd . Suite 106-572 . Los Angeles . CA . 90025 . Phone 310 826-8505 . Fax 310 826-8522
Fax to email 775 256-8679 . email tim@dallingerbusinessconsulting.com
© Dallinger Business Consulting 2012