The incidents leading up to the Schermerhorns’ lawsuit against our HOA actually began taking place 2 years before the suit.

It all began with our then-Property Manager Darren Burns (Z&R Management). He expressed “concerns” with the HOA master insurance policy at a board meeting. He said he was worried about damage to units being covered where the individual owners had failed to obtain condo-owners policies. Burns suggested the board adopt an uninsured homeowner clause and have it written into the HOA’s master insurance policy. The policy states – in accordance with our governing documents - that the exterior of the buildings are covered by the master policy. The inside and contents are to be covered by individual homeowner’s policies, to include plumbing exclusively servicing an individual unit. (Note: If the master policy was made to cover all contents of all units, the annual premiums could go into the hundreds of thousands per year.)

The board debated the matter, and concluded that adopting such a clause would not be in the best interests of our HOA at large. Not only would it encourage homeowners to let their individual policies lapse, but also it had the potential of raising the HOA’s premiums by astronomical amounts once people start filing individual claims. However, Burns was not pleased with the Board’s conclusion. He later consulted with then-Board President Denise Berndt. Denise signed a resolution altering the master insurance policy. The board never approved this action, and was never even informed of it by either Burns or Ms. Berndt.

Fast forward: The Schermerhorn residence incurred a sewer backup, which caused damage to their bathroom. They had a plumber come out to fix the damage, and submitted the bill to the HOA for compensation. The HOA rule is if the backup was caused by factors outside the building such as tree roots or a broken line, the HOA will pay. If the cause happened inside the unit, the expense (as the fault) is the individual homeowner’s. The bill remitted to the board stated the cause of the sewer backup was excess paper and hair in the individual line. The clog was the homeowner’s responsibility. So the HOA refused to pay the bill.

The Schermerhorns decided that they didn’t want to pay any bill. They also decided that they wished to remodel their unit in the process, and bill the HOA for it. It was later found out that they intended to use the insurance money to make upgrades to their unit that had nothing to do with the damage in their bathroom. Mrs. Schermerhorn openly discussed this to treasurer Michelle Kinney. Mr. and Mrs. Schermerhorn talked with their insurance company, who agreed to pay the deductible that was on the HOA master policy if the HOA insurance paid the rest. They filed a claim against the HOA policy. The insurance company then contacted our then-Property Manager Richard Beal (Management Advantage). In order for the claim to go through, the board had to approve the claim. Richard had misinterpreted the phone call, and thought the insurance company was just telling him the claim was being filed. He said “alright,” not realizing he just approved the claim, and went back to work.

Our insurance company issued a check (minus the deductible) to “Sierra Pointe HOA.”

The matter was now dumped into the HOA’s lap. Treasurer Michelle Kinney was given the check by Richard to sign over to the Schermerhorns. Realizing that the Board should confirm the repairs were completed before the funds should be dispersed (since no receipts were provided) the Board requested receipts and proof of completed repairs (not upgrades), at which time the amount spent would be reimbursed. Providing receipts is a standard for payments. But in this case the HOA’s attorney advised that the Board had a fiduciary responsibility to require that the repairs were actually completed. Mr. Schermerhorn scoffed at the idea, and demanded that the HOA sign over the full claim check without any receipts or proof of any kind of repairs whatsoever. The board said they needed receipts, and again Mr. Schermerhorn refused and angrily demanded they “give him his money.” It was again stated that was not possible, and Mr. Schermerhorn filed a lawsuit against the HOA in response.

The HOA then had to hire legal council. After lawyerly letters were exchanged, the HOA was advised that they were correct and repeated the offer put forth by the board, with an addition: HOA lawyer fees would be deducted from the claim check before any remaining funds would be given. The Schermerhorn party refused this offer, and our HOA went to court.

As board President, I had had to appear in court on behalf of the HOA, along with our insurance company representative, Property Manager Richard Beal and the HOA lawyer. It was not until I was at the courthouse that a copy of Denise Berndt’s signature on the master policy alteration was revealed (by the insurance company’s representative), and the transaction that had taken place so long ago was learned about for the first time.

The hearing began. Mr. Schermerhorn produced many pictures of the damage to his unit, which the judge flatly refused to even look at. Mr. Schermerhorn insisted that the judge look at the pictures, and the judge again refused and went on to say the lawsuit was (for the most part) had little merit. A separate hearing would have to be scheduled if it was to continue, and then the judge excused everyone out into the hall to discuss the matter to attempt a settlement.

Out in the hallway, Mr. Schermerhorn asked if the board’s first offer was still good. I stated that the offer was no longer valid, that the HOA lawyer’s fees had by then exceeded the amount of the insurance claim check. I intended to take the matter to the next hearing, where the HOA was presenting a counter suit asking for the accrued legal fees to be paid by Mr. Schermerhorn. The HOA lawyer, however, didn’t want to continue the case, and made another offer. In this offer, the Schermerhorns would give up any claim to the insurance money, and instead the claim would go towards paying the HOA legal fees. The law firm would discount the remaining fees if I agreed to let the case end that day. Seeing how the next hearing would cost thousands more and take more time, I agreed to the deal along with Mr. Schermerhorn. It was the best possible outcome for the HOA’s interests.

All parties returned to the courtroom and disclosed the agreement. The judge then added on to it. He required that Schermerhorn provide the HOA by the 15^th of the month - all receipts and photos proving repairs made. If the receipts and photos were not provided by then, Mr. Schermerhorn would then be required to pay the remaining legal fees the HOA had incurred as a result of the lawsuit. Mr. Schermerhorn then asked for one week beyond that date, at which time I offered two weeks, so it would be due at the end of that month. All was agreed on.

The 31^st of the month came and went, and no receipts or photos were given to the HOA. No repairs had been done or even started. The terms of the agreement had been violated, and Mr. Schermerhorn received a court order to compensate the HOA fully for their remaining legal fees. The HOA also took action and removed the illegal alteration to our master insurance policy made by former President Denise Berndt, to see that further attempts to abuse our HOA in this regard would not be made.

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