Our HOA has a settlement offer in a lawsuit. How does the board decide whether to take it?

By OurHOA · General information · Revised November 4, 2026

How an HOA board weighs a lawsuit settlement offer: cost math, insurer consent, the vote under TX, FL and CO rules, release terms, records and paying it.

Part of the HOA board handbook: running the board.

The short answer

A settlement is a business decision the board makes with the attorney's numbers in front of it. Ask the attorney for three figures in writing: what it costs to keep going through trial, the realistic range of outcomes, and what the association pays out of its own pocket in each case after insurance. Get the insurer's position before you agree to anything, because most liability policies let the carrier control or approve settlements of claims it is paying for. Discuss the offer in a closed session, record the decision the way your state requires, and read every term of the written agreement before a director signs it. Rules vary by state and by your governing documents, and this guide is education for board members, not legal advice. Your attorney negotiates the deal. The board decides whether to take it.

Run the numbers the attorney gives you

Boards tend to argue about who is right. The better question is what each path costs the association. Attorney fee statutes change the math a lot, so start there. In Texas, Property Code section 5.006 gives reasonable attorney's fees to a prevailing party who brought an action for breach of a restrictive covenant. In Florida, section 720.305(1) gives the prevailing party in a suit to enforce chapter 720, the governing documents or the rules its reasonable fees and costs. In Colorado, C.R.S. 38-33.3-123(1)(c) makes fee awards to the prevailing party mandatory in actions to enforce or defend the act or the documents, and 123(1)(d) bars any fee award to the association when the court finds the owner did not commit the violation. A worked example. A Florida owner sues over a denied fence application. The attorney estimates $55,000 to defend through trial and puts the chance of losing at about 4 in 10. The directors and officers policy pays defense after a $5,000 retention, but the carrier's letter reserves rights on any fee award to the owner, which the attorney puts at $45,000 by trial. The owner offers to dismiss if the board approves a shorter fence and pays $10,000 toward fees. Fighting costs the association the $5,000 retention plus a 40 percent chance of a $45,000 award, about $23,000 in expected cost, and a year of depositions. Settling costs $10,000 plus whatever part of the retention is already spent. On those numbers the offer is good. What can still tip it the other way is precedent: if approving this fence means approving the next ten, put that in the discussion and in the closed-session notes.

Who has to say yes

The insurer. Pull the policy and read the settlement and consent language before the board votes. If the carrier is defending, it usually wants to approve any payment, and some policies cap what the carrier pays if the insured turns down a settlement the carrier recommended. Paying a claimant on your own without the carrier's written consent can cost you coverage for the rest of the claim. If you got a reservation of rights letter, our guide on responding to a reservation of rights letter from the HOA insurer covers how that changes who controls the case. The board. A settlement that spends association money or changes how the board applies a rule is a board decision, made by a quorum at a meeting, not by the president alone. Check the bylaws for a dollar limit on officer authority. The owners, sometimes. Read the declaration for a clause requiring an owner vote to start or settle litigation, or to spend above a set amount. Some declarations have one, often written by the developer to discourage construction defect suits. If yours does, the owner vote is part of the deal timeline, so tell the other side early.

Hold the vote the way your state requires

Texas. Property Code section 209.0051(c) lets the board adjourn into executive session for pending or threatened litigation and confidential communications with the attorney. After the session, any decision made there must be summarized orally and in the minutes in general terms, and the summary must include a general explanation of expenditures approved. Saying "the board approved a settlement of the Smith matter within the insurance retention" meets that without giving away terms. Florida. Section 720.303(2)(a) opens board meetings to all members except meetings between the board and its attorney about proposed or pending litigation where the discussion would be privileged. That exception covers the talk with counsel. Take the vote itself at a properly noticed board meeting. Colorado. C.R.S. 38-33.3-308(4)(b) and (4)(f) allow executive session for consultation with counsel on pending or imminent court proceedings and for review of counsel's communications. Under 308(5) the chair announces the general matter first, and under 308(7) the minutes show that an executive session was held and its general subject. Once the matter is resolved, 308(4.5) lets the board choose whether to keep the privilege or disclose the advice in an open meeting. Motion wording a board can adapt: "Motion to authorize [name], President, to sign a settlement agreement in [case name and number] on terms consistent with those reviewed in executive session on [date], with a total association payment not to exceed $[amount], subject to written approval of the agreement's final form by association counsel and written consent of [insurer]."

Read the terms before anyone signs

The attorney drafts and the board reads. Check these points: - The release runs both ways and names the association, its directors, officers, committee members and manager, not only the association. - Dismissal is with prejudice, filed by a set date, with each side paying its own fees unless the payment says otherwise. - No admission of liability. Federal Rule of Evidence 408, and the state rules modeled on it, already bar using an offer or settlement talk to prove a disputed claim, so making an offer is not a confession. - Payment amount, date, who pays it, and to whom. - Anything the association promises to do, such as an approval or a repair, with a deadline and a description precise enough that the next board can follow it. - Confidentiality written so it does not collide with owner records rights. That last point catches boards. A signed settlement is a contract, and owners can usually see contracts. Florida lists a copy of all contracts as an official record in 720.303(4)(a)9., while 720.303(5)(g)1. withholds privileged and work product records only until the litigation ends. Colorado lists current contracts in 38-33.3-317(1)(l) and lets the association withhold privileged communications, records of an executive session and contracts still under negotiation under 317(3)(b), (c) and (e). In Texas, section 209.005(d) keeps the attorney's files out of owner inspection, but a document in those files that answers a valid records request still has to be produced if the association kept no copy of its own. Agree to keep terms confidential "except as required by law or the association's governing documents," not absolutely.

If the case goes to mediation

Many settlements happen at mediation, and Florida requires presuit mediation for most covenant enforcement, amendment, meeting and records disputes under section 720.311(2)(a). What is said there stays there: Texas Civil Practice and Remedies Code section 154.073, Florida section 44.405(1) and C.R.S. 13-22-307 all make mediation communications confidential. The signed result is different. Florida section 44.405(4)(a) attaches no confidentiality to a signed written agreement reached in mediation unless the parties agree otherwise, and Texas section 154.071(a) makes a signed settlement enforceable like any other written contract. So the person at the table can bind the association. Before mediation, have the board vote in a closed session on a top dollar figure and any non-money terms it will accept, and send one director with written authority up to that limit. If the deal on the table goes past it, the director signs nothing and the board meets again.

Pay it and close the file

Settle out of the operating account, or out of the legal fees line if the budget has one. Reserves are set aside for specific components, and many declarations and state laws limit spending them on anything else, so do not reach for them first. A large uninsured payment may mean a special assessment. Our guide on budgeting for HOA legal fees covers building a line that absorbs the next one. Ask the CPA about tax reporting. The IRS instructions for Forms 1099-MISC and 1099-NEC treat a settlement check paid to a claimant's attorney as gross proceeds paid to an attorney, reported in box 10 of Form 1099-MISC, even though the attorney did not work for the payer. Collect a Form W-9 from the attorney before you cut the check. Then confirm the dismissal was filed, put every promise in the agreement on the board calendar, and keep the signed agreement with the association's permanent records.

A sample timeline

- Day 0: Offer arrives through counsel. The president forwards it to the board and the insurance agent and books a closed session. - Day 3: Attorney sends the written cost estimate, outcome range and recommendation. - Day 7: Insurer states its position in writing. - Day 10: Executive session with counsel, then the vote, recorded as your state requires. - Day 14 to 30: Attorney negotiates the agreement and the board reads the final draft. - Day 30: Authorized officer signs after counsel and the insurer approve the final form. - Day 45: Payment made, dismissal filed, obligations calendared. Response deadlines in the offer, a scheduled mediation or a trial date can shorten this.

Mistakes boards make

Turning down a fair offer because the board is sure it is right, then paying the other side's fees under the statutes above. Settling without the carrier's written consent and losing coverage. Letting the president agree to terms on the phone. Signing a confidentiality clause that the records law will override. Forgetting the non-money promises, so the next board breaks the agreement without knowing it exists. Discussing the offer by group email, which can waive the privilege, and in Florida runs into the 720.303(2)(a) bar on directors voting by email.

Sources

These guides are general education for HOA boards and residents, not legal, tax, or financial advice. Rules vary by state and by your community's governing documents - check with a professional for your situation.

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