After contacting a lawyer, she was told that she had not taken enough notes of her phone conversations with the bank to prove any wrong-doing on their end, even though that was obviously the case.

Am I wrong?  

@Levi KleinDon't get me wrong, you won't go wrong doing it your way, but then your re-borrowing your money at a higher interest rate than free.  

If you're going to sue, be prepared to prove any wrongdoing on her part which might be tough.  

There was no wrong doing as I wasnt aware of this issue?

Sounds bad, I have seen worse.Report the HOA to the CA Dept of Corporations.They are obviously in violation on several levels.BTW any Board Member of 3 or more units in an HOA in California is not exempt from being personally responsible for Board wrong doings.

I maybe wrong doing this, but they have had their dog for 3 years there.

What if it's wrong?

And in the fallout of the real estate crash, perceived wrongdoing on the part of investors is taken seriously, and can paint our entire industry in a negative light.  

This is the most dangerous as there is very little evidence of wrongdoing.