Prosecutors: HOA board members stole millions from residents...

artradley

HR Legend
Apr 26, 2013
30,847
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Ouch. I wonder who was doing the audits?

In our Association, the PMC does our books. The PMC then hires the auditor who will check the PMC’s work. We get a five page report that always says everything is good. This summer we created a Finance Committee, and we are going to hire the auditor from now on. The idea that our management company picks the company to review their work is absurd, but common.
 
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SA_Hawk

HR MVP
Jan 8, 2022
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Lincoln, NE
iowa.rivals.com
Weird coincidence here how residents in a Red State that supports a party which actively tries to remove oversight and whistleblower protections would have this happen....

Remember that much of "less government" means "less oversight" and a bigger opportunity for things like this to happen. And you have an entire HOA Board of people doing this, because they could not launder the money if other Board members were doing their jobs in getting competing bids on things.

I guess if you elect grifters and idiots to your HOA Board, you should expect the same results as when you elect them as your State and Federal representatives...
Blue states you don't even have to hide your crime. You just walk right into the store and steal whatever you want.
 

artradley

HR Legend
Apr 26, 2013
30,847
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You're the one making wild claims here.

I get my info directly from my management company on these issues.

I've made no wild claims. I simply pointed out the objective fact that if a board does not follow its bylaws or state statutes, the only recourse for homeowners is to sue.

Your claim that because HOAs are "required" to carry insurance, then clearly they all do, is the wild one. As is your claim that if the board does not follow every state statute or association bylaw the property manager would notify the homeowners directly. That is an absurd statement. A property manager would be in breach of contract if they did something like that.
 

Joes Place

HR King
Aug 28, 2003
127,537
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Your claim that because HOAs are "required" to carry insurance, then clearly they all do, is the wild one.
No, it's not.

In states it is required, they will face fines/penalties for non-compliance. FL is not one of those states, however.

I've noted for you several times now, that Boards which ignore the laws make themselves personally liable for the fines/penalties. Which is a pretty solid motivation for following your local laws.

This particular case (w/o reading the entire links) appears it may be a master-association and multiple sub-associations, based on how large the budgets are. Which is another layer of unregulated "management".

What happens in these associations, is that no one shows up for meetings to find out where their money is going. They do not show up for annual meetings for Board member votes, and w/o a quorum, no vote is "valid", which means crooked Board members get to re-appoint themselves and their buddies. So, the "victims" are generally victims of their own apathy.

If you want a responsive and responsible Board, attend meetings, get proxies for your Board votes and elect sane people who are committed to the community, not to their own pocketbooks.
 

Joes Place

HR King
Aug 28, 2003
127,537
124,922
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A property manager would be in breach of contract if they did something like that.
Nope

A property manager is complicit in fraud if they fail to notify their constituents. In the cases you're pushing, any management company would quit rather than participate in the fraudulent activities, which would make them also liable.
 

artradley

HR Legend
Apr 26, 2013
30,847
55,147
113
Nope

A property manager is complicit in fraud if they fail to notify their constituents. In the cases you're pushing, any management company would quit rather than participate in the fraudulent activities, which would make them also liable.

Again, this is clearly something you have little experience or understanding about.
 

Joes Place

HR King
Aug 28, 2003
127,537
124,922
113
Again, this is clearly something you have little experience or understanding about.
Having been on 4 HOA Boards in 2 different states (currently on 2 of them), I probably have a bit more experience than you do here.
 

Joes Place

HR King
Aug 28, 2003
127,537
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Oh, God... Imagine living in Joe's neighborhood!
Turns out, people LIKE things like $1.3M renovation projects that improve their property values and protect their asset/home from wildfires, and LIKE park playground improvements for their kids to play on that improve the curb appeal and value of their homes.

Must be why they re-elect me... (just knocked >$100k off the budget of the newer Board I'm part of, through smarter resource tracking and competitive bidding; we'll find out in a few weeks at our Annual Meeting if owners 'like' that savings - which is likely to reduce how much they have to pay out monthly - or not).
 

goldmom

HR Legend
Mar 29, 2002
21,232
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The PMC serves the Board AND the constituents.

And LEGALLY must follow the laws and bylaws of the HOA. If the Board gives them tasks that aren't legal or are ethical breaches of their covenants, they can quit, too. AND notify the entire community. In fact, if they suspect fraudulent activity going on, they'd be remiss in NOT informing the community.

Both of you are mostly correct.
Joe keeps referencing CA law but FL
Law is nearly identical.
The Management Company oversees the operation of the HOA and reports to the BOD who have been elected to serve the community by the members of the HOA.
The Manager carries out all legal directives voted on by that Board within the CCR’s and the state statute. If the Board Members ask the Manager to ignore those then the Management Company has a choice...resign from that account. If a homeowner calls the Manager to ask why it’s up to the owner of the Management Company to provide an answer - or not.
My company made that decision more than once. Again - if the only people in your neighborhood who want to be on the BOD are jerks on power trips that is not on the MC. That’s on the residents. Stop complaining and run for the board.
 

artradley

HR Legend
Apr 26, 2013
30,847
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No, it's not.

In states it is required, they will face fines/penalties for non-compliance. FL is not one of those states, however.

I've noted for you several times now, that Boards which ignore the laws make themselves personally liable for the fines/penalties. Which is a pretty solid motivation for following your local laws.

This particular case (w/o reading the entire links) appears it may be a master-association and multiple sub-associations, based on how large the budgets are. Which is another layer of unregulated "management".

What happens in these associations, is that no one shows up for meetings to find out where their money is going. They do not show up for annual meetings for Board member votes, and w/o a quorum, no vote is "valid", which means crooked Board members get to re-appoint themselves and their buddies. So, the "victims" are generally victims of their own apathy.

If you want a responsive and responsible Board, attend meetings, get proxies for your Board votes and elect sane people who are committed to the community, not to their own pocketbooks.

You are closer to the truth now - without oversight by the homeowners boards are free to do whatever they want. Because the only thing stopping them is homeowners taking action.

Let's get back to the "required" insurance. You say associations can face fines for failures to do so. Does California require all HOA's to proactively prove their compliance to the state each year? Of course not, that would be overwhelming.

Let me give you a small, real world example. I live in a brand new HOA with 650 homes. 200 of those homes are in a designated 55+ age restricted area. All 650 homeowners pay a General Assessment that pays for all common expenses, such as the main clubhouse and pool. Those in the 55+ pay an additional Assessment that is used to pay for a separate clubhouse and pool just for those of us on the 55+ side.

The first year that our pools were completed, and we started paying the additional 55+ assessment, our nationwide, certified PMC one month purchased a $9,000 golf cart so they could ride around the community looking for violations. This certified PM (with his Masters Degree from Liberty University) then charged half of the expense against our 55+ Assessment. I pointed out to him that this was a gross misappropriation of funds, because our bylaws clearly state that the 55+ Assessment can only be used to pay for our clubhouse and pool. He honestly had no idea what I was talking about - because all of his certifications did not instill the most basic understanding of accounting, or even math. Fortunately, because he didn't see the difference, he had their bookkeeper change things around so the money came out of the property account.

At the end of the year, the 55+ expenses were about $8,000 less than our expenses. However, because our nationwide, certified PMC did not have fund accounting software, and the person in charge of our books is completely ignorant of such things, that money was not reflected on our General Ledger. Instead, it was swept into the General Assessment Fund. So our 55+ funds were basically stolen from us and given to the rest of the community.

Again, the PMC simply could not understand my complaint. In May of this year our first all-resident board was "elected" (actually, the PMC conspired with the Developer to handpick the board, but that is a separate story.) Two of the five understood what I explained to them, the others were even more clueless than our property manger and, math being hard, did not understand the issue, at all. It took nine months, and a letter from an attorney explaining things to them before the board agreed that this money had been misappropriated and given back to the 55+ homeowners.

Note that I was the only single person in the community who understood how our money was being misappropriated. If I had not spoken and, and continued pressing for months, the misappropriation would have continued. Even after speaking up, only by pooling money with other homeowners and threatening to sue were we able to get the association to account for things correctly.

For another, simple, example; our state mandates that any surplus funds be refunded to homeowners at the end of the year. I have checked around and nobody - nobody - actually does this. It's a law on the books that nobody follows - because no homeowners are going to spend thousands of dollars on attorneys to get a $25 refund check.

It is simply naive to think that laws provide any level of protection against homeowners, on the assumption that because associations "must" do something, they simply comply. Boards can do whatever they want, until a homeowner sues them. And a certified PMC, while it can be helpful, is no assurance that things will be better.
 

goldmom

HR Legend
Mar 29, 2002
21,232
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113
In our Association, the PMC does our books. The PMC then hires the auditor who will check the PMC’s work. We get a five page report that always says everything is good. This summer we created a Finance Committee, and we are going to hire the auditor from now on. The idea that our management company picks the company to review their work is absurd, but common.
Or inform the PMC that auditors will be selected from three bids and the PMC can provide a list of possibilities. HOA Auditors aren’t always a dime a dozen because they don’t get huge fees like auditing large commercial firms can bring.
A good PMC will maintain an arms length relationship with auditing firms.
 

artradley

HR Legend
Apr 26, 2013
30,847
55,147
113
Nope

A property manager is complicit in fraud if they fail to notify their constituents. In the cases you're pushing, any management company would quit rather than participate in the fraudulent activities, which would make them also liable.

Yes, a good PMC would quit. But they absolutely would not reach out to homeowners directly. That would never happen.
 
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Joes Place

HR King
Aug 28, 2003
127,537
124,922
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our nationwide, certified PMC one month purchased a $9,000 golf cart so they could ride around the community looking for violations.

Weird that your PMC was able to allocate your HOA funds w/o the Board approving the expense.

I'd recommend electing Board members who do not "rubber stamp" anything they see and review proposals before money is spent. That would seem to be your main problem here.
 

Joes Place

HR King
Aug 28, 2003
127,537
124,922
113
Note that I was the only single person in the community who understood how our money was being misappropriated.
What was your Board doing?

Sounds like no one's engaged in the general finances of the community (which is weird, because we have lots of retired people interested in engaging either on the Board, or on Committees to help with fact-gathering, projects and upgrade recommendations).
 

artradley

HR Legend
Apr 26, 2013
30,847
55,147
113
Weird that your PMC was able to allocate your HOA funds w/o the Board approving the expense.

I'd recommend electing Board members who do not "rubber stamp" anything they see and review proposals before money is spent. That would seem to be your main problem here.

The developer still controlled the board. For two years I was the lone resident board member. The developer simpler did not give a crap about this kind of thing - he hired the PMC and let them run things.

It was our new, resident board who finally got things right. But because four of them are not 55+ residents their concern was slightly lower than their comprehension. Only a threat of a lawsuit caught their attention.

So, again, you can blame homeowners for having bad board. But this is besides the point. Most homeowners are naive, and simply expect that the laws in place mean the board has to do things the right way. They don’t understand that the law only comes into play when a homeowner hires an attorney. And that is my point. It is naive to think everyone is going to follow the law; certified PMC or not.
 

Joes Place

HR King
Aug 28, 2003
127,537
124,922
113
You are closer to the truth now - without oversight by the homeowners boards are free to do whatever they want. Because the only thing stopping them is homeowners taking action.

Let's get back to the "required" insurance. You say associations can face fines for failures to do so. Does California require all HOA's to proactively prove their compliance to the state each year? Of course not, that would be overwhelming.

Let me give you a small, real world example. I live in a brand new HOA with 650 homes. 200 of those homes are in a designated 55+ age restricted area. All 650 homeowners pay a General Assessment that pays for all common expenses, such as the main clubhouse and pool. Those in the 55+ pay an additional Assessment that is used to pay for a separate clubhouse and pool just for those of us on the 55+ side.

The first year that our pools were completed, and we started paying the additional 55+ assessment, our nationwide, certified PMC one month purchased a $9,000 golf cart so they could ride around the community looking for violations. This certified PM (with his Masters Degree from Liberty University) then charged half of the expense against our 55+ Assessment. I pointed out to him that this was a gross misappropriation of funds, because our bylaws clearly state that the 55+ Assessment can only be used to pay for our clubhouse and pool. He honestly had no idea what I was talking about - because all of his certifications did not instill the most basic understanding of accounting, or even math. Fortunately, because he didn't see the difference, he had their bookkeeper change things around so the money came out of the property account.

At the end of the year, the 55+ expenses were about $8,000 less than our expenses. However, because our nationwide, certified PMC did not have fund accounting software, and the person in charge of our books is completely ignorant of such things, that money was not reflected on our General Ledger. Instead, it was swept into the General Assessment Fund. So our 55+ funds were basically stolen from us and given to the rest of the community.

Again, the PMC simply could not understand my complaint. In May of this year our first all-resident board was "elected" (actually, the PMC conspired with the Developer to handpick the board, but that is a separate story.) Two of the five understood what I explained to them, the others were even more clueless than our property manger and, math being hard, did not understand the issue, at all. It took nine months, and a letter from an attorney explaining things to them before the board agreed that this money had been misappropriated and given back to the 55+ homeowners.

Note that I was the only single person in the community who understood how our money was being misappropriated. If I had not spoken and, and continued pressing for months, the misappropriation would have continued. Even after speaking up, only by pooling money with other homeowners and threatening to sue were we able to get the association to account for things correctly.

For another, simple, example; our state mandates that any surplus funds be refunded to homeowners at the end of the year. I have checked around and nobody - nobody - actually does this. It's a law on the books that nobody follows - because no homeowners are going to spend thousands of dollars on attorneys to get a $25 refund check.

It is simply naive to think that laws provide any level of protection against homeowners, on the assumption that because associations "must" do something, they simply comply. Boards can do whatever they want, until a homeowner sues them. And a certified PMC, while it can be helpful, is no assurance that things will be better.

If you have a "brand new" Association, I would STRONGLY urge you to have a good Reserves study performed, perhaps 2 separate entities to fully review ALL long-term upkeep requirements (particularly "pools"). Because it is commonplace for newer Associations to keep dues super low to attract interest (sell the units) and underfund those long-term liabilities from the get-go.

You can absolutely do your own "reserve study" if you want, it's simply a business pro-forma of long term expenses and usable lifetime estimates for things, with estimated replacement/repair costs.

Better to have an independent entity or two create those, because they generally know what to look for. Once you have ALL things identified, it's pretty damn easy to spread-sheet it and track what you have saved for upcoming repairs.

Far too many new Associations ignore this step, and end up having to dramatically hike annual fees when those balances are not adequately funded. And it's worth explaining to your owners WHY you have "so much money" saved up, because you can show the year-by-year spend with simple spreadsheets and graphs. It's really basic business pro-forma tools that you do not need someone else to maintain for you, but most Associations do repeatedly pay for new reserve studies every few years. Independent review is good (and will allay fears of someone misappropriating money), but you can very easily maintain your own Reserves Plan and compare against any independent reviews in the future.
 

Joes Place

HR King
Aug 28, 2003
127,537
124,922
113
The developer still controlled the board.

Don't buy into an HOA if you aren't willing to make even the most BASIC effort to track what they're doing and spending on.

If you buy because the place looks nice, and don't review the financials/bylaws, then that's on you.
I would never buy into a community where "the developer" ran the board, because that is a giant conflict of interest.
 

artradley

HR Legend
Apr 26, 2013
30,847
55,147
113
If you have a "brand new" Association, I would STRONGLY urge you to have a good Reserves study performed, perhaps 2 separate entities to fully review ALL long-term upkeep requirements (particularly "pools"). Because it is commonplace for newer Associations to keep dues super low to attract interest (sell the units) and underfund those long-term liabilities from the get-go.

You can absolutely do your own "reserve study" if you want, it's simply a business pro-forma of long term expenses and usable lifetime estimates for things, with estimated replacement/repair costs.

Better to have an independent entity or two create those, because they generally know what to look for. Once you have ALL things identified, it's pretty damn easy to spread-sheet it and track what you have saved for upcoming repairs.

Far too many new Associations ignore this step, and end up having to dramatically hike annual fees when those balances are not adequately funded. And it's worth explaining to your owners WHY you have "so much money" saved up, because you can show the year-by-year spend with simple spreadsheets and graphs. It's really basic business pro-forma tools that you do not need someone else to maintain for you, but most Associations do repeatedly pay for new reserve studies every few years. Independent review is good (and will allay fears of someone misappropriating money), but you can very easily maintain your own Reserves Plan and compare against any independent reviews in the future.

I failed to convince the board to conduct a reserves study, so I conducted one myself prior to our 2023 budget. As a result the General Reserves Fund contribution is going up 40% and the 55+ Reserves Fund contribution is going up 300%.

At this months Finance Committee meeting I will press the committee to make a strong recommendation that the board conduct one prior to the 2024 budget process. I feel the same way that it’s not rocket surgery, but I would feel much better if we have an initial study done by a professional - even if we just use it as a starting point.
 

goldmom

HR Legend
Mar 29, 2002
21,232
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I failed to convince the board to conduct a reserves study, so I conducted one myself prior to our 2023 budget. As a result the General Reserves Fund contribution is going up 40% and the 55+ Reserves Fund contribution is going up 300%.

At this months Finance Committee meeting I will press the committee to make a strong recommendation that the board conduct one prior to the 2024 budget process. I feel the same way that it’s not rocket surgery, but I would feel much better if we have an initial study done by a professional - even if we just use it as a starting point.
What state are you in?
 

artradley

HR Legend
Apr 26, 2013
30,847
55,147
113
Don't buy into an HOA if you aren't willing to make even the most BASIC effort to track what they're doing and spending on.

If you buy because the place looks nice, and don't review the financials/bylaws, then that's on you.
I would never buy into a community where "the developer" ran the board, because that is a giant conflict of interest.

It’s the best way to get a home three doors down from the pool, and to get a good price. You simply have to endure construction for a couple of years. Honestly, with a reasonably competent PMC everything would have been fine. I just have had to fight much harder than I expected to get things running properly.
 

goldmom

HR Legend
Mar 29, 2002
21,232
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Yes, a good PMC would quit. But they absolutely would not reach out to homeowners directly. That would never happen.
Correct. They’d be advised by their firms attorney to avoid this when possible because they could be sued by one or more of the BOD members.
But Florida’s Sunshine Law makes any and all records available to the members anyway.
 

goldmom

HR Legend
Mar 29, 2002
21,232
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And, btw, a homeowner board is still likely to underfund reserves. They don’t want raise fees.

This is definitely a problem especially with condos. FS718 is the applicable law that gives condo owners the right to waive recommended funding the Reserve and opt for a special assessment as needed. That’s what happened to the Surfside Condo collapse last year.
 

Joes Place

HR King
Aug 28, 2003
127,537
124,922
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And, btw, a homeowner board is still likely to underfund reserves.

Much less likely, if you lay out the long-term costs.

A developer, on the other hand, has a strong conflict of interest in "selling units with uber-cheap dues" to ensure he makes his money.

Homeowners need to understand that they can either raise dues "a little" early on, or they can wait for major repairs and deal with either closing up a pool that is unsafe, entirely, or a large Special Assessment.

Education and Outreach are "a thing" when it comes to informing your constituents of their long-term liabilities.
 

Joes Place

HR King
Aug 28, 2003
127,537
124,922
113
Honestly, with a reasonably competent PMC everything would have been fine.
No. If you have a Board controlled by a developer who has no interest in the long-term viability of your complex once he sells all the units out, the PMC isn't really part of the equation.

It's weird that you claim to know more about this than I do, when you bought into a situation that I would have avoided, UNLESS the Board control were taken away from the entity with a clear conflict of interest.
 

Joes Place

HR King
Aug 28, 2003
127,537
124,922
113
And, btw, a homeowner board is still likely to underfund reserves. They don’t want raise fees.

And no one "wants to raise fees".

But you have to raise fees when operating budgets need to go up with inflation, and to maintain your complex in the long run. That's what annual meetings and budget ratifications are for. It's when you "sell" to the owners WHY they need to increase their dues OR they will lose services. Whatever those services are: landscaping/mowing/snow-removal/pool cleaning maintenance, etc.
 

artradley

HR Legend
Apr 26, 2013
30,847
55,147
113
No. If you have a Board controlled by a developer who has no interest in the long-term viability of your complex once he sells all the units out, the PMC isn't really part of the equation.

It's weird that you claim to know more about this than I do, when you bought into a situation that I would have avoided, UNLESS the Board control were taken away from the entity with a clear conflict of interest.

Well of course the PMC was part of the equation - given that the developer allowed them 100% control over the HOA, they were the entire equation.

And the risk here was not that for a few years homeowners would not have control. The risk in buying early is that homes don’t sell, amenities don’t get built, and the developer walks away, leaving everyone in a wasteland.

The issue that I have been trying to explain to you is much more simple and basic than all of the other stuff you keep trying to throw into this. Even in a mature community, with a certified PMC, HOAs can and do ignore governing documents and even state law. When that happens, the only recourse is to lawyer up. You can’t call the HOA Police so someone from the state will come to your community and make things right.

So it is naive to think that every single California HOA has all required insurance. There are 50,000 HOAs in California. I guarantee you a bunch of them don’t meet all kinds of state guidelines.
 
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artradley

HR Legend
Apr 26, 2013
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And no one "wants to raise fees".

But you have to raise fees when operating budgets need to go up with inflation, and to maintain your complex in the long run. That's what annual meetings and budget ratifications are for. It's when you "sell" to the owners WHY they need to increase their dues OR they will lose services. Whatever those services are: landscaping/mowing/snow-removal/pool cleaning maintenance, etc.

You have a bad habit of not arguing my point. I am telling you that LOTS of HOAs don’t have adequate reserves. This is a simple fact. Your retort is that they should. That does not address my statement. Of course they should. Many do not.
 
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