Before the new election, the outgoing president closed the association's bank account and reopened another, preventing the new treasurer from depositing checks.
Things got worse when the newly elected treasurer uncovered improprieties. Board directors were requesting $180 checks for mileage, $400 for holiday decorations and a $900 reimbursement for supposedly paying a gardener but had no actual receipts. Instead they would write something on paper and be reimbursed.
The treasurer put the board on notice of their violations and reported them to local law enforcement. The board responded by firing her and hiring an attorney to sue her. Directors then withdrew thousands of dollars from association operating funds to pay attorneys. What can owners do?
Answer: Under Civil Code section 1363.03(h) and (i), election results and votes are required to be preserved for up to one year in the event of a challenge. Not only must there be notice of the meeting at which the election is to be held, but under Civil Code section 1363.03(g) the election results must be communicated to the board and to the membership within 15 days of the election. If the election was not held in accordance with the required format for a secret ballot, the election itself is likely invalid.
An association's operating account is not intended to be used as a petty cash account or slush fund for the board's taking. Directors using those funds in that manner are violating their fiduciary duty to the association and its titleholders. When a board is unaccountable to the law and unresponsive to its titleholders who fund the association's operations, owners should take the allegations of theft to their local police department and county district attorney for investigation.
Directors have a duty to produce receipts before requesting reimbursement for expenses, yet even a receipt doesn't prove that the expenditure was valid.
The new board cannot unilaterally "fire" the treasurer unless its reason for doing so is stated in the association's governing documents, the Civil Code or Corporations Code regarding mental incompetence or a felony conviction. The board may be able to change the function of an individual director but cannot stop that director from attending the meetings.
Sabotaging the association's bank account and obstructing the new treasurer's duties could be evidence a district attorney and/or city attorney would need to show that certain directors are engaged in criminal activity.
Situations like those you describe are a warning that every titleholder's assets in the common interest development are at risk. Do not become complacent and accept the status quo.
Glassman is an attorney specializing in corporate and business law. Vanitzian is an arbitrator and mediator. Send questions to P.O. Box 10490, Marina del Rey, CA 90295 or email firstname.lastname@example.org.