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Corruption is rampant on association board, homeowner alleges

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Via @latimes: How to deal with corruption on your homeowner association board
Horror stories about graft and bid-rigging at a homeowner association, via @latimes

Question: Our five-member board obtains several bids on plumbing, landscaping and other projects, but three contractors always win the bids. Those same contractors brag to homeowners that our president and manager are "up for sale." Nearly every Friday, one contractor comes into the office and drops off sealed envelopes of cash, one for the manager and one each for the president, vice president and treasurer. At parties, our president boasts how easy it is to cash in on this place. He says it's easy to intimidate owners at meetings by allowing them only three minutes to speak, then brags how he "handles their stupid little minds." He and his cohorts have been looting our complex for years.

Our operating funds became so low at one point that they had to invent an ongoing utility assessment on top of the dues in order to pay for their graft and mismanagement. In a complex with more than 500 units, there's a small group of owners wanting to turn things around, but the manager controls elections and selectively mails out ballots and influences homeowner votes. We want our once fiscally stable community back. What do we do?

Answer: It may take more than a small group to turn this around, but a small group is better than no group. This requires a carefully crafted strategy and skillful implementation of a plan to oust the majority in power, then hold people accountable. As long as owners keep reelecting majority directors like those described, the graft will continue and board actions will perpetuate your development's deteriorating quality.

Envelopes containing cash are bribes to avoid competing against other vendors and to obtain preferential treatment in order to work at your development. The cash payments constitute income that must be reported to the IRS by its recipients. Just because a person is doing something illegal doesn't mean they don't have to report income from that activity. A vendor who pays decision makers "under the table" to keep its company on your association's payroll is a huge liability. Those directors condoning or ignoring this compromising activity are responsible for any substandard or unlawful work performed by that vendor and any damages that may occur from such work.

Vendors with ulterior motives prey upon associations with complacent board directors and titleholders who are ill-informed, too lazy or too busy to exercise their rights to protect their own assets. To be effective, owner requests for documents, minutes, budgets, bank statements, accounts payable and receivable and insurance policies should occur on a regular basis.

Under the Common Interest Development Open Meeting Act, Civil Code section 4925(b), while the board shall permit any member to speak at any board meeting, a reasonable time limit for all members to speak to the board shall be established by the board. A preset time limit is not always reasonable for all issues; some matters require greater discussion. As most meetings occur only once every 30 days, boards that conduct association meetings with stop-watch precision could be asking for trouble. An owner waiting patiently every 30 days just to speak for three minutes may feel slighted and frustrated. A few more minutes of discussion time and attentiveness by directors could help diffuse otherwise volatile situations including the potential for an owner's festering feelings.

Special assessments aren't pulled out of the clouds — to be valid, such an assessment must comport with the law, generally Civil Code sections 4070, 5300, 5600-5625. A special assessment must also be applied to a specific event and must have a start and finish date. If the special assessment continues in perpetuity, meaning it is "ongoing," it is no longer a "special" assessment. The board cannot raise monthly dues merely by calling it a "utility" assessment in order to collect supplemental funds. Creating a bogus special assessment for the purpose of extracting more money from owners to cover up misappropriation of funds and corruption is not allowed.

Any assessment, let alone one that is ongoing, must be deliberated at an open meeting, voted on, well-substantiated, and rationally related to a legitimate purpose requiring the raising of funds. Titleholders should challenge these assessments along with this board's incredibly incompetent actions.

In addition to the association's governing documents, Civil Code sections 5105-5145 generally pertain to association elections. The association shall adopt statutory election rules pursuant to Civil Code section 5105, and any election can be challenged under Civil Code section 5145, with attorney's fees and court costs awarded to the prevailing party. Courts may also impose a civil penalty. It is unacceptable for the manager to control the election, influence owner votes and selectively choose who receives ballots. Depending on the scope of the involvement and interference, the manager, association and its directors could be subject to election challenges and a lawsuit.

Exposing the board's greed and mismanagement alone may not be enough to change anything; homeowner idleness, along with ethically challenged management and a board majority, can sabotage the best of plans.

Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.

Copyright © 2014, Los Angeles Times
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