Cliquish board won’t open the books

Question: We have deed restrictions on our house in Valencia that cause us nothing but grief because they mandate a five-member board of directors. The president knows he only needs three votes to pass whatever motions he wants, so he automatically discounts the other two board members. The treasurer is part of the longtime dominant clique of rotating owners that make sure three members from this elite group are on the board at all times.

Recruiting new owners for the board is a sham. For more than 10 years the treasurer has occupied the same position. She works closely with each new president guarding the “real” financial information from other board members.

Non-board members are prohibited from seeing vital financial information. Five times I’ve been on the board with the clique, and five times I’ve been denied access to the books.

During the past decade, two scenarios are consistent. First, at annual and monthly meetings the treasurer explains she has not received all the “numbers” from the management company, so will have to get back to us; and, second, she has all the “numbers” from the company but hasn’t “fixed” them yet.

The treasurer is provided with reams of financial documents she shares only with the president. I suspect the treasurer, president and their clique engage in “creative accounting” consisting of hiding and juggling numbers. The material that is distributed is overly broad and general in nature. The numbers don’t add up, and none of the so-called financials distributed to owners in that 10-year period has been accurate, let alone truthful.

From what I can tell, the clique has managed to nearly bankrupt us through incompetence and spending sprees. I can’t find anything in the Davis-Stirling Act that gives homeowners the right to audit their homeowners associations’ books without restraints or where there are penalties for boards that use “creative accounting” methods to cover their actions.

Can I audit the association’s books and records without interference? If I find wrongdoing can I sue the past presidents and the treasurer for their years of creative accounting?

Answer: The Davis-Stirling Act gives homeowners the right to enforce the association’s covenants, conditions and restrictions. It also requires boards to provide various documents each year at the association’s annual meeting. Documents that are sparse, general in nature and insufficient for adequate homeowner oversight, with no way to confirm their accuracy, are far less than the law requires.

The Davis-Stirling Act fails to give homeowners an automatic right to sue the association for faulty accounting or the absolute right to review the association’s books and records. Your right to review the records, found in the Corporations Code and the Administrative Code, is contingent upon a determination that your request relates to your standing as a homeowner. That decision is made by the board, so it is easy to imagine that the request could be denied. Legislative attempts to correct this have been defeated.

The fact that the management company provides reams of documents regarding the financial health of your association and that information is then manipulated or kept from homeowners is understandably cause for concern. Such acts are a breach of the duty owed by the board to the other homeowners and can be a steppingstone to liability.

By the time a lawsuit is brought and comes to court, the association books could be long gone or rewritten. At the very least, if a court-ordered review reveals the “creative accounting” feared, you might be able to recover some funds under the association’s insurance policy, from the board members directly or from those who aided and abetted the practice.

Removal of the board, even the election of board members outside any domineering rotating clique of homeowners, is no guarantee that there will be a change.

It may sound fruitless, but writing your legislator and requesting the Davis-Stirling Act be amended to include rights for homeowners to audit their association books and records and to impose penalties against boards that break the law, is a step worth taking.

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Stephen Glassman and Donie Vanitzian are co-authors of “Villa Appalling! Destroying the Myth of Affordable Community Living” (Villa Appalling Publishing). Send questions to P.O. Box 451278, Los Angeles 90045 or e-mail NoExit@mindspring.com.