What to do when books are falsified and proxies destroyed

Question: We have a faction of influential owners who say and do anything to guarantee votes in exchange for continued control of the board. For about 13 years, this faction has successfully controlled who is on the board of directors. The faction is made up of retirees who don’t want to serve on the board but won’t relinquish control.

This year they put an autocrat with a facade of professionalism in the position of president. He refuses all owner correspondence by returning it to the sender unopened.

This puppet caters to the faction members and furthers their longtime agenda. He has closed-door meetings with them, and at our board meetings he reads from their list of to-do projects and agenda items.

The faction rigs and destroys proxies, falsifies association books and hides unauthorized expenditures and bank withdrawals by handpicking directors who protect their secrets.

For years, the operating budget, revenue and expense reports distributed to owners have been false. Together they conspire to raise money to cover their overspending and implement their personal projects.

Any owner who dares question these tactics is publicly humiliated and accused of “not contributing to the peace and harmony of everyone getting along.” Members of the faction quickly pounce on new owners, warning them who the dissidents and complainers are, gain their confidence and then get their proxies. Can we stop this?

Answer: There is no quicker way to subject an association to a lawsuit than the wholesale return of unopened owner correspondence. An owner’s letter to one board member automatically constitutes notice to all board members. That stack of returned letters becomes evidence to be used against the entire board.

Ignoring homeowners and their concerns or obvious form-letter replies is a recipe for even bigger problems. Frustrated owners ultimately will take their complaints to a different forum, subjecting the board to scrutiny in other ways.

Association boards are held to a high standard of care for good reason. By statute, deed-restricted titleholders have no choice but to entrust their properties and association operating funds to the board.

As fiduciaries, board members cannot allow themselves to be controlled by any faction; to do so could be construed as bad faith. The fiduciary is obligated to act independent of any influence and always in the best interests of the titleholders who are mandated with funding the association bank accounts through assessments.

Knowing titleholders rely on information distributed to them from the board, yet willfully misrepresenting that information constitutes fraudulent deceit under state Civil Code sections 1709 and 1710.

Intentionally rigging or destroying proxies in the course of an election is a crime.

Conspiracy to defraud owners by covering up unauthorized expenditures is also a crime and anyone aiding or abetting in falsifying association books and records can be subject to criminal charges. Depending on the nature of the unauthorized expenditures and bank withdrawals, those perpetrators also could be charged criminally.

If you have proof of the situations you describe, seek the advice of a criminal law attorney. Be sure to include documentation that implicates the faction, as their entanglement should not be excluded.

Closed-door meetings entered into by the president without notice to, or inclusion of, the other directors, neutralize the omitted board members. Actions of the board resulting from these meetings may be illegal and subject the entire membership to liability.

Directors who humiliate or embarrass owners are diverting attention away from board activities. Warning new owners about other homeowners could constitute slander, subjecting those directors to liability.

Aside from having the potential of becoming a financial disaster, slander or libel allegations against any board member are serious accusations that, if proven, could serve to paralyze association activity.

Any director who allows himself or herself to be instructed from the sidelines is not exercising the independent judgment required of that position and as a result has a duty to resign.

Questions can be e-mailed to NoExit@mindspring.com.