A bullying board and a money mystery

Question: Right after I bought and moved into my home, I was elected to the board. It’s my first home in an association and my first time on a board.

Immediately, the treasurer told all directors the association was short of money. But at meetings where homeowners are present, she says what the attorney tells her to say, “The association is financially sound.” Then she says, “The association is doing just fine financially, but because of rising costs throughout the state, we have to raise the monthly fees.”

Before the last meeting began, I asked, “Why is the association short of money?” I was told, “We’ve been running short for about five years now.”

Then the president asked all directors to do him a personal favor. He said he wanted all directors to pay our monthly assessments in advance for the entire year. I wanted to know why and he said, “We don’t want owners to start questioning the shortage and this will give us a legitimate infusion of cash.” I asked if all the owners were going to pay up front, and he said, “No, just directors.”

I refused to pay in advance, and at every meeting since that time, I keep getting nasty looks from the other directors. They say things to me such as, “If you don’t do this, you’re not a team player” and “you made your choice.”

The other directors receive updates and board communications, but I receive nothing, I can’t even get a director to return my phone calls. When I ask for something, their stock answer is, “I forgot” or “I’ll look into that.” At every meeting I’m in the dark, sitting like a bump on a log, because they won’t talk to me. Is this the way homeowner association boards are supposed to operate?

Answer: Nothing in the Davis-Stirling Act requires a homeowner association board director to be a team player.

Trustworthiness, independent thinking and performing ethical due diligence far surpass going along with the rest of the board in hopes of winning a “team player” label.

Each board director has a fiduciary duty to all directors to act in good faith, communicate and share information, and an absolute right to obtain copies of the association’s books and records. A director’s duty flows to all board directors and to all titleholders equally.

As a director, it is your duty to determine where, and on what, that money may have been spent and how long the association has been hiding reality from its members. If doing your duty as a board member requires disclosure to the other owners of financial mismanagement of the association, then it must be disclosed.

Chastising by other board members for not being a team player is the least of your worries. Getting the association back on sound financial footing must take priority over the games of board members.

The Davis-Stirling Act requires that a financial statement be distributed to all titleholders at least once a year. It is presumed that the financial statement is an accurate and truthful accounting, yet nothing in the Davis-Stirling Act makes those virtues mandatory.

Any association board that disguises or misrepresents the association’s financial health from those who are mandated with funding the bank accounts has grossly breached its fiduciary duties and could be subject to a lawsuit.

Because of many variables plaguing homeowner associations and the laws under which owners must abide, paying association dues in advance is not wise. The homeowner earns no interest on the prepaid account, but the association does. Once those funds leave the homeowner’s bank and are deposited into a third-party bank account, the risk begins. The money may not be deposited, it can be misapplied, embezzled or “disappear,” leaving owners with the burden of tracking down their proof of payment or, in a worst case, having to pay the same money again.

Investigation into why there is a cover-up of the association’s finances should begin at once. Should the investigation discover that the board has misspent association funds or failed in the duty to properly manage the association’s financial assets, it may be possible to recover some or all of those funds from the respective directors or from the association’s insurance coverage. Directors are charged with the association’s management, and mismanagement is a fault for which they can and should be held liable.

Questions can be sent to P.O. Box 11843 Marina del Rey, CA 90295 or e-mailed to noexit@mindspring.com.