HOA Disclosure Laws Great For Embezzling
guest blog by Deborah Goonan (Independent American Communities)
Several states are talking about the need for laws requiring that HOAs be open and provide full disclosure to buyers and current owners alike. Several, such as Florida and California, have already enacted laws meant to prevent corruption and self-dealing.
But it isn’t working, because states choose not to enforce violations of the very laws they created. It is up to the owner to initiate a law suit in civil court, and most owners cannot afford to pay an attorney thousands of dollars to enforce open meetings, full access to records, and consumer disclosure statutes.
For example, Massachusetts is the latest state to attempt to enact disclosure laws. Critics call the proposed statute a “toothless tiger.”
(link to story in Newbury Port News on toughening condo owners’ rights)
On the heels of that report, I read two others this week about missing money in Association-Governed Residential Communities. Although I strive to keep current on news affecting homeowners and residents in HOAs, I also want to thank several of my readers who forward links to HOA embezzlement horror stories on a weekly basis.
Community Associations Institute (CAI) and state-level chapters have gone on record stating that these are “isolated incidents.”
Really?
Here’s another not-so-isolated incident In Lakes Northwest, Texas, where owners are investigating at least one board member suspected of embezzling money from the association.
(link to money missing from local HOA account)
And yet another incident, this one in Washington state, involving a husband and wife management team.
(HOA managers arrested over missing property funds)
CAI political lobby efforts put the blame on homeowner apathy. They say that owners just don’t get involved in self-governance of their association, unless and until conditions reach crisis mode.
While it’s true that most owners don’t attend HOA meetings and don’t pay much attention to how the annual budget is established, CAI is not telling the public – nor our lawmakers – the whole story.
The truth is, the corporate nature of Association-Governed Residential Communities vests considerable power and control to a few owners that serve on the Board of Directors. The board of directors wields considerable power and authority, but almost no accountability. Often, the Board will yield that authority to a management company, allowing the tail to wag the dog.
Unfortunately, when a homeowner, condominium, or cooperative association “elects” one or more rogue volunteers to the Board, it can be very difficult to detect corrupt activities and to remove unsuitable leaders.
It should be noted that during construction phases (which can drag on for decades in master planned communities), the Board of Directors is controlled by the developer. While some developers take pride in the quality of their work, others do not. Homeowners and residents can get stuck with a board of builder affiliates that limits transparency in order to shield the developer from liability for defective or shoddy construction or design.
Providing full and continuous disclosure of corporate association management and financial conditions is THE best way for homeowners or home buyers to be alerted to:
incidents of financial mismanagement, outright theft, or numerous complaints of defective construction.
Common sense: if disclosure laws were enforceable through more practical means, or enforceable through Attorneys General or federal regulatory agencies, and if developer or homeowner controlled boards and the managers that serve those board were truly held accountable, I believe we would reduce the opportunity of unethical developers, board members and community managers to shift the blame, lie, cheat, and steal your money.
So why are laws favoring swift and meaningful enforcement transparency and full disclosure so vehemently opposed by CAI? Why are state level CAI chapter leaders crafting “toothless tiger” bills that appear to benefit homeowners and HOA residents, but are essentially meaningless?
