HOAleader.com - Tip of the Week - November 22, 2019
Published: Fri, 11/22/19
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Was There Fraud at This HOA? How to Get Law Enforcement Interested
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In this week's tip, we answer a reader's question about getting justice:
"Ten years ago we had $200,000 in reserves. I took over last year as president, and there was $12,000 in reserves. I saw that the former president also was the treasurer, and he owned the landscaping company and had a debit card he used for his landscaping business.
"I tried to bring this to the police, and the detective who reviewed the case said he was too busy with murder and rape cases. I opened a claim with our [HOA's] insurance company, and they've been no help."
The first point several of our experts make: This scenario, without more, may not be evidence of any impropriety.
"Why in 10 years does going from $200,000 to $12,000 mean there's been fraud or misappropriation?" asks Phaedra J. Howard, a partner specializing in community association law at Hellmuth & Johnson PLLC in Edina, Minn.
"I'd ask first: Did they have a big project they authorized the money to be spent on?" she suggests. "It doesn't even have to be a big project. Were there legitimate projects that money was being spent on?
"If you can't answer that question, nobody is going to talk to you," says Howard. "The authorities' first question will be: 'Why do you think this is inappropriate?' If your answer is, 'Because we used to have a lot more money,' the response will be, 'And?'"
That's also the initial thought of Joan Lewis-Heard, a senior associate at SwedelsonGottlieb in Los Angeles who specializes in community association law. "One roof job, depending on the size of the association, can deplete the reserve by a lot," she notes. "The police aren't usually going to get involved unless there's a physical wound or a body, and there's no proof there's money missing until you show them that there really is money missing.
"We've had it both ways, where people thought too much money was missing, but it was all legitimate when you started matching it up and doing a forensic accounting," she explains. "And then we've seen where someone made off with $500,000. That person went to jail."
The good news in California? California Assembly Bill 2912, which took effect Jan. 1, 2019, was designed to prevent fraud and embezzlement in community associations. "There's a new requirement that boards are supposed to be reviewing financials monthly to help prevent this type of fraud," says Lewis-Heard. "Also, the statute prohibits associations from making transfers of $10,000 or 5 percent of total combined reserves and operating account deposits without prior written approval from the board.
"Those are steps that make it a little more difficult for this to happen," she says. "But you can't guard against everything."
Our experts have suggestions for getting that first question answered and then getting evidence of impropriety. Read more in our new article:
https://www.hoaleader.com/members/4018.cfm
Best regards,
Matt Humphrey
President
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