The "Self Dealer" Board Member

In this blog post, we will delve deeper into the "Key Characteristics of a Self-Dealing Board Member" to better understand these behaviors and their impact on an HOA, outlining strategies to effectively address and mitigate these challenges.

Key Characteristics of a Self-Dealing Board Member

Financial Embezzlement

Self-dealers often exploit their access to HOA financials for personal gain. This can involve direct embezzlement of funds, where they siphon off money from the community's accounts. For example, a self-dealer might approve payments to a company they secretly own or receive kickbacks from vendors contracted by the HOA. Such actions not only deplete community funds but also violate fiduciary duties and legal standards set by the Davis-Stirling Act.

Misuse of Community Resources

Another common tactic of self-dealers is the personal use of community resources. They might use HOA property, such as tools or equipment, for their benefit. For instance, a board member might keep a community-owned power washer at their home for personal use, thereby depriving the community of its intended use and benefits.

Conflict of Interest

Self-dealing board members often engage in activities that present a clear conflict of interest. This includes making decisions that benefit their own businesses or those of close relatives and friends. For example, contracting a relative's landscaping company without disclosing the relationship or obtaining competitive bids. Such actions violate the principles of transparency and fairness expected in HOA governance.

Lack of Transparency

Self-dealers frequently conceal their actions to avoid detection. This can involve manipulating financial records, hiding transactions, or failing to disclose conflicts of interest. The lack of transparency makes it difficult for other board members and homeowners to identify and address the issue, allowing the self-dealer to continue their misconduct unchecked.

Resistance to Accountability

Self-dealers often resist efforts to hold them accountable. They might obstruct investigations, deny wrongdoing, or retaliate against those who question their actions. This resistance to accountability exacerbates the problem, creating a toxic environment where honest board members and homeowners struggle to maintain proper governance.

Addressing the Challenges of Self-Dealing Board Members

Education and Training

Educating board members about their fiduciary responsibilities and the legal requirements of their role is crucial. Regular training sessions can help board members understand the importance of transparency, proper financial management, and ethical decision-making. This knowledge can empower them to identify and address self-dealing behaviors effectively.

Clear Documentation and Communication

Maintaining clear and accessible documentation of all board activities, financial transactions, and decision-making processes is essential. Homeowners should have access to meeting minutes, financial reports, and other relevant documents to ensure transparency. Effective communication channels, such as newsletters and community websites, can keep residents informed and engaged, helping to identify and address issues early.

Engaging Professional Help

In cases where self-dealing significantly impacts the HOA's operations, engaging professional help may be necessary. This can include hiring a professional management company to handle day-to-day operations or consulting with an experienced HOA attorney to ensure compliance with legal requirements. These professionals can provide the guidance and oversight needed to steer the board in the right direction and protect the community's interests.

Mobilizing Community Support

Homeowners can mobilize community support to address self-dealing on the board. Organizing community meetings, circulating petitions, and fostering a culture of involvement can help residents collectively advocate for better governance. In severe cases, initiating a recall vote to remove a self-dealing board member may be necessary to restore effective leadership.

Implementing Accountability Measures

Implementing accountability measures can help prevent self-dealing from undermining the HOA's governance. Establishing clear performance expectations, conducting regular evaluations, and enforcing consequences for non-compliance can ensure that board members take their responsibilities seriously. Creating a robust grievance process can also provide homeowners with a mechanism to address concerns and hold board members accountable.

Conclusion

Homeowners troubled by a self-dealing board member in their HOA should not feel powerless. By understanding the legal options and rights available, and possibly engaging an experienced HOA attorney or lawyer from LS Carlson Law, residents can take significant steps towards restoring fairness and effective governance within their community. For homeowners in California and beyond, it is crucial to approach such situations with a well-planned strategy, supported by legal experience.

For further guidance and personalized advice, consider consulting with LS Carlson Law, where protecting homeowner rights against overreaching HOAs is our priority. Navigate these challenging waters with an experienced HOA attorney by your side and ensure that your community remains a fair and well-managed place to live.

Listen to the Podcast Episode

Watch/Listen to the Episode on Spotify: https://podcasters.spotify.com/pod/show/bad-hoa/episodes/Persona-Series-IV-The-Self-Dealer-e2kkded

Podcast Transcript

For those who prefer reading, the podcast transcript is provided below:

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Hi, Luke Carlson of LS Carlson Law. Welcome back to our show. Today's episode really puts an end to the topic of bad actors in an association or a bad HOA. So far, we've gone over the tyrant, the incompetent, and the meddler. Today, we're focusing on the self-dealer, which is its own genre of a horrible director or board member. I also have Jenny on the show. She's back. Welcome.

Podcast Guest and Homeowner, Jenny Carlson

Thanks for having me.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Thanks for being here. And I have Marty. Hello, Marty. Okay, so the self-dealer, how would you guys like to start this one?

Producer and Homeowner, Marty Vasquez

Let's go over the common traits. Give them a quick overview of the self-dealer and we'll go into all of the personality traits.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, the self-dealer is complicated because really they're the perfect sort of director in the sense that on the surface, they look really good. You know, the tyrant is very obvious, right? They have these overt personalities where they're seizing power, they don't listen to people. The meddler, you know, because they're up in everyone's business.

Podcast Guest and Homeowner, Jenny Carlson

Why is that my favorite? This is always going to be my favorite.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

And the incompetent just displays their incompetency left and right. So it's apparent. The problem with the self-dealer though, they may be sort of surface-wise perfect. You say, "Oh my, this is a wonderful director. They do everything that they're supposed to do." It's really under the surface where the problem is. When we talk about the self-dealer, what they're really doing is utilizing their position on the board to benefit themselves. It could be, and it's typically, financial. So that's where you have some form of embezzlement, right? They have access to the financials and under everyone's noses, they're taking money from the community.

Producer and Homeowner, Marty Vasquez

And it doesn't have to be direct. It could be indirect as well.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, so there's different forms. Some setups where they'll actually set up another company, a vendor, a landscaping company, or their uncle owns a landscaping company. In their position as a board member, they'll contract with that company and they'll get kickbacks from it, right? That's a form of self-dealing, which is in violation of the Davis-Stirling Act in California. It breaches their fiduciary obligations to the community. But again, you don't always see it on the surface. So that's what we're talking about when we're talking about the self-dealer.

Producer and Homeowner, Marty Vasquez

Perfect. Let's get into some of the definitions.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, we got some good ones. So, going back to financial gain, that really is the driver here because the self-dealer is trying to monetize the relationship with the board individually. They're trying to make money in their position, which is completely opposite. It's the antithesis of what they're supposed to be doing. You're supposed to be on the board to benefit the community as a whole. There's really no self-interest which should come into play. But a self-dealer will sit at the table and not say to themselves, "Hey, how do we make this community better? How do we improve the community?" What they say to themselves is, "Hey, how can I get a cut of what's happening?"

Podcast Guest and Homeowner, Jenny Carlson

How can I profit from this somehow? Correct.

Producer and Homeowner, Marty Vasquez

Now, it could be something a little less egregious, like we're going to buy a power washer so we can power wash the pool area, but they decide to keep it at their house and use it to power wash their car every other week.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, I guess you have these micro events, micro self-dealing, where they say, "Here's another one," and I like your example. When they're utilizing community property to their benefit, it doesn't always have to be financial in a strictly economic sense. They could leverage other assets owned by the community, but use them for themselves. Another version is a landscaping company comes in, and the self-dealer goes to that company and says, "Hey, I want you to do my personal property." The handyman who works for the community, they say, "Hey, can you fix my light bulbs or patch some drywall?"

Podcast Guest and Homeowner, Jenny Carlson

Just come by real quick.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Correct.

Producer and Homeowner, Marty Vasquez

Now, does that violate the Davis-Stirling Act as well? Some of these little micro dealings, or is there a gray area that you have to kind of navigate?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

No, I think in general, when you're looking at their fiduciary responsibilities, any time you step in and you take and pull away assets of the community and use it to your own self-benefit, there's a breach of fiduciary. You are violating your role as a director. In terms of economically, what are the damages? Now you're more into, it's de minimis, right?

Producer and Homeowner, Marty Vasquez

Yeah.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

So if anything, you're not always looking to disgorge or say, "Hey, you used the power washer 17 times and each time you used it, it was eight bucks a pop. We want a hundred dollars back," right? You're really looking at it like, "Hey, you violated your obligations as a director. We want you off the board."

Podcast Guest and Homeowner, Jenny Carlson

Well, interestingly enough, I spoke with somebody at my son's football practice who was on their HOA board. She mentioned something about pool cleaning supplies that I guess the organic version of chlorine is really in right now. If you store that in a public or an access point where everybody can reach it, people will often use or take the pool cleaning supplies. What a surprise. So, little things like that.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

That's interesting because, in that scenario, what you're having is owners pulling out assets from the community.

Podcast Guest and Homeowner, Jenny Carlson

Well, one was a board member.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Well, there you go. Doesn't surprise me. And other homeowners.

Podcast Guest and Homeowner, Jenny Carlson

And other homeowners, there you go.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, it's like a feeding frenzy. The other one you identify as conflict of interest, this sort of explains itself. You're right, it's a conflict. When you're there to promote the community, to better the community, to better the association, and you're looking out for your own self-interests, the conflict arises immediately. So, conflict of interest, that's a common theme in these.

Producer and Homeowner, Marty Vasquez

And that would go back to your uncle owning the landscaping business, and they're not contracting with anybody else, not getting fair bids, and you're not disclosing it, and you move on.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, you're driving this one vendor because you are going to monetize, even though there are seven other vendors who are better.

Podcast Guest and Homeowner, Jenny Carlson

What if it's not even you're going to monetize, but just it's almost like a family favor? Like you're actually just trying to benefit your uncle.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Well, it's derived from self-interest in some way. Now that's a little bit more intangible. Really, what a board is supposed to do is say, "Hey, there are five vendors. Let's look at them equally. Which one is going to best serve the community?" That's the question. Not, "Hey, I should pick this person because it's a family thing and I'm going to be awesome, and my family will love me." That shouldn't factor into the decision.

Producer and Homeowner, Marty Vasquez

Well, that goes into the next one a little bit with lack of transparency. I would assume that if you're being above board and getting several bids and you disclose, "Just so you know, this is an uncle of mine. I'm going to recuse myself from making a selection here based on X, Y, and Z."

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah. So, the lack of transparency could be very egregious. It could be actually concealment. You might have someone who is taking money, embezzling from the community, but they're cooking the books. They're hiding their tracks. Now, what's interesting with embezzlement nowadays is everything's electronic, so it's a little bit harder if you do a deep dive into the financials and you see these wires going out to some third party, and the third party ends up being an LLC owned by that director. There could be concealment, though, on the documents generated explaining the transfers, but without actually seeing the transfers, that's a tremendous form of concealment, misrepresentation, which, again, goes to lack of transparency. Lesser forms might be, "Here are five vendors. I really like vendor three," and they don't tell you that their cousin Vinny owns it.

Podcast Guest and Homeowner, Jenny Carlson

Cousin Vinny. I love it.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Vendor three, right?

Podcast Guest and Homeowner, Jenny Carlson

Yeah.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

So that's the lack of transparency. But yeah, that's a common thread in these. Marty, I love your notes. It keeps us so organized.

Producer and Homeowner, Marty Vasquez

You're so on top of this. I do my best here.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

So lack of transparency also goes to non-disclosure. Non-disclosure is essentially the same thing. They're not disclosing material information, which is important. That may bias their decision. My cousin Vinny. We don't tell him. So, the unfair advantages. When you're in a director chair, you have power. You have a power to make decisions. You have a power to influence. And if you're taking that position, influencing the board, influencing decision-making, which benefits yourself, and that's your primary motive, that's problematic. That is what we're getting at when we say unfair advantage in the position. And again, you have abuse of power that is essentially an absolute abuse of power. They're abusing their position, which is a position of power. When you're in a director role, you do have power. The power that you have is supposed to, again, go to the betterment of the community.

Podcast Guest and Homeowner, Jenny Carlson

The greater good, not self-serving.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Correct. And so that becomes its own abuse of power. I have a side question. Hit me.

Producer and Homeowner, Marty Vasquez

Are there term limits defined in HOAs?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Typically, yeah. If you go into the CC&Rs or bylaws, every association has its own sort of setup. But yeah, you'd go to the CC&Rs, the governing documents first to determine term limits, et cetera. So excessive compensation, that's another form of self-dealing in the sense that somehow they're being compensated wrongfully. It's excessive. Normally, directors, board members, they're not compensated. It's a voluntary position, right? They're not getting paid to be on the board. It's voluntary.

Producer and Homeowner, Marty Vasquez

I have seen in some situations, though, if they take a particular role, at least on Reddit, with a grain of salt, that some board members are paid to perform certain functions like bookkeeping or something in particular.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

To the extent that it falls under your normal purview, if they step in as an extraordinary resource for the association. I've seen it before where it's a very small association, a board member is on the board, but on the other side of it, they help manage the community. They serve essentially as a management company, but there is compensation for that. Normally, how an association works is you have a board come together, they're volunteers, they make decisions. They say, "Hey, I think we need to do this. I think we need to up the dues. I think we need to levy fines." But the arm that executes upon that is a management company that is typically a third party hired by the association.

Podcast Guest and Homeowner, Jenny Carlson

Gotcha.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Because ultimately, you get on the board, you don't want to be sitting there at your home mailing out checks. You agree to think about these things, make decisions, do board meetings, serve in that function and as that role, but a lot of the mechanical stuff, you just don't have time for. And association law assumes that. That's where you have the whole industry set up to help service a board. That's a management company. Now, what's interesting there is frequently a lot of the disputes that we see, it's the management company that's causing a lot of problems. The homeowner will come to us and say, "Hey, the management company isn't responding," or "The management company keeps fining me even though whatever infraction has been addressed," or "The management company is supposed to repair a common area roof, they failed to do so." A lot of venom is spit towards a management company, rightfully so, because they're dropping the ball.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

What you have to understand is the association has hired the vendor, which is the management company. If the management company is failing or is acting negligently or is just dropping the ball, that misconduct is imputed back to the association. It's under an agency theory of law. Look at the management company as simply an agent for the association.

Podcast Guest and Homeowner, Jenny Carlson

Well said.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Thank you. Not my first rodeo with that concept. All right, so that's excessive compensation. Resistance to accountability, I think what you're getting to there is, if someone calls them out and says, "Hey, you're siphoning off money," there's probably a resistance to that statement. They may try to spin it out. They may try to say something differently. But once you catch a self-dealer, they really have very little to argue.

Producer and Homeowner, Marty Vasquez

A lot of these are entangled because I can see the resistance to accountability goes to lack of transparency and whatnot. A lot of these, you're usually ticking a couple of these boxes when you talk about self-dealing.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, and I think resistance to accountability is maybe better said, it's sort of a cloak and dagger play. They do not want to be visible. They're not taking accountability for their embezzlement because they don't want to get caught. When I hear about accountability, accountability to me is like, "Hey, we screwed up. We need to address this." This is sort of an active, mindful, conscious wrong that happens over and over and over again. As opposed to, "Hey, we were supposed to fix a roof, we screwed up, we didn't know about it." The board is holding themselves accountable when they identify that. That's a form of negligence and they say, "Hey, we fell below the standard of care." What happens with the self-dealer, this is intentional. There's an intent to steal.

Podcast Guest and Homeowner, Jenny Carlson

Malicious in nature, yeah.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Correct.

Producer and Homeowner, Marty Vasquez

So the question is, kind of moving on to the next area, if you suspect someone is self-dealing, I would assume it's pretty low-key in most situations, but you start suspecting it and you don't want to call somebody out that you live next door to, right? How do you broach the subject? How do you start raising the red flags and trying to get them out of the board or their role?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

With self-dealing and embezzlement, it gets complicated quickly. I'll try to break it down in very simplistic form. If you're an association, the association is a legal entity. When you have a legal entity and someone is self-dealing, the actual standing to go after that person is the entity. The entity needs to go after that individual. If you're a homeowner and you're saying, "Hey, something's wrong here, we keep burning money, the numbers don't add up," at that point, there's smoke, right? You suspect it. There are certain things you can do in California. You could always request, under the civil code 5200, a document request, demanding the association turn over all of the financial documents so you can review those. That would be a good place to start. Let's say you find something where you have a good faith reason to believe there's some self-dealing or embezzlement or however you want to frame it legally.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

At that point, you're putting the association on notice. To an extent, you have to call the person out. That's a life decision. Do you want to call this person out and live with that? If you're wrong, well, you just called someone out, even if you had a good faith belief this was happening. First, you have to make that decision. Do you want to pursue this? Once you put the association on notice and the association is looking at it and there's some credibility to what you're saying, you're able to provide something that lays a foundation for this potential. It's incumbent upon the association to investigate. Often how we see it play out is the association will hire a legal team to investigate, and then the legal team will bring its findings to the association. The association technically has a business decision to make there. They have to determine whether it's worth prosecuting and seeking disgorgement.

Producer and Homeowner, Marty Vasquez

Is that a criminal charge at that point?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Possibly, yeah.

Producer and Homeowner, Marty Vasquez

Interesting.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Will the attorney general or someone actually prosecute? Maybe not, because now you're looking at resources, government resources. If the district attorney is dealing with a lot of crime, and you say, "Hey, this person is stealing chlorine," they may say, "Get in line." They might not have that, but if it's a large sum of money, I think so.

Podcast Guest and Homeowner, Jenny Carlson

Is there a number? Like a financial number?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

I don't think there's any specific metric to apply. A crime is technically a crime.

Podcast Guest and Homeowner, Jenny Carlson

Probably, it depends.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

But it does depend, yeah. Are they going to care? That's the question. Or do they have the manpower or the resources to execute on that?

Producer and Homeowner, Marty Vasquez

Yeah, if it's in the tune of millions of dollars, it might catch their eyes.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Exactly. But if it's like, again, organic chlorine, maybe they don't care, right? They probably don't. I'm going to go with they probably don't. At that point, the association has to make a business decision. That decision is often derived from the economics of it. If Billy the embezzler stole a hundred bucks...

Podcast Guest and Homeowner, Jenny Carlson

What happened to Vinny?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

That was the vendor.

Podcast Guest and Homeowner, Jenny Carlson

Oh, sorry.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

That was the vendor. That was Billy's cousin.

Podcast Guest and Homeowner, Jenny Carlson

Gotcha.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Billy's the individual on the board who's embezzling, and he stole $50. Are they going to file suit over that? Probably not. Maybe there's some internal action they can take to get him off the board, but they're probably not going to prosecute. It's a business decision on the board to see what they want to do.

Producer and Homeowner, Marty Vasquez

Interesting.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Here's where it gets interesting. Let's say it is a million dollars and the board decides not to do anything against this individual. They go back to the owner and say, "You were right, they stole a million dollars." The owner says, "What are you going to do about it?" Nothing. At that point, the owner might actually have a cause of action against the association.

Podcast Guest and Homeowner, Jenny Carlson

Because it was their fiduciary duty.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

That might become a breach of fiduciary. That might become negligence. That becomes its own cause of action at that point.

Podcast Guest and Homeowner, Jenny Carlson

Interesting.

Producer and Homeowner, Marty Vasquez

What if they execute some sort of action? Let's say they just kick them off the board, but no funds were paid back.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

The question is, did they take any action against that individual other than kicking them off the board? If the association lost a million dollars, that's actual harm to the association and they didn't go after that. That could be a huge problem for the board if they didn't seek any sort of disgorgement. We're dealing with a lot of money.

Podcast Guest and Homeowner, Jenny Carlson

Have you ever seen that happen?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

I've seen situations where the board has covered tracks of a board member and has decided not to do anything about the problem and we've gone against an association for that, yes. It does happen. Sometimes what it is, is they're circling the wagons because maybe other people are involved and that becomes its own different beast.

Producer and Homeowner, Marty Vasquez

I've got a curveball for you. You ready?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Oh no.

Producer and Homeowner, Marty Vasquez

You know how an association can put a lien on the property or even sell the property if they have unpaid dues? Let's say in this situation, they steal a million dollars and they don't repay it. Could they take their house?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Typically how that would work is a lawsuit would be filed. They would prosecute it to judgment. Once they got a judgment, they could put a lien on the property. If they don't pay back that million dollars, there could be a, there's two ways to foreclose. It's a non-judicial foreclosure or a judicial foreclosure. Typically, it will be non-judicial. It's just an easier process, which is a series of notices. After the notice period is up, it goes to trustee sale. That could be a way of getting the money back, assuming there's equity in the property. But you can also levy bank accounts once you have a judgment. You can do a judgment debtor examination, which if you have a judgment against somebody, you can go to the court and the court will compel them to show up at the courthouse. You can sit down with them face-to-face and ask about their financials. If they don't show up, the court will issue a bench warrant.

Producer and Homeowner, Marty Vasquez

The court will give them two bites of the apple though. So if you show up and the judgment debtor was supposed to show up, they don't show up, you go in front of the judge and say, "Hey, they didn't show up, can you issue a bench warrant?" Typically, they'll issue a bench warrant, but they'll hold it. They'll give them one more chance to show up. If they don't show up a second time, a bench warrant is typically issued. But that's a great way to get into the financials. It's pretty aggressive though. If they show up with cash, you can actually say, "Can you take out your wallet? How much cash do you have?"

Podcast Guest and Homeowner, Jenny Carlson

Wow.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Say they have $1,000. You can go back to the bench and do what's called a turnover order and request that the judgment debtor turn over the $1,000 to help satisfy the judgment.

Podcast Guest and Homeowner, Jenny Carlson

Or their watch or something else.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, if they're wearing a Rolex, if they're that insane.

Producer and Homeowner, Marty Vasquez

The keys say BMW on it. No, you can't. Hand it over.

Podcast Guest and Homeowner, Jenny Carlson

Yeah.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

There are certain limitations and protections built-in, but we're not a collection firm. But we've been in situations where we've advocated in this sense. We've had people turn over cars before. We had one situation where we had a turnover order, where we secured two cars and we said, "Please deliver them to our office," and we turned them over to our client. The judgment debtor, though, turned over the cars but siphoned out the gas. I didn't see that coming.

Podcast Guest and Homeowner, Jenny Carlson

Oh, that's hilarious.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

They actually pulled it out.

Podcast Guest and Homeowner, Jenny Carlson

I thought for sure you were going to say the radio was gone.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

No, because that would, you know, I think gas, it's kind of, he sort of got away with that. But yeah, no, you see crazy things. Jewelry has been turned over. It's a very powerful tool.

Producer and Homeowner, Marty Vasquez

What would you recommend for this to be avoided in the first place? What would you recommend as an attorney? I guess this goes more maybe towards the other side. You represent homeowners, but maybe on the other side too, to try to keep this from happening in the first place.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

I don't know because you sometimes don't see people's fangs ever, right? You could think this person is wonderful and typically the self-dealers, the embezzlers, they're the nicest people on the planet. They're con men and women. They're really good at what they do. They have an avatar personality where you don't know who you're dealing with.

Podcast Guest and Homeowner, Jenny Carlson

So unless you're who the real Vinny or the real Billy...

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Billy, sorry. I think it just goes to the election process. Know who you're voting in. Try to do some research on them. But sometimes you'll never know. Sometimes it's impossible to say.

Producer and Homeowner, Marty Vasquez

Transparency is just key. In most aspects, if there's one thing we've learned in all of this, it's transparency.

Podcast Guest and Homeowner, Jenny Carlson

Maybe you need Colby assessments before you go on a board.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Colby's I don't think is going to teach you whether or not someone's going to steal money though.

Podcast Guest and Homeowner, Jenny Carlson

And it's voluntary.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

And you can't ask them. You can't say, "Hey, you're a great candidate, but are you going to take money from the community?"

Podcast Guest and Homeowner, Jenny Carlson

On a scale of one to 10, how likely are you?

Producer and Homeowner, Marty Vasquez

I'm very, very, I'm definitely a threat.

Podcast Guest and Homeowner, Jenny Carlson

Like when you go on a jury and they're like, "Do you know an attorney?"

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Right. So, I don't know if there's anything you can do other than know the candidates, know them as well as you can, and cross your fingers. It does come up. It's not a major thing that we see all the time. We see it. We absolutely see it over the last decade or so, but it's not so common where it's like negligence, failure to maintain, selective enforcement, harassment. Those are much more common themes. The self-dealing, the embezzlement, it comes up, but not with the frequency of the other causes of action.

Podcast Guest and Homeowner, Jenny Carlson

Okay.

Producer and Homeowner, Marty Vasquez

You ready for the Reddit?

Podcast Guest and Homeowner, Jenny Carlson

Am I reading this or are you, Marty?

Producer and Homeowner, Marty Vasquez

No. I'll stutter through that where it'll sound like a machine gun.

Podcast Guest and Homeowner, Jenny Carlson

This is where my pre-teacher knowledge comes in.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

These are always weird too, because I never know where they're coming from.

Producer and Homeowner, Marty Vasquez

Hey, we're just going to assume that they're in California. I'll assume California.

Podcast Guest and Homeowner, Jenny Carlson

Reddit has such fascinating people.

Producer and Homeowner, Marty Vasquez

They do.

Podcast Guest and Homeowner, Jenny Carlson

Alright, here we go. Hello, I'm turning to this platform for guidance because my neighbors and I are facing a significant issue. Five years ago, I moved into my Arizona community, and initially, our homeowners association was satisfactory. However, two years ago, the HOA board made a regrettable decision to switch management companies, leading to poor landscaping, water leaks, and a generally unkept community. In response, many of us began attending meetings and offering help. We discovered a conflict of interest. A board member, let's call her Lisa, is also an employee of the management company and consistently approves their expenses, despite needing a majority of three out of five votes. This arrangement seemed questionable, especially as our community's conditions deteriorated, looking neglected for over nine months while fees were still collected. Frustrated homeowners living in properties valued around $600,000 demanded change. Typically, our HOA votes by mail, but due to suspicions...

Podcast Guest and Homeowner, Jenny Carlson

...of fraud and to ensure transparency, it was recommended that voting occur in person. This led to the election of two new board members and the ousting of Lisa and another member. However, when the new board proposed changes, including switching management companies, the current management contested the election's legitimacy, claiming undue influence because of the in-person voting. They continued to operate with the previous board members, ignoring the new board's decisions. Legal intervention became necessary as the management company refused to relinquish control, leading to a deadlock where they continued collecting fees without acknowledging the new board's authority. Additionally, the management company increased their fee five-fold without raising our dues, essentially profiting exorbitantly. A petition for their removal is underway, though Lisa actively sabotages this effort by removing the petition from the communal area. The entanglement deepens as the old management holds on...

Podcast Guest and Homeowner, Jenny Carlson

...to the community's funds, preventing the new board from making any significant changes. Some homeowners, including myself, ceased fee payments, which led to threats of liens and additional charges. We've engaged a lawyer to navigate this complex situation, but I'm seeking advice and insights from anyone who might have experienced something similar. This ordeal has become incredibly stressful to the point where selling my home seems like the only escape. Thank you for reading through my predicament.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Oh my God, what a dumpster fire.

Producer and Homeowner, Marty Vasquez

Most of these on Reddit are dumpster fires.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah. So, I don't know the laws in Arizona, but let's frame it out in California. I think that will be helpful. Initially, what you're seeing is on the one hand, you're going to have breach of contract, breach of fiduciary for failure to maintain the common area. That's sort of your garden variety causes of action. Even though it's the hands of a management company, again, under agency theory, it imputes back to the association. So, let's start there. That's sort of the easy low-hanging fruit stuff. The self-dealing component is interesting in the sense that you have a board member who is driving, it sounds like, the relationship with a management company, a very bad management company because she's also employed there. So, I don't know if there's an actual economic benefit or if it's just like, "Hey, you're an awesome employee. Good job. Keep driving work to us."

Producer and Homeowner, Marty Vasquez

Unless she's getting a commission. Possibly. A rainmaker over there or something.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Possibly. So, there's an issue there. There's a conflict issue there. In terms of independent economic benefit, that's unclear. It could just be like, you get to keep your job because you landed this big client and we're raking them over the coals. We like that, we want to keep doing that. Where it gets very weird for me is the control that the management company has over the association. You have to remember, the management company is a vendor, that's all they are. It's a contractual relationship. How they have control over the governance of the community, I don't know how on earth they would have gotten that.

Producer and Homeowner, Marty Vasquez

It must be a corrupt board or the board's in cahoots.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

It sounds like something's way off in this fact pattern. If you're an association, you're a board, and the management company is like, "Well, we're not going to relinquish control. We're going to hold your bank accounts," just terminate, and then you go after them for a breach of contract. Say, "You're stealing money from the community. You're illegally withholding our bank accounts, which are our bank accounts. You can't do that." Even though we had maybe contractual provisions that allowed you access, we're terminating that access. The association has the power there. How this management company hijacked the association, I can only imagine that was done because there was some sort of internal permission of that.

Podcast Guest and Homeowner, Jenny Carlson

Interesting.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

In California, what an association would likely do there is file a lawsuit against the management company. There might have to be some sort of injunction or court intervention to untangle some of this, but you'd be looking there for a disgorgement. If the management company continues to profit off the community without authorization or permission, and it's just pocketing those fines, the association would be looking to disgorge that from them. You might even be in fraud land, misrepresentation.

Producer and Homeowner, Marty Vasquez

Fraud land.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

They should have an attorney as well, the HOA should have their own attorney.

Producer and Homeowner, Marty Vasquez

Typically, they do. Maybe, unless it's a very, very small community and it's just kind of internally a mess.

Podcast Guest and Homeowner, Jenny Carlson

Yeah, we're finding more.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

It might be one of those where it's just so loosey-goosey that a management company just came in and exerted control and is dominating the association. I think if you got the right attorney and legal team in there, they can untangle this pretty quickly. But that presupposes that the association or the board members actually want that to happen.

Producer and Homeowner, Marty Vasquez

We do know one board member for sure is in cahoots with...

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Correct. So, you almost have two things in this scenario. You have an association as an entity, and it's the entity which would likely have action or causes of action against the management company. But then the owners would likely be able to come in on different fronts as well. They would have individual standing given what is happening with the community. That's a great vampire though. There's more to that story. Massive. But that's interesting. It's unfortunate.

Producer and Homeowner, Marty Vasquez

That wraps the personalities. Are we done with personalities?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

We are done with personalities.

Producer and Homeowner, Marty Vasquez

Alright, let's see what...

HOA Attorney and Podcast Host, Luke Carlson, Esq.

We're starting a new series too.

Producer and Homeowner, Marty Vasquez

Yeah, a new series, the infractions or case types.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Now that we've gone over bad HOA board member personality types, what do we see? Now that you've identified the players, you have a better idea of why these things happen, some of the motivation, I think it's important to identify, from a legal perspective, how to articulate it in a cause of action perspective. Next series, we'll go over the different causes of action. Just to tease it, as you like to say, there you're looking at breach of fiduciary. What does that look like? What does that mean? Breach of contract, negligence, just common law negligence. What is the standard of care? How does it materialize? By knowing this, I think an owner is in a much better position to start labeling these things. We speak with a lot of owners and they have a lot of bad around them, right? It's like our common area is falling apart. The pool doesn't work. The roof is leaking. That's one way to describe it. That's a factual articulation of what is happening. But to elevate that vocabulary, yes, it's a leaking roof, but ultimately it's negligence or it's a breach of the CC&Rs because the association has an obligation to repair and maintain the common area elements. So really in the next series, it's stepping up the vocabulary of an owner who's been impacted by a bad HOA.

Producer and Homeowner, Marty Vasquez

Okay. Exciting.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

That'll be fun. So, hope you guys enjoyed the series and we look forward to seeing you next time.