bartering

Started by BeckyV • 23 replies • 2808 views

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BeckyV (Michigan)
Posts: 43

Posted:

On top of all the other problems we have our developer, who is now president of our first coowner board, has convinced the board to let him provide snowplowing and lawn care services in lieu of paying his monthly association fees. He owns six of 28 units. Any comments or suggestion as to how I can put a stop to this. I thought the fact that statutes require the developer to pay montly assessment would preclude this kind of barter situation.

RogerB (Colorado)
Posts: 5,067

Posted:

BeckyV, this is a no no. Everyone should pay their assessment. It is okay to hire anyone to do work for the association and get paid for their services. Proper procedures require the two to be kept separate.

Roger

BeckyV (Michigan)
Posts: 43

Posted:

Thanks Roger. The other members of the board are afraid of the developer. He has controoled with an iron fist until transition four months ago and never paid assessments during the prior 10 years of condo existence. I have tried to get the board to reconsider but found out they have already done this to the tune of $7200. I have been advised by a association manager in another city to consider bringing the developer"s and the board"s many shady practices (this is only one of many) to the attention of the insurance agent who provides the board's D&O coverage. The expected outcome is that this person might assist in my attempt to educate the board about their risky behaviors. What do yu think about this?

SamuelB (North Carolina)
Posts: 83

Posted:

Becky, the advice you received is excellent. Most Declarations stipulate that no board member is to be paid. Bartering is a form of payment and is a "no-no" as indicated above. If your development just now transitioned power to the homeowners, 10 years is a long time, which indicates to me that your development may be quite large. I would be looking very deeply at your Reserves to make sure they are adequately funded, as directed by your CC&R's. If not, you may want to consider suing the builder; I hate to say this, because suing should be a last resort but Reserves constitute a considerable portion of the value of your homes.

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry

BeckyV (Michigan)
Posts: 43

Posted:

Thanks. We actualy ony have 31 units after 10 years - I just purchased one for my father. As I indicated in a posting under another topic, our developer has been guilty of a lot of No-no"s. Co-mingling funds, no association records, using commmon element property(a builidng)as his own, not turning over a reserve fund,not paying associaion fees for 10 years, calling an illegagl election, voting when he was not eligeble and forcing the election of offecers by the membership - the list goes on and on. The board has been duplicite in these actions because they have not done anything to remedy the situation. I have called for them to remove the developer from the board as he was not an eligible voter by virtue of nonpayment of fees and remains so to this day.
I have treatened legal action but have not done so - yet. I think I will talk with the insurance agent. Any other suggestions? I think this board would serve the association well is we can just get the developer off the board.

SamuelB (North Carolina)
Posts: 83

Posted:

This is a tough one Becky. Your Board President owns 6 of the 28 units there so holds a very powerful voting right in the Association. It will be difficult to get him off the Board, but all the things you mention he has done, I do not consider unusual (and that's a shame in itself). I think it's pretty typical, but illegal as it gets. The problem is, it will undoubtedly take legal action to get any resolution. You, personally, may not be able to afford that as the cost of litigation can easily go into the tens of thousands of dollars. If you lose, the expense is yours. If you win, you may be able to get the Association to pay for the litigation, but you'll probably have to vote the President out of office.

How many other Board members are there on your Board? Does your Board elect the officers on the Board? If so, and the remaining board members are sympathetic to your concerns, go to them individually (or collectively) and ask them to remove the President from his office (they probably can not remove him from the board, but they should have the power to strip away the Presidency from him). Once that is done, you may be able to work with the Board to make the right decisions for your community.

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry

SamuelB (North Carolina)
Posts: 83

Posted:

BTW, just because the President has 6 units, s/he only has ONE vote on the Board to make board decisions.

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry

SamuelB (North Carolina)
Posts: 83

Posted:

Also, if the President wanted to do the snow blowing for $7200, and was paid by the Association to do that, and then s/he wrote a check to the Association for dues, that would probably be an acceptable practice.

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry

RogerB (Colorado)
Posts: 5,067

Posted:

BeckyV, you say "He has controled with an iron fist until transition four months ago and never paid assessments during the prior 10 years of condo existence." First how did the transition take place? Usually all of the developer board members would resign in writing and the HOA would elect new board members and they would officers. Did this take place? Did the members officially accept the transition? Was there a transition audit prior to take over?

I don't see how an insurance agent can help but it doesn't hurt to get opinions. I would first talk to the President or preferrably the board and request an audit. If they aren't interested use leverage. Tell them you plan to discuss this with the State Attorney General and THE IRS !!! There are state guidelines for non-profit corporations and IRS rules which must be complied with. From what you presented, I bet he has violated several.

If all else fails organize the homeowners and vote this person off the board. Get an experienced HOA attorney's opinion as deemed necessary.

Good luck,
Roger

BeckyV (Michigan)
Posts: 43

Posted:

You all have posed some interesting questions and concerns. My responses to you are going to be even more troubling. First of all the transition took place within a 10 day period after the develeoper called a meeting of the membership without notice by mail as required. I was not an owner at that time but attended the meeting with an owner. The developer lead the meeting and insisted
that his lawyer said the nominations had to be not only for board directors but also for specific board offices and that there were to be 5 directors. The bylaws call for 3 directors with officers to be elected at an organizational meeting of the board. The bylaws also state that any coowner in default of assesssment payments is not eligble to vote. The developer has never paid assessment fees (because he says he bartered with himself to not do so)but got elected Pres by virtue of his 6 votes during the election. My contention is that the board is not a valid board and, specifically the developer cannot be on the board because he was not an eligble voter. There has been no offical "turnover" as you describe Roger. There was no audit as there were no association books. The developer has run all association fees through his business accounts. He says he used the reserve funds (no record of same) for repairs to the water system but has no invoices to support this.
The board is ignorant of the Michigan Condo Act and our association bylaws and continue to let the develop(board Pres) act on bartering for fees and personal contracts. I have just reread what I wrote. I need a lawyer! Comments appreciated.

BeckyV (Michigan)
Posts: 43

Posted:

Samuel, I have done all the things you have suggested and am getting poor to no results. I have asked the board to get the president to resign and given them copies of area of Michigan Condo law and our own byaws that show why his election(and theirs) was illegal. Waiting for a response from them.

SamuelB (North Carolina)
Posts: 83

Posted:

Becky, I think my next move would be to have the tax preparer for your HOA send the President a 1099 for the past 3 years. This should be done before the end of January. If the IRS investigates him, and they find fraud, they can go back 7 years. Barter is income and is taxable. I'm trying to think of things that might make the President think that maybe it's no longer worth it.

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry

BeckyV (Michigan)
Posts: 43

Posted:

Tried to get our Treasurer, who preapres the tax form, to recognize this very point. He doesn't think he needs to send in a 1099 for either real or barter income becasue the co-owner board has only had control of the books for the last three months. Prior to that the developer and now President kept no "associaton" books. Everything was in the name of his company and deposited into his business account. The board really doesn't "get it" and can't understand that the developer was in violation of the Michigan Condo Act when he did this for the last 10 years I have contacted a lawyer and we will get this mess resolved. Thanks

SamuelB (North Carolina)
Posts: 83

Posted:

Good luck, Becky. Please keep us posted.

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry

AudreyB (Florida)
Posts: 104

Posted:

Hi Becky,

I am with Roger, this is a NO NO. Put that too in your certified letter. Your bylaws may say that everyone has to pay yearly/monthly dues, and he/she is no exception.

Just because he owns six units, he still has only one vote. NOT one vote per unit.

I have a great idea! Contact a real estate attorney who doesn't charge for asking such great questions.

Take care,
Audrey

AudreyB (Florida)
Posts: 104

Posted:

Becky,

Write certified letters to your State Attorney's office, Secretary of State, and the IRS, about what you everything you have written here on this forum.

I believe this person has committed fraud, and misuse of funds. He has not paid his assesments of $7,200 etc, etc.

Whatever fall out happens should fall right into his/her lap along with the Board of Director's who have supported him, and is not the responsibility not the homowners. Make sure the BOD's does not try to legally assest you for their mistakes.

I would try to make your Articles of Incorporation either be revolked or kept from futher use when you write your State Attorney's office. Especially, if you can back everything you say.

I'm glad you care to right the wrongs of your BOD's with the President who may own six units, but has to live in only one, and he can only have one vote. I think I'm right.

You go girl!

Audrey

BeckyV (Michigan)
Posts: 43

Posted:

Thank you all for your input.
Audrey, we find ourselves in this "Developer/Pres of the Board" situation because the developer owns 6 of 31 units (lives in none of them) and because at the first annual meeting (lead by him) he insisted that nominations for officers had to come from the floor and be included on the ballot. Even though several members had the bylaws in front of them stating that the elected board nominates and elects officers, the developer managed to get the members (mostly 75+ year old Sr citizens) to quake and relent when he shouted "This is how my lawyer told me to do it and this is how it will be done". Therefore his name not only went on the ballot for a board position but, if elected, as President. By virtue of his 6 unit votes he won the election and the Pres. position. I was not an owner at that time but was at the meeting. Nothing in our bylaws or State Stautes keep the devloper from sesrving as Pres. they do however state that anyone who is in default of assessments cannot vote and any meeting of the association. thus my poition that his election was illegal.
It is true that he now has only one vote as Pres of the board but he has 2 of the other board members in his pocket most of the time. I have been unable to get them to remove him as Pres.
I have tried to tell them that by virtue of his 6 illegal votes inthe election they too have been illegaly elected and that any decisions or actions taken by them can be considered invalid. I am getting nowhere. Ergo -Enter lawyer.
We only need a simple majority to recall a board member at a special meeting called by 1/3 of the membership. This may not be easy to do in the winter months, as our Michigan Snowbirds fly south leaving only about half of the membership in the area.
I'll keep you posted.

SamuelB (North Carolina)
Posts: 83

Posted:

Aha, but your Mich. Snowbirds can sign and forward their proxies to you and your supporters. True, you'll need to get their addresses, but that information may be found on-line on your counties website (at least they are available in NC). The county lists all owners addresses of record. Say, for instance, if most of your units are on "Wilson Street" in Waylon, Ga, then go to the county website for Waylon and find the owners for all homes on Wilson Street. It sounds tedious but really isn't a bad way of finding information, once you get started.

When you go to your Special Meeting, I would suggest taking your attorney with you to make sure Roberts Rules are adhered to and you get to make your statements at the appropriate place in the meeting.

Keep in mind, too, that a Special Meeting can be called for one and only one reason (normally - check your CC&R's for proper interpretation for your development). That being the case, removing the President from the Board may not be a good reason, but replacing the entire Board may be. The reason I say this is because usually in the interim, before the next Annual Meeting where elections take place, the board can usually fill the vacant seats on the board, and the Presidents sympathizers may very well re-appoint him back to the board. So, "replacement" of all the Board members would be the way to go (assuming your attorney agrees).

Hank in there Becky. The rewards at the back end of all of this will be very gratifying and your other homeowners will appreciate all you're doing.

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry

AudreyB (Florida)
Posts: 104

Posted:

Hi Becky,

I got your message and understand your position. Even so, the developer has to appoint a President, I believe he has a conflict of interest as President with six units that he owns.

Gather your homeowner's either at your house or someone else's do not call it a meeting. I believe, I'm not sure a petition of 1/3 of the majority could work.

BEFORE you do this though, find out if you can legally get him out of office this way from an attorney. Also, find out from the attorney how to place a lien on all of his propety, and because he has not paid his dues can he be impeached by petition? Those other Board members that are in his pocket need to go too.

I'm cheering you on.

Yes, please keep me posted.

Audrey

AudreyB (Florida)
Posts: 104

Posted:

Becky,

What state do you live in?

Audrey

BeckyV (Michigan)
Posts: 43

Posted:

Thanks Audrey. I live in Michigan

BeckyV (Michigan)
Posts: 43

Posted:

Just an update for all of you who were so supportive and helpful about a year ago when I first began posting on this site. I took your advice and got an attorney in an attempt to get the developer to do what the law required him to do. I brought a derivative action suit on behalf of the Association which could not aford to do so on its own. Yesterday we settled with the developer. A significant amout of cash will to go to the Association and I got some attorney fees. In addition the developer gives up his remaining development rights to the Association, gives up all his easement rights, brings some common elements into good repair and is responsible for Consolidateing the Master Deed and other legal documents. He also has to sell all remaining unsold units within two years or suffer penalties. In addition, he will suffer signigficant fees and fines if he is not in complete compliance with the agreement and pays all costs and attorney fees to make it happen. It was a long and hard battle but we came out OK. I guess it was a good settlement because neither side was completetly happy with it. Bottom line, we no longer have a bankrupt Association and the developer is GONE!

WilliamT (Arizona)
Posts: 489

Posted:

Congratulations Becky, your Association should be very proud of what you accomplished.

RogerB (Colorado)
Posts: 5,067

Posted:

Congratulations Becky! In the future I hope your HOA will chose to reimburse your out of pocket expenses when they have sufficient funds.

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