Investor - Possible Fraud re: HOA

I live in a community of 8 condos. I bot the first unit from the investor in 10.2008. I was given CCR's for the complex from the investor and received them at closing. Since my purchase, I have had nothing but problems with the so-called investor and the HOA. For one - I found out that when I actually closed, the Arizona Corporation Commission had disolved the HOA and I was never informed. I found this out 6 months ago. I would not have purchased the condo had I known this. Does anyone know if I have any recourse against the original investor for fraud?

And, to make matters worse - he has deeded 3 of the properties to people with "funny financing" through himself (very little down, pay him what you want each month. And, appointed one of the 3 deded property owners as the HOA president. He is the board member. There was never any meeting held electing this individual as president. Then, all of the sudden I am receiving emails from this guy saying he is the president and I am to pay him my dues. No notice sent from the director/investor as to any changes.

There are numerous other problems such as my request to see a budget, income and expense records, ledgers for each owner, etc. These are well overdue the 10 day period for disclosure to me.

Can anyone help on how to handle some of these items?

This could be a real problem and then again maybe not.

Arizona will dissolve a corporation if annual reports are not filed for three consectutive years. Unlike some other states, once an Arizona corporation has been administratively dissolved there is no way to revive it.

The problem that I see is that the CC&R's say that there will be an association named the XYZ Homeowners Association. Then the association is dissolved. Now what happens? Someone can incorporate a new association using that same name, but technically it is not a continuation of the old corporation. Owners agreed to be members in the first XYZHOA and the board members failed to perform their duties resulting in its dissolution. I do not see how a member of the first XYZHOA can be compelled to be a member of the second XYZHOA.

On the other hand, by its very nature a condo needs some form of association so digging your heels in and refusing to take part is not the wisest course of action.

You may have a fair amount of leverage in this matter. The declarant and his cronies on the board may be civilly liable for damages due to their breach of duty. An attorney should be able to assist you in wresting control of the association away from the developer and put it in the hands of the owners or, if you prefer, rescinding the sales contract.

I am not aware of any Arizona statutes addressing what happens when an HOA is administratively dissolved and I have read no recent court cases dealing with the issue.

In Arizona, very few incorporated associations attach "Inc." to their names as the corporation commission recognizes the term "Association" as an alternative to "Incorporated."

But I see your point that there could be a distinction between the association and the corporation. But if the CC&R's say that there will be an association that will be a non-profit corporation, dissolution of the corporation is dissolution of the association; there is no distinction between the association and the non-profit corporation.

Marcia:

This has been a learning experience for me. Until today I was unaware that a dissolved Arizona corporation could be reinstated. It turns out that they have six years to be reinstated.

Your association was dissolved in 2008. It appears that it was a mistake. The articles of incorporation were filed in April, 2007. The first annual report would have been due in April 2008. The report was not filed until August, 2008. The corporation commission dissolved the corporation on September 7, 2008, citing failure to file the annual reports.

It should be noted that the Arizona Corporation Commission is always months and months behind in processing its paperwork and it comes as no surprise that it overlooked the report that was sitting in the “in basket.” Of all government agencies I have ever dealt with, the ACC is my least favorite of all.

Normally, dissolution does not happen unless three years of reports are delinquent. Since the corporation was just over a year old, there was only one annual report that would have been due and it had, in fact, been filed. My conclusion is that the dissolution was done in error.

Bottom line is that your association is still a valid corporation and has not been dissolved. The latest annual report shows that the same person is both the only director and the only officer.

Marcia:

I think you missed the gist of my previous post. The corporation commission did dissolve your HOA but it appears to have been done in error. Your HOA has never been out of business.

Without seeing your CC&R's, its hard to say how the developer is keeping control of the HOA. Usually they give themselves something like 100 votes for each unit they still own while you have only one vote. This will ensure that they will control the association until they have sold all the units.

Even though the developer has superior voting power, the association is still required to have open board meetings, annual meetings, and elections. The books of the association must be open to all members. If they have not been complying with the law, you certainly have grounds for seeking an injunction.

Some of what they wrote to you in the meeting minutes is just plain crap. For exmple, here is what ARS 33-1258 has to say about the cost of copies of records:

"all financial and other records of the association shall be made reasonably available for examination by any member or any person designated by the member in writing as the member's representative. The association shall not charge a member or any person designated by the member in writing for making material available for review. The association shall have ten business days to fulfill a request for examination. On request for purchase of copies of records by any member or any person designated by the member in writing as the member's representative, the association shall have ten business days to provide copies of the requested records. An association may charge a fee for making copies of not more than fifteen cents per page."

The thing about the attorneys is likewise nonsense. You do not need the board's permission to have your attorney attend the meeting. ARS 33-1248 permits you to designate your representative:

"Notwithstanding any provision in the declaration, bylaws or other documents to the contrary, all meetings of the unit owners' association and the board of directors, and any regularly scheduled committee meetings, are open to all members of the association or any person designated by a member in writing as the member's representative and all members or designated representatives so desiring shall be permitted to attend and speak at an appropriate time during the deliberations and proceedings."

There is no legal basis for demanding that a member pay for the board's attorney if the member chooses to attend with his own attorney.

At this point I would strongly suggest that you consult with an attorney. My opinion is, based on what you wrote, that you have grounds for seeking an injunction against the association.

Here are a few emails I have received from the "self-appointed" HOA president. Any comments would be apprecieated as I feel we have a "rogue" self-appointed president and HOA board. The first email is from my husband to the self-appointed president and then, his lengthy and nasty response. This is only an example of the nastiness and harassment I feel we have been subject to. This email is our request for records of the HOA.

YYY,
>
> XXX, Marcia and I so greatly appreciate your participation in our newly formed Saguaro Suites HOA process. We feel we have given you an extremely clear defined agenda that will result in a sound HOA, one of total transparency. We do find it necessary for you to send any further emails , to our real estate attorney paid for by Marcia & I is simply here to insure full compliance with the State of Arizona to protect all our investments equally. Please forward the meeting date, time and location when you have it.
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> We thank you once again for your participation in Saguaro Suites HOA.
>
VVV<
>
> ---------------------------------------------
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> VVV,
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> Thank you for your message. I am very happy to read of your desire for transparency within the dealings of our HOA and our community. There have been several events or aspects of the inter relationships and miscommunications from you that well... simply put it has created a level of frustration by the HOA officers and management that should not exist with such a same group of home owners.
>
> The board of director's meeting agenda which you proposed as a member of the HOA is under review and will be discussed and approved in whole or part by the HOA Directors prior to the meeting. This is a bit unusual for a regular HOA meeting process since we find ourselves in uncharted waters here.
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> 1st... typically a member of an HOA does NOT request or submits an agenda for board meetings. However trying to be as open and flexible as I can, I looked at your agenda and found that many of the items were those already on our list for the next board meeting.
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> 2nd... it appears obvious that there is a concern by you, which you have yet to disclose, which has created your desire to have your legal counsel present during the upcoming HOA Board Meeting, as well as now a request to have your counsel copied on our communications.
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> Since this would raise concern with any and all of the owners of the units here at Saguaro Suites, I sat down with all of the owners, other than you and XXX, and held open and full discussions of the state of the HOA and the "known issues" you had talked about with me over the past several months. The result of those meetings directed the HOA to seek legal counsel and hold an executive session to deal with the added costs.
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> As you know, I attempted twice to establish a time with you prior to our pending HOA meeting to discuss the issues to ensure all are legally addressed, however you have elected NOT to meet with me or discuss anything until the meeting. By your communications, and by way of XXX's recent illness, it appears XXX has elected you his representative or spokesperson. I will confirm this with XXX tomorrow to be sure before we move forward with the HOA meeting notice.
>
> VVV, one of the areas of confusion is this. You asked me, requested that the HOA not bill you for your HOA dues each month since you felt it was a waste of time or resources since you were paying on the first of the month the current month's dues. While I appreciate the thought process of saving the HOA Management time in billing, I am concerned this will not properly protect the HOA and its members. I have spoken with the developer and it appears you are not current with your obligations with the HOA, so the billing will be updated tomorrow for you. (ADDED NOTE: WE ARE NOT DELINQUENT AND HAVE A DOCUMENT PROVING THIS.
>
> Another area is the "repairs on the property to stucco and concrete" which you informed me YOU and XXX were personally handling this directly with the community builder and developer. While I certainly appreciated your stated desire to help with that as well, I discovered that neither the builder or the developer have had any meetings with you, nor expressed any intentions to meet with you or any scheduled meetings in the future. Based upon our finding that nothing had been done as you indicated, the HOA has initiated its investigation into the stucco and concrete issues, including with meetings with the Town of Fountain HIlls, the contractors, the builder for Saguaro Suites and its developer. I should have a complete report available to all members at the meeting on the 26th, including the recommendations on how we close this issue out once and for all..
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> Finally... the issue with legal counsel. I have affirmed with a majority of owners here at Saguaro Suites that the HOA should in fact protect its member interests by retaining its own counsel. We estimate the cost around $350.00 per hour with a base of 10 hours needed to bring the attorney up to speed on the HOA documents, organization and to attend the upcoming meeting. In accordance with the by-laws this expense may to be covered by any unit owners that are creating a need for counsel to be present at the meeting. At this point it is NOT clear by your communications whether the need for counsel is by you and Marcia or, you, Marcia and . If XXX has need to be represented by the counsel you are asking to attend, then HOA's legal expense can be assessed to both you and XXX. However, I am not incline to assume XXX is asking to be represented by legal counsel at the upcoming meeting. I will confirm that with XXX tomorrow.
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> It certainly would NOT be fair to assess any of the owners that are attending in good faith with a legal bill for an individual unit owner that has elected to take a position of needing counsel. If the board deems there was just cause for your counsel to be present, then the legal expense may be assessed against all units. However, it is the HOA's position that counsel is needed based upon your request for your attorney to attend and be involved in all communications at this point.
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> The Board of Directors will be meeting in Executive Session "in furtherance of the intent of the HOA By-Laws" this Thursday to vote upon the issue of past due HOA dues, fees and legal costs associated with the requests you have made to the HOA, and various other house keeping matters. This is NOT a general or regular meeting such as the one scheduled for May 26th.
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> VVV, with all due respect and with consideration of the flexibility the HOA has extended to you as one of the owner/members here at Saguaro Suites, I wish to politely remind you of the following.
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> - You and XXX are NOT the only real owners here as you suggested to me during our in person conversation last month. Every unit that is sold and conveyed by Deed has its own owner. Each of which has an equal vote with the HOA as MEMBERS, per unit owned. I have seen nothing but respect from XXX as a fellow resident and owner here by XXX. Your communications unfortunately , not only to myself but others, has left the opposite impression with them.
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> - You are not current with your HOA dues and fees, including this month which you informed me you are withholding until the HOA meeting on the 26th which is in violation of the HOA rules and by-laws. Your withholding of your HOA dues payment yet again created a situation where the HOA had to borrow from my company to cover expenses this month. Even through the by-laws allow the HOA to borrow money, which it has done from both QQQ's company and my company this past year, do you think that is fair? (Note added: We ARE CURRENT WITH DUES.)
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> - Your investment at Saguaro Suites as an owner, while IMPORTANT, is only a fraction of the interests held by others.
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> - You are a MEMBER of the HOA, not a board member or officer of the HOA, and therefore while your presence at a regular HOA meeting is welcome, it does not and will not allow you or offer you time to waste with old business, or suggestions that this HOA waste its time pursuing claims that do not exist against contractors. If a board member is interested in opening discussion of an item to the HOA members, he/she will do so and that will give you an opportunity to provide your input. At the same time, the HOA President is the one that decides how much time will be allowed for each member to speak. Note addedc: He is the self-appointed President).
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> I hope you are seeing my point here. I have offered you twice to meet and discuss in full the issues you have, thus making the upcoming meeting positive and productive. You have declined! Plus you have decided to invite, without invitation by the HOA, your attorney to attend the meeting. This can clearly be taken as your attempt to disrupt the productive and professional process of this HOA. So in furtherance of section 5.9 (b) of our HOA by-laws, I have been advised to follow our rules to the letter if needed if this meeting is disrupted.
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> VVV, the HOA for Saguaro Suites plays a mission critical part of our future here. As you have informed me virtually everytime we stop and talk outside, you and Marcia are on your way out and you want to move as soon as possible. I appreciate position to the degree you, as did millions of people, lost money on the down turn of the real estate market. That is history.... let's start working toward the future.
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> NOTE: After the HOA board meets this Thursday in Executive Session, we will delivery the approved agenda along with the updated HOA rules covering expenses, fees, assessments, etc.
>

Next email after the one above and AFTER the Executive Session which elected the following.

To: All Directors and Members of the Saguaro Suites HOA
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> MEETING NOTICE IS HEREBY GIVEN and DETAILS PROVDED through the attached document.
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> Additionally, notice of changes to the HOA rules, as adopted by the board of directors, is hereby provided to all members through the attached.
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> Dear Members,
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> We are pleased to provide notice of the upcoming regular meeting of the Saguaro Suites HOA to be held on May 26th at 11AM at the Holiday Inn in Fountain Hills. Please check in with the hotel front desk for the meeting location, or call Wayne at 602-690-6200 on the morning of the 26th.
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> Please note, this meeting is open to all HOA directors and HOA members and their spouses. No other attendees shall be permitted without the Board's written approval in advance of the meeting. If a member wishes to have legal counsel represent them at an HOA meeting, they may do so with proper advance notice to the Board allowing the board sufficient time to secure legal counsel for the HOA. Such cost of the HOA's legal counsel shall be assessed to the individual member as a special assessment of costs. Such assessment being due and payable on the day of the meeting.
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> All HOA meetings moving forward shall be recorded electronically and such recording will be made available to any member by written request and with a fee covering the cost of management's time in the production of such copy.
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> We look forward to a very productive meeting.

Once again, thank you, Larry. I had an attorney look at documents and draft an email when the self-appointed president came out of the woodwork in Oct. 2011. As you know it is expensive and my resources are limited so I am trying to learn as much as I can before the meeting this Saturday. The original letter from an attorney sparked vicious emails, outrage and threats. It was unreal. I actually do not feel safe where I live because of his maliciousness. I have waited for 8 months to see what was being done with the monies and property. I finally asked to see documents and this has set off a hail storm with this guy, the developer and now a new board member. They are making rules they shouldn't all the while claiming we owe back dues - we do not.

There was never any correspondence from the developer that this guy was the president. The only correspondence was from this so-called president on self-made letterhead and informing us that he was now president and that his sidekick was now a property manager that was being paid $375/month! No vote, no notice on either of these issues. We have 8 units. There are no amenities. No pool, no real common areas. There is very little that has to be done with our community.

Here is the breakdown on ownership:
Unit 1 - just sold (in escrow) - the developer is carrying the note
Unit 2 - rental - the developer owns this unit
Unit 3 - sold. The developer is carrying the note (this guy is supposedly now a board member)
Unit 4 - rental - the developer owns this unit
Unit 5 - rental - the developer owns this unit
Unit 6 - sold. The developer is carrying the note (he is the self-appointed president)
Unit 7 - sold. Paid cash.
Unit 8 - sold. Paid cash. (This is our unit)

So - the developer realistically controls 6 units. The ones he carries the notes on always do what he wants. To make matters less favorable to us, we have been trying to sell our unit for 2 years. The self-appointed president has altered the outside of his unit by sanding down his wooden garage door (left that way for over a year) and taken a railing off of his back balcony (over 2 years) which has made the property not uniformed. We have had potential buyers have ask about the alterations. No fines or assessments have been made to him because the developer holds his mortgage! I have asked for 2 years for these items to be remedied with no correspondence or acknowledgement of my requests.

I am thinking that I could sue the developer for the cost of my unit due to the hardship I feel he's placed on me with all that has gone on and has hampered my ability to sell.

I am truly trying to sell my property and move, but there clearly is negligence from the developer and the self-appointed president.

Marcia,

You do have a remedy that does not seem to have been addressed here. Contact the Arizona Attorney General's Office of Consumer Complaints: http://www.azag.gov/consumer/complaintformintro.html
They will investigate, but be advised that an AG's office seeks to uncover fraudulent practices for enforcement of criminal statutes, not for recovery of civil damages. In other words, despite potential criminal penalties, they won't try to get YOUR money back for you.

Another practical suggestion: search all relevant public records for information concerning the real estate where your condo is located, going back at least 10 years before your date of purchase. You can do this on your own, if you have a clear idea of what you're looking for. Most important would be documents showing liens (e.g., materialmen's liens, construction loans, mortgages) existing before/on your date of purchase, as well as any liens against the property after you purchased your condo. Your attorney could do this for you, but it would doubtless be less expensive to hire a professional title researcher, perhaps on a pre-set fee basis.

I sense a very serious lack of communication between you and the developer. I know it's a stretch, but perhaps he means well and is trying to do the best he can to maintain the property. According to the information you have presented here, he has attempted to meet with you individually, and you (according to him) have not been willing to do so.

My husband and myself have been in contact with the developer and the person he appointed as president of the HOA. What transpires is that neither one can recall a conversation correctly unless it benefits them. The emails are vicious and we simply quit responding to them.

We had an HOA meeting this past weekend. I had asked to see copies of the books - income and expenses, and after review of the documents AFTER the meeting, I noticed that the president has done the following. (I have not sent a request yet to him for clarification of these items) - however, he is commingling monies and paying for items such as a gym membership out of the HOA dues, then adding it to his ledger as an expenses. He also shows monies being deposited as an "advance" from himself to the HOA. He has not told the rest of the HOA members (6 owners total - only 8 units) of this and now shows that the HOA OWES HIM MONEY!!!!!!!!!!! All units are to replace their garage doors by July and the ledger shows monies being paid out for 2 garage doors from the HOA funds. This man is in it for him and I intend to call a meeting to discuss the books once I have digested everything.

Any comments on the use of funds here? Thanks.

Marcia,

More info is needed. What were the funds used for?

The Gym membership certainly shouldn't be allowed.
Garage doors - being a condominium, you would need to check your documents to see who had responsibility
Property Manager - typically contracts are a decision of the Board not the membership
Repairs - depends on what they were.

What are your options?

Recall the board - since the builder still controls the votes this likely won't happen
Contact the AG about misuse of funds - you will need proof, say a copy of the check or minutes saying the gym membership was paid for with HOA funds.
Contact the IRS to look at this individuals return - of course they will also look at the Associations return
Volunteer to serve on the board - at least this way you can see what is happening.

Marcia, you are in a very tough situation. The Association is too small for you to get a lot of support. Any complaints will likely have unintended consequences you will have to deal with. To be honest, I don't know what I would do in your situation. Perhaps just cut your losses and sell. As I said, it's a tough situation. Wish I could be of more assistance.

Tim

Marcia,

As I said there are always intended and unintended consequences with each decision. Some of the unintended consequences may be:

a) Hassling you for every violation of the covenants, no matter how small (I suspect an increase in what you have already been receiving).
b) The need to raise assessments or impose a special assessment to cover legal bills.
c) Being shunned by the neighbors for causing their assessments to increase (irregardless that you would be fighting the battle for them as well).
d) Worst case - Receivership which would drastically increase assessments to pay for the court appointed receiver.
e) Stress - which can affect your health.
f) Impact on family members

We can't fight the fight for you. We will not have to live with the intended or unintended consequences. We can only try to point out the possible unintended consequences so you can make an informed decision. Some fights are worth the fight on principal alone. Others are not. Your the one who has to make that decision.

Tim and Jane ~ All good advice and insights for me. I am looking into some options and will hopefully have some good posts to help others who may be driving on the same road.

Larry. I just came across this blog thread dealing with Saguaro Suites. I am replying to your comment since it appears you actually took time to review the legal status of the HOA. It was in fact a simple error and only took a few weeks for the records to be corrected. However the buyer/HO tried to use the temporary "admin. dissolution" as an arguement to force the developer to REPURCHASE their unit when the real estate market took a dive. Basically the HO posting here was not happy that they purchased their condo at the market HIGH and as the market fell, they wanted a way out.

I serve as the President of the HOA and there are several board members. The HOA was under the control of the developer as normally the case during the sale of units here. Unfortunately this one owner continued to voice concerns over the operation of the HOA pre and post turn over by the developer. The board did everything it could to answer concerns by the owner, however when you receive daily complaint emails from just one owner that is voicing concern over items that were NOT real or non-issues, and then find the owner had failed to pay HOA dues for over a year, well... patience runs thin and the HOA had to take lien action etc to correct and recover the money due to it.

The purpose of my posting here today is simply this. A cautionary suggestion to those that participate in these discussions. There are two sides to every story and as I read through most of the posts, I too would make certain negative assumptions based upon those posts. The problem is the assumptions are based upon only one side of the story and that one side was grossly stated in error. Unfortunately, following the all the comments here, the owner filed a frivolous law suit and the HOA had to protect its rights via HOA liens enforced against the HO. The suit was dismissed and HO sold their property and moved on. All the remaining owners here are extremely happy with the change of owners and the progress the HOA has made.

No HOA operates perfectly. The key is to keep open and POSITIVE communications with the HOA members and its board. The KEY as an owner is NOT to withhold HOA payments when you do not like the market value changes on your home. We learned a valuble lesson with our HO that had so many "expressed" issues here. We are modifying our HOA rules to protect all owners from ever having problems like these again. We wish the former HO well and hope she has found the perfect living environment for she and her husband.

My post here is also ment to clarify the outcome of the issues for Saguaro Suites since a future buyer/owner may stubble across this HOA thread and just as may readers here may have done... made the wrong assumptions over our beautiful small community. Wishing all a great balance of 2013.

Depending on your browser, there is a limited spell checker. I use Firefox and any word that Firefox thinks is misspelled is underlined in a red line during the drafting phase (prior to clicking on the submit button).

If you place your mouse pointer/curser over the underlined word and right click on it, you will be given options of the correct spelling to chose from.

I do not know if these feature is available using other browsers.