Misappropriation of Funds?

if an HOA Board imposes fines on a homeowner WITHOUT an established fine structure in place, and then the property manager company diverts the homeowners monthly assessment (dues) money that was sent in on time to pay towards the 'fines' and then places the homeowner's account in a delinquency state for unpaid assessments, is this legal? If not, does anyone know of any federal agency that would investigate this?

Our HOA applies payments first to any amounts in arrears. This could be unpaid prior month dues, late fees or fines assessed for violations. Any remaining amount is then credited to the current month's dues.

I believe this is a common practice.

Pat,

Steve gave you good information. I would like to expand on his one answer to your question "does anyone know of any federal agency that would investigate this?"

Typically, there is no State or Federal government agency that can be contacted to gain assistance. Therefore, it's up to the membership to take care of the issues themselves.

In general, the CC&Rs (deed restrictions) are considered a civil contract between all owners of the properties that have the same deed restrictions attached. Associations are formed to maintain and/or operate the common area and fulfill any services (trash/recycling, snow removal, street lighting, etc.) required by the CC&Rs. Per the CC&Rs, the Association is also given the authority (in addition to the owners) to enforce the covenants, restrictions and conditions of the deed restrictions (contract). Typically, Associations are incorporated (usually as a nonprofit) as this provides them certain advantages. As a corporation they must comply with corporate laws in addition to any HOA/COA laws.

As you know there are civil laws and criminal laws. Criminal laws are enforced by the State. Civil laws are usually enforced by the individuals involved and they do this through the court system. Since contracts, hoa/coa laws and corporate laws are considered civil laws, there is typically limited governmental authorities to "oversee" or enforce those laws.

Sure the State corporation commission may fine for not filing the annual report on time. The IRS will certainly go after the Association for failing to file taxes. The District Attorney will prosecute if criminal laws are broken (example embezzlement). However if the Association doesn't comply with the Bylaws or a civil law, it's up to the membership to hold the Board accountable. The easiest way would be to recall the board or not reelect them to the Board. The more expensive option is to go through the court system.

This is why it's imperative that the members remain active in the development and actually take an interest in how the Association is governed. If apathy sets in (and, unfortunately it does), it becomes that much more difficult to change things when issues are discovered.

This is also why Steve said you need to see what your governing documents (which includes any resolutions) specify on how payments will be applied to determine if the Board (or the MC) is complying with your documents.

I will add that most Associations have language that specifies any fines will be considered an assessment against the lot.

Hope this helps,

Tim

This policy would be very wrong under current Arizona law. Maybe some other states, as well.

In AZ, if an HOA levies a fine and the owner refuses to pay the HOA is then required to either sue for a judgment in court or forget about it. If the HOA gets a judgment and the owner still refuses to pay, the HOA can record a lien on the property but cannot foreclose over unpaid fines.

If a homeowner pays his assessment and the HOA diverts that payment toward the fine, the HOA can then use this a a pretext to foreclose for nonpayment of the assessment. This would not hold up in a foreclosure proceeding.

This is legal in Ohio but don't know about anywhere else.

can't impose the fine without an established fine structure

With all due respect, our HOA is self-run and while we do impose fines, it is not to benefit anyone but our fellow homeowners. Nobody lines their own pockets with any fines collected (at least not legally), they go to benefit the entire community. In fact, having the fine structure in place gives us a means to correct the issues that are having a negative impact on on our fellow homeowners too. If talking to them was all it took we'd never have a problem. Some people only respond when it starts to hurt their pocketbook, they aren't interested when it's only hurting others.

Yes there are sadly a lot of associations that abuse their position and cause unfair stress to their owners, but that shouldn't mean that the ones that do it by the book should be left with no way to take action against people who apparently can't live among others in a civil way without having to be policed.

There should be a proper procedure in place for fines clearly spelled out and evenly and fairly applied. Without that boards can abuse their powers and some do. A management company has no right to fine anyone without board approval.

Whether Boards can fine without a proper fining procedure in place is an interesting question. Some owners simply refuse to follow even the most common sense rules. Unfortunately, fining seems to be the only way to get their attention. There is no point in having fines if they aren't enforceable.

Boards do have a legal obligation to enforce the rules and regulations and unless a court determined that the rules were unevenly applied or prejudiced against some one etc. my guess is that they would side with the Association.

There is no point in having rules if you don't enforce them. Just let everyone do whatever they want and watch your property values drop.

I am curious to know what rule you didn't follow to get a fine that you are so adament about.

Pat ... it sounds like the homeowners need to get together and come up with a procedure for enforcing your governing documents. Rules are for the board as well ... so maybe a new board is needed as well.