Board Candidate Campaigning on Waiving All Dues of Delinquent Owners!!!

This one takes the cake. Title says it all. We have a homeowner campaigning on the promise to waive ALL delinquent dues if he is elected.

I don't think he has a snowball's chance in hell of getting elected on that platform considering that only paying members get a vote. So I am not too terribly worried about it. However he is stirring up accusations that due to past accounting errors from an old book-keeper on many people's accounts, that should somehow justify completely waiving ALL dues of ALL delinquent owners.

In the off chance he does get elected, and tries seriously tries this, wouldn't it open up the association to a lawsuit?

I would think if he waived all delinquent dues for all he could risk action from those who did pay who feel there had been an inequitable share of maintenance. Do Washington laws mention anything about equal payments or violation of ones fiduciary duty to the membership?

Also, do laws up there allow restriction of voting interests?

Now I am curious- what mistakes did the bookkeeper make? Was this a professional (certified) or a volunteer?

It was a paid book-keeper but had no professional experience. She was just a local business owner that also worked part time in the HOA office. She was eventually terminated for refusing to follow directions from the new Board of Directors 3 years ago.

The account errors were mostly just simple math errors, a few double charges, things like. Accounts were handled on handwritten account cards and the mistakes were in the running balance totals for the math errors.

However we went over all those account cards correcting the math errors and other errors, then we put everything in Quickbooks so we do not even use the account cards now. So now this guy is stirring the pot trying to rile everyone up and going on a crusade that ALL accounts should be wiped.

Yes the CCRs state the dues must be paid.

Per our CCRS, "On January 1st of each year, the assessment as voted by the Board of Directors for that year will constitute a lien until paid in full... In the event such assessment is not paid in full said lien may be foreclosed in the manner of a mortgage on real property."

So it seems to me he IS campaigning against our covenants.

Also Bylaws state a member only gets a vote if they are current on their annual dues. So delinquent owners do not get a vote. Also to be eligible to serve on the Board must be in good standing (IE dues paid, etc.)

If this guy wanted to try and fight the covenants, he could claim that the assessment is a negative value that just happens to be in the amount of the money due. Not sure this would hold up in court but it would be interesting to see argued.

If this guy wanted to play games, since the covenants require assessments to be voted on and this guy wants to forgive delinquent accounts, he could assess a negative amount to each account.

For instance, if a homeowner was delinquent $500, their assessment would be -$500.

Of course since the covenants are specific, instead of forgiveness the board could just vote on $0 assessments and just take their sweet time collecting.

Not saying this is legal. Just looking at possible arguments.

You're certain is not proposing to waive late fees and fines as opposed to dues? That would make more sense.

He might not get elected, but may raise enough stink that the accounting errors would have to be addressed anyway. It may be helpful to get in front of this and tell the homeowners what happened, separating fact from fiction. You should also report the number of homeowners who are delinquent, how many days delinquent (e.g. X number are delinquent 121+ days) and how much money is involved.

The homeowners need to see what will happen if the Association waives the delinquent fees - not only will your association be in more financial trouble (as you've noted in a previous thread), I don't think the paying owners will take too kindly to letting those folks off the hook, saying something like "if Mrs. P. hasn't paid for the last 4 years and I have, then I should be able to get a break from paying ANYTHING for the next four!

Then ask this moron how HE'd deal with the ensuing fallout - that should keep him quiet (or he'll get shouted down by the paying homeowners).

And yes, I think this would open the association up to a lawsuit - by the folks who have paid. then there would be more money out the gate to pay for the legal fees!

We already have informed the members. We sent out this info in a newsletter and also at last year's annual meeting.

How much money is involved? A LOT! We are talking over $105,000 in outstanding debt owed to the HOA.



It is definitely not an equitable plan. Paying members are already paying more to cover the revenue shortfall and our reserves are already way under funded year over year.

I honestly do not know what the hell this guy's objectives are unless he is in cahoots with the group of people wanting to disband the HOA. His plan will cause SEVERE financial harm to the association.


From my understanding of our D&O insurance coverage, it does not cover illegal acts of the Board. I am wondering if he does get on and does get a Board that goes along with it, if we can prove his acts are illegal can we possibly pursue litigation against him personally?

If it actually happened, don't forget that a forgiven debt is treated as income on your taxes and the Association will be required to file the necessary paperwork with the IRS.

However, as Gnome said, it's highly doubtful that this person will be elected as those who are delinquent in payments can't vote.

Gnome also said that the errors this person is talking about have been corrected. However, based on the fact that this individual is getting some to listen to him, there appears to still be some sort of perception that the errors still exist. I would suggest a campaign to minimize this perception. Perhaps an article telling what was found, how it was corrected and an invitation for anyone who desires, to review their personal account.

Tim

And get this.

He is also a water commissioner for our local Water and Sewer Utility District.

I am now getting inside info that he and other commissioners on the district have waived the charges of some delinquent accounts and I am also being told this is illegal as it is a PUBLIC UTILITY governed by state & county laws for a utility district. I need to confirm this as it is just hearsay at this point, but it is inline with his crusade to waive HOA dues so I would not be surprised if this is true as well.

No, you misunderstood what Tim said.

A forgiven debt is considered as income for the individual whose debt is forgiven. The association would be required to issue a 1099-C, "Cancellation of Debt," to each person whose debt was forgiven. The IRS gets a copy of the 1099-C so the income has to be reported on the individual's tax return or else the individual will get a bill from the IRS for the amount of taxes due on that income plus penalties and interest.

Gnome,

I had hoped that you would have focused in on my other point rather than the point of a forgiven debt.

That point was:

Based on the fact that this individual is getting some to listen to him, there appears to still be some sort of perception that the errors still exist. I would suggest a campaign to minimize this perception. Perhaps an article telling what was found, how it was corrected and an invitation for anyone who desires, to review their personal account.

Tim we did this last year when we sent out corrected statements. We sent out a newsletter explaining the types of errors we found. We also had a presentation on this matter at last year's annual meeting. We also did invite people to come in if they felt there were still errors on their account. However very few people did as MOST of the corrections resulted in a credit on their account. Most of the accounting errors we found resulted in overcharges and thus most people with a correction got a credit and were happy. BTW I always thought it was suspicious about the arithmetic errors which almost always resulted in an overcharge. But there were other types of overcharges too.

The accounts were handled on handwritten account cards. One card per property owner with a charge column, payment/credit column, and a running balance column.

The types of errors found and explained to the community were:
1. Math errors in the running balance (As mentioned most resulted in overcharges. The worst single example was a $10 late fee resulting in a $1000 increase in the running balance. Roughly 15% of the community had running balance math errors. Most were not as bad a the $1,000 case. Generally like $5ish to $200ish.)
2. Combined lots overcharged for a 3 year period (Combined lot rate is supposed to be 125% of the single lot rate but was calculated at 125.73%)
3. Eligible "Early Pay Discounts" not applied to all owners equally.
4. A few people made payments that were never credited to their account.3

For #3 just some background. Dues are billed bi-annually (1st half due Jan, 2nd half due July). For around 10 years, all prior Boards had a policy that if an owner paid the entire balance early at the beginning of the year, they were given a $10 discount off their annual dues. However year over year, this was not applied to every single owner that paid early. Some got it, others didn't. So any owner we found that should have gotten an early pay discount from prior years, they were given those credits last year.

For #4, this is what initially led my wife and I wanting to go over every single account and discovering #1-#3 on so many accounts. When my wife was appointed, one couple continuously complained that they made payments that were cashed by our association but NEVER credited to their account. So she told them bring their bank statements as proof. Sure enough they were telling the truth. So looking at one account, next you look at another and notice other discrepancies. On just a small sample, we noticed problems. So this was enough to get us rolling. So we decided to look at ALL accounts resulting in discovering everything mentioned in #1-#3. Also for #4 we knew there were likely more of these and in the newsletter we sent out, we asked people if they felt this happened to them then come in with their bank statements so we could verify and make a correction if needed.

When we started going over all accounts, we got A LOT of push-back on trying to do this. From the bookkeeper herself and prior Board members making a stink at Board meetings. Also the guy that is the subject of this thread was on the Board at the time and also tried to stop us from looking but he was out voted. As I mentioned earlier, he resigned in 2011. We were accused of going on a witch-hunt. We were accused of slandering the book-keeper. On and on. We kept it as professional as possible and just stuck to the facts.

But you are right. Since this was all explained last year, and this guy is making a stink, we may need another newsletter reminder.

I'm glad to hear that. Based on the campaigning you describe this individual taking, it sounds like there may still be some perception issues but you did what could be done to minimize those issues.


We use paper ledgers as well. Our previous audit discovered the same issues, posting errors and mathematical errors. People are human and it happens. The key is to catch them early. Heck, even using software you can have posting errors.


Unfortunately, some people never get out of the defensive mode. Everyone makes mistakes and some simply refuse to admit that they make them. It's a shame when that happens. I'm glad that you were able to do the right thing for your community.


It can't hurt. Perhaps simply reminding everyone of the initial disclosure and that anyone may go over their accounts at anytime.