Neophyte HOA President

I am a new President for a 500 mixed-unit property, that recently underwent Developer to Onwer control of the HOA. While under the control of the Developer, I had numerous issues with obtaining copies of meeting minutes (they were to be displayed on the management company's website), copies of financial statements (our first annual audit was over seven months late, and the second audit is now four months late, Bylaws stipulated 120 from fiscal year end), and overall just getting minimal cooperation from the Developer and his hired Management Agent. Now wer find out that signature authority has been given to the MC, without notification to the incoming Board (not temporary, and not limited by a dollar amount). The new Owner Board has been asked to act and sign documents, which we have not been provided background information, nor have we been presented with valid and active Director, Officer Liability Insurance coverage. Recently we were told by MC that our warranties (those that the Developer has submitted) have either expired, or close to expiration. We have been told that the bond/escrow submitted by the Developer to the County, does not have, or allow any involvement from the HOA (which I have researched with the County, and spoken directly with the Department/Superviser, and was told that this was NOT true - unfortunately, the MC is insists that to be incorrect). Our two audits that were performed, were done by a company hired by the Developer, and has very close ties with the MC. Even after the seven month delay in finishing the first annual audit - the Developer and MC insisted on using the same company again for the second audit. On the second audit, the current Owner Board was asked to sign a letter asserting the veracity of the documents, and information provided to the auditors - and it was labeled for both years - when we had not participated in either audit or the compiling of records; further, we have not been even provided with the actual records supplied to the auditor, to which we are being asked to verify as accurate. In the absence of the DOL Insurance, and any proof of coverage, I have asked that no Owner Board member sign-off on any documents. Recently we have found that no board member has signature authority with the bank where Association funds are kept. We therefore, cannot ask for statements, or review copies of transactions, etc. when I inquired as to why this existed as such with a high ranking executive with the MC - I was labeled as "hostile" and asking too many questions (quoted). Further, whenever there is mentioned of a significant monetary "error" committed by the Developer and MC with the HOA funds - it required my asking questions in front of the Members, at an open meeting for them to acknowledge the mistake, but then they both stated that the funds would be re-imbursed in current month's report, and was not done for over two months. At present we have tried to engage the legal counsel, hired by the Developer and MC, to assure that we have screens in place between the two parties, to no avail. We have not been "allowed" to directly confer with the auditor or the legal counsel, unless "filtered" thru the MC. As such, even if we decided as a Board to seek outside counsel, we would still need to have the MC cut a check for us. We have been told that this is "standard" for the industry, and that if any Board member wanted signature authority, they would need to submit social security numbers, agree to background and credit checks, etc. We were elected by the membership, and NOT 'hired' by the MC - so this seems to be just a scare tactic.

Any advice is welcomed.... and I apologize if this question/concern has been posted previously.

Thanks again for any advice... !!!

Hello Jadedone:

From the sound of your posting, it appears that you have condominium units and/or townhome Lots in your HOA. If that is the case, you will also want to engage the services of a good engineering firm that specializes in construction defect inspection, to do an inspection of any such buildings, in case there are any construction defects. They may do an entire visual inspection, or a sampling inspection of certain buildings; also, they may do an intrusive inspection (where they take parts of the building apart to see what's underneath and if the construction was done correctly).

It seems as if your MC has the developer's interest at heart, rather than the HOA's. Roger's advice above is good and should be followed.

You can find good resources at www.caionline.org. Look up your local or state chapter and find vendors such as law firms, accountants, management companies, engineering firms. Also, there is a good book in their online bookstore on the process of transition from developer to owner-controlled board; check out http://www.caisecure.net/index.mv?p=5923

Best of luck with your new community!

J. Patrick Moore, CMCA

HOW do you suggest they take control when it appears they can't? Remember they are new at this, and they have asked for guidance. Whaat specific steps can they take TO take control? Remember, she said the MC controls the money.
J

All thanks for the replies. Yes, we fully intend to "take control of the HOA" however, as mentioned we do not have direct control over the funds. When I broached this subject with the ExecVeep of MC, the response was that I was just trying to find something wrong in everything that they do, and that I was "hostile" etc. I have had to circumvent them on just about every issue from bond release (that is now contigent upon the County notifying me and the HOA prior to inspection), to getting copies of the most elementary of documents from the MC and Developer. Example of the issues - we were elected 3/28, and Officers elected April 7th (the election of officers should have occured at the transition meeting, but the MC and the Developer wrestled that). We had an issue where a Board decision needed to be made on the 8th, and the MC ignored the issue until the deadline loomed, which is tomorrow. I had to contact the appropriate parties, introduce myself, and request an extension on behalf of the Board. When this was brought to the attention of the exec's of MC, they took "offense" to the implication that their staff was responsible for missing a deadline.

My course of action is to secure the signature authority of the HOA, with the following; as stipulated in MC contract they may sign checks which do NOT total more than $1500; if the need for additional funds is necessary, it will require the signatures of both the President and the Treasurer. In the absence of one, then the Vice President, and Secretary (in that order) sign. If both are not available, then the signatures of VP, Secretary, and ONE other Director are required. This is matrix, where it limits the potential of abuse - because you have checks and balances.

Next action is to hire an independent accountant (CPA, or forensic accountant) to review the full HOA books from beginning to last action taken by Developer BOD.

Followed by hiring, outside legal counsel to review the ArtOfInc, Bylaws, Declaration and other Official documents for any potential issues and/or changes.

Hello Harold:

I do not agree that firing the MC at turnover is absolutely necessary. There are many good MC's that are very ethical and work for the HOA through the whole of the development process and beyond. However, there can be a conflict of interest in some MC's, particularly when a developer is using them for multiple projects, and if the developer uses the MC exclusively. Oftentimes the MC has some knowledge and understanding of the community that can be valuable to the Board after turnover.

The best thing to do, would be to examine the MC's service relative to the contract (to see if they truly have the HOA's interest at heart and are fulfilling contract terms) and to then examine what the BOD is wanting in a MC; it may be an adjustment to the current contract, or they may want a different MC, particularly if the BOD is running into walls, strongly suspects that the MC has a conflict of interest, or if there seem to be some financial "irregularities."

In this case, it seems as if finding a new MC would be in order.

J. Patrick Moore, CMCA

Jadedone

I think it is clear as to what you must do, but how you go about it depends on what is written in your by-laws. Do they state that your resident Board has the authority to govern the association? If not how is it limited?

If you do have that authority I believe to need to start to exercise it independently of the MC. Call a special meeting of members to explain the situation and tell them what you as a Board are going to do about it. Start by hiring your own attorney. This is a reasonably logical thing to do after transition under almost any circumstances. Even if a developer attorney has provided good service there is an inherent potential for conflict of interest. It was the first thing we did after assuming control.

How do you pay the attorney if you can't write a check? There are many attorneys on this forum and they can tell you better than I how to do this, but I would be surprised if you could not find an attorney who would be willing to represent you until you were able to take control of the association funds. In fact I woulnd't consider hiring one who wouldn't do that.

DaveS