Who is Responsible to Pay Unauthorized Vendor Expense (done after elections)- Newly Elected HOA, or Former HOA President (as an Individual HO) - Pleas

Hello, I'm new here and I appreciate your time & advice.

Last month (early August) our 12-unit HOA (in LA County, California) had an open meeting (quorum met) to discuss financials, as well as, to vote for 2016-2017 HOA Board. During the meeting, the management company (MC) had informed us that 3 bids are required if a vendor cost exceeds $500 and 2 (out of 3) Board Members (BMs) must approve such costs. All homeowners (HOs) present understood and agreed.
Elections for the Board were done per unanimous agreement, and uncontested. I am the current President.

A couple of weeks after the meeting, the Board received an invoice/check to sign for a tree trimming cost of $900 that the Board was unaware of and much less approved. Tree trimming (for 3 small trees) was done 5 days after our meeting. Confused, I called the MC for clarification. MC stated that the former HOA president (JD = John Doe) had approached MC after the August meeting, asking to trim these trees, for which MC replied to JD that the most MC could do is to bring it up to the new HOA Board. "Forget it then" was what JD replied. During the phone call, I asked MC why wasn't the Board informed of this expense prior to, especially when you said the $500/2-Board Member requirement? MC replied: "it fell through the cracks and was sent to get a check cut".

I informed MC that some HOs have private gardeners that service their units, and since this cost was unauthorized by the current Board, that the Board declines payment and that JD, as a sole HO, should be responsible for that cost. A short time later, I received an email from MC stating that: "when there are 5 BMs, 3 need to approve; when there are 3 BMs, 2 need to approve and in this case, JD acted alone, that tree trimming was needed because JD was unable to park his vehicle on his assigned parking spot. And that the vendor is pursuing payment and that the HOA may pay him or vendor may seek a mechanics lien or further take said HOA to small claims". MC is awaiting HOA Board response.

Our Articles of Incorporation are currently suspended yet CPA completed the needed paperwork and HOA/MC waiting for FTB/SOS response. Because we are currently suspended, the HOA bank accounts are still under JD's name (dba our HOA). We cannot open new bank accounts (the correct way) until our HOA is 'revived'.

Yes, very poor 20yr HOA management history is what I hear. We need funds for roof repairs and not for expensive and unauthorized tree trimmings. Former HOA president apparently had poor communication skills with both the other Board Members, and with MC; linking his personal bank account to the HOA’s bank account, and using HOA bank account for personal purchases (now paid).

Effective October 1st, HOA will no longer need services from neither gardener nor MC. There is talk of being self-managed, which I now disagree. We need guidance. I’m a 1st-time homebuyer (bought condo 6 months ago) and no experience in HOA.

But...Is HOA responsible for this cost, or is it the responsibility of the former HOA president?
Does JD have authority to use HOA funds (since HOA bank accounts are still under his name, even though he is no longer on the Board (he was voted out)).

Thank you again for your advice.

Slightly stressed Prez who wants to do things legally right.

Where to begin.....

One call the bank and ask them what they need to remove JD from the accounts NOW! Not tomorrow not Monday.

Get what you need and do it!

And I agree you are not capable of handling the affairs currently. Self management would be a disaster.

As to who pays the bill there would be two option JD or your current MC. THEY DO NOT AUTHORIZE WORK BASED ON WHAT THE FORMER BOARD MEMBER REQUESTED. My guess the former President and MC have pocketed enough already to cover the $900 tab.

And if the payment "fell through the cracks" the MC would pay for that slip up.

$900, no bids, no board approval = NO BOARD PAYMENT.

Myself I would look to replace the MC ASAP.

Not solved at all. This is a condo. The work was done on common property and, rightly or wrongly, for the association. If the vendor files a lien it will be on the common property, not on JD's personal residence. BTW, it is not the vendor's job to determine whether JD was following the association's procedure.

My advice: pay the vendor, fire the MC, and learn from this mistake.

Ok, the tree issue is a court issue between vendor and JD(old president), got it. Yes these are condos, and the trees are common area that only JD has access (his parking spot). But MC (property management) did not have Board approval for such cost, and JD was no longer part of the Board when he gave the gardener instructions. I suspect MC relies on the fact that HOA funds are still under JD's name, in order to say that JD had authority to trim trees without HOA knowledge or approval.

Bank of America and Chase Bank told us we must be active (not suspended) in order to open a bank account. Banks will check HOA status. Sigh.

MC only produced financial reports for March through July (you guessed it, because JD wouldn't provide monthly bank statements upon MC request. In these financial reports, $800.00 in expenses are questionable. I've emailed MC, asking clarification yet no reply as of yet.

Would we need to vote again, by secret ballot? Oh my!

Thank you for those links, RichardP13!! Will read them.

Old president gave the order. Gardener completed work and submitted payment request to MC. MC did not inform the Board before sending it for processing.

Current monthly dues are $115. No: pool/Rec room/playgrounds/gardener (for now), etc. One water meter for the 12 units, so every two months each HO pays the monthly dues and their individual water usage. Still searching for three bids for a property management company to work with us, for HOs to vote on.

MC was fired and September is our last month "working" together. I doubt they're willing to "work extra" by finding us a bank.

I will definitely hunt for a bank (if none are suggested via this site).

Great input MelissaP1, The old president doesn't want to update signatory, he wants to close the account altogether. But we didn't want that only because we are having a hard time finding a bank that will allow us to open an account while our HOA is suspended. Hopefully this will change soon.

I'm taking notes on your 3 bid system and I especially like the 2-signature checks. Who cares if they're a little more expensive? I'm just thinking about the future and when other HOs become part of the HOA Board. My goal is to establish improved communication (why hide or be defensive about our financial state, for ex.?), and set the correct standard on how to run an HOA. We need to be educated on this. Badly. I have energy now but I also read this blog that burn-out is high, especially when HOs are not interested, don't believe in the Board, or nobody else is being a trend-setter. By golly, I will put my part!

Voting and signatures are the way to go when it comes to costs.

Thanks again for your post!!
:-)

Posted By LarryB13

My advice: pay the vendor, fire the MC, and learn from this mistake.

CatalinaC1 wrote:

Hard advice but indeed, A LOT of learning (from mistakes and all)...

Thank you LarryB13 for your input.

Heck, with ATMs and ACH processing, I've seen banks accept them with no signatures.

From personal experience, I can attest to the fact any check that is deposited via an ATM will be processed as if it had been made payable to the depositor, whether he is the named payee or not, and without regard to whether the check has been endorsed by anyone. A check that a live teller would reject can usually be deposited in an ATM and processed without question.

The idea of two signature checks in THEORY, it would require two authorized people to each sign. In reality two signatures means nothing. Tellers or ATMs neither verify the presence of two signature ormwhomin fact signed.

As far as using two signatures simply for record keeping purposes seems worthless to me. Just a feel good gesture which offers no real,world protections or checks.

Best way to prevent theft and fraud is having a Treasusre, MC and board all with their eyes open and with the time to review banking records and accounts on a regular basis.

Our MC has access to our operating accounts only. All others are under board control. Reserves, CDs, overseen by myself, VP and Treasurer all of whom have online access to every account.

No one will watch your money as week as YOU should be watching your money. That applies to HOA funds too.

So then why not require 5 signatures?

The process is worthless if in practice banks don't bother to verify signatures at all. And as you agreed prevents nothing.

And if its only possible value is minimizing temptation that will stop no one inclined to steal or misuse funds.

Two signature requirements solves nothing and provides nothing in the way of real theft prevention.

I see so after they steal all your money at least you have a paper trail to show the homeowners just how well the two signature security system did not work.

The idea as I understand it is to PREVENT theft. Having two signatures does nothing to actually prevent theft.

The banks will cash checks with one signature, with two unknown signatures or with a Mickey Mouse signature.

But after the money is gone you will at least have the cancelled check! Now that's valuable...

That is not the idea and those who have that idea would be wrong.

The idea, as I pointed out earlier, is to remove temptation.

Nothing will prevent a theft if the thief really wants to steal what you have.

The paper trail, showing that a single signature check was written, may bring an issue to light earlier rather then later (if other internal controls are utilized in addition to a two signature system). The earlier fraud or embezzlement is caught, the better for the Association.