Property Management Fraud

This article was just published in our local newspaper. It's a HOA or COA's worst nightmare, although you wonder where the oversight from the associations was.

https://www.news-press.com/story/news/2022/01/18/collier-county-property-management-owners-disappear-millions-stake/6552120001/

Collier community files suit, claims fraud, embezzlement by property management company

A Naples property management company that oversees more than two dozen communities in Collier County is shuttered and its owners have apparently left the country.

Meanwhile, the associations have filed a restraining order and are trying to recoup hundreds of thousands of dollars entrusted to the company.

A $100,000-plus civil lawsuit by The Commodore Club charges financial misdeeds by the company, American Property Management Services LLC of Naples, that wreaked havoc against the club and its condo association.

The company's website says APMS is a full-service property management company, managing condominium, homeowners associations and commercial properties in Florida. It opened in 2008.

The suit, filed Jan. 3, claims the misdeeds were carried out by Orlando Miserendino Ortiz and his wife, Lina Munoz Posada, acting as officials of APMS.

The couple's Tamiami Trail East office was locked and the Collier County Sheriff's Office had affixed an eviction notice from the Collier County Sheriff's Office to the front door on Tuesday.

A temporary restraining order against APMS lists 26 Collier County condominium associations as plaintiffs. It was filed Jan. 11 before Judge Lauren Brodie in Collier County Court and asks for protection by freezing association accounts at Wells Fargo Bank.

The associations' legal actions could potentially include thousands of homeowners.

The temporary restraining order said AMPS established bank accounts at Wells Fargo Bank "allegedly for the benefit of the Associations. However, the Management Company established itself as the sole authorized user of the accounts."

The suit said that effectively cut the associations off from accessing or getting statements on their funds.

"The Associations have good cause to believe and fear that the Management Company already has or may wrongfully or unlawfully transfer funds or dissipate the Association's financial assets absent an immediate court order protecting same," the restraining order said.

The order freezing the Wells Fargo accounts was granted.

An issue of trust
"We entrusted them," Laura Hoffstaetter Rigsby, president of the Royal Bay Villas Condo Association in south Naples. "All the stories are very similar."

She said that, going by the funds missing in just her 90-unit community, about $600,000, there is the potential of up to $50 million in missing condo association funds across the 26 named associations involved.

Some of the communities listed have 100 to 550 homes.

Rigsby said she was tipped off in December that something wasn't right.

She said the association has been told that initial contact has been made by a number of federal agencies, specifically the FBI, Secret Service, Internal Revenue Service and the U.S. Postal Service.

The association's reserve account was drained, she said. "There was $10 in there. We were expected to have $300,000."

The association's operating account had $90,000 but was also expected to contain $300,000.

Royal Bay Villas is investigating, she said, and waiting for Wells Fargo to provide information on the frozen accounts.

The community's funds have been frozen, she said, until Ortiz and Posada can be served with summonses, which have been issued.

"We're starting to piece it together," she said.

Rigsby filed a complaint with a investigator from the Collier County Sheriff's Office. That report is not yet available, the Sheriff's Office said.

"All the stories are very similar," she said of the other communities involved. "We had no reason to believe foul play. He was highly recommended to us."

Realtor surprised
A local Realtor familiar with APMS was shocked the situation went on as long as it appears to.

"I'm surprised it took so long," James Hinson of Naples said. "The communities have no means of taking care, to pay out vendors."

Hinson, whose own community of Abaco Bay off Bayshore Drive in Naples has been affected, said home sales could be hindered and possibly leave a person with a pending home sale without a residence to move into.

"The new owner could get hit from no fault of their own," he said, if the community's funds are locked or non-existent and special assessments need to be levied to owners.

"Someone is trying to buy a home for their family and they're getting a mortgage, well, the lender doesn't care," Hinson said. "They're going to want to see that the money is there and it's adequate."

Those levels will be checked a few days before a sale is closed, he said.

"If they see that those funds have gone down dramatically, or ... if there's a litigation involved, they're not going to fund that," Hinson said. "

Hinson said there's also the community aspect where the grass is still growing, the pool needs to be serviced, there is an expectation that these properties are not going to go to disrepair.

"But how do you do that, whenever you have to have a management company to pay these vendors and you can't?" he asked.

Condo associations that entrust management companies give the businesses wide latitude, via a signed agreement, to pay bills, collect funds and perform other fiduciary roles. Funds collected include association fees paid by home and condo owners that can range from hundreds to thousands of dollars usually paid quarterly.

Ortiz and Posada could not be reached for comment.

Phone calls to the company were interrupted by a Verizon network recording that the wireless customer being called was not available "at this time" and emails to a company-listed address bounced back undelivered.

Rigsby said office workers at the company's now shuttered office had been telling clients that Ortiz and Posada had been mostly out of the country since January 2021 due to the health of a family member in South America.

She was hoping that the locked office would reopen to retrieve items belonging to community members.

"They have unit keys from some of the members," she said.

In the suit The Commodore Club Association, off Harbour Drive along Moorings Bay in Naples, claims APMS committed fraudulent educement, embezzlement and breach of contract.

Those actions have caused the association's community to "suffer significant financial harm."

Commodore's complaint said that the duties agreed upon by APMS included:

billing and collections of common expenses, special assessments, reserves, charges, rentals and other payments from unit owners and other funds owed the association;
depositing funds collected into accounts at one or more financial institutions;
payment of bills and costs;
ensure that all required insurance be carried and maintained in full force;
helping unit owners and the association comply with all laws, statutes, ordinances and rules.

The suit claims APMS breached its agreement with the association by not timely paying bills, including the association's fidelity insurance policy.

Furthermore, the suit claims the company breached state statute by opening bank accounts in the company's name rather than the association's.

Got a break
Rigsby said her association got a break in one respect.

"We were lucky," she said. "We have fiduciary insurance. I called our agent and asked 'is our insurance paid?' They said 'Yes'."

Rigsby and Hinson said their respective communities have retained new property management companies.

The issue is, Rigsby said, how do you proceed when funds are locked up?

"We've no money to pay our bills. We're just stuck right now," she said. "We've applied for a line of credit."

Rigsby said one of her biggest concerns was letting other communities know about the issue.

"We want people to be aware that this happened," she said. "Just don't assume that everything is OK."

I have worked for three of the largest national management companies. Standard policy for all is that the MC has check signing authority. I would be surprised if any MC didn’t have this as standard policy, actually. These days most vendors are paid by ACH transaction anyway, so there is seldom a physical check to sign.

Many management companies use a third party vendor called StrongRoom, which provides a portal for the manager, accountant and board members to review and approve invoices.

Yes, it's pretty common around here for the full service PM companies to have this authority over the operating accounts. The bigger companies have long track records and good reputations - I may not want to give this authority to a newer company until I'm able to get a feel for how they operate.

Of course the board members receive monthly financial statements, including bank statements, so that we can review all of the monthly transactions and ask questions if we don't recognize something. The board is always responsible for what's going on, and there are a lot of eyes on our financial activity (including auditors since an annual audit is required by our bylaws). It's "trust but verify".

We have more checks and balances on the reserve funds: multiple signatures needed, etc. Our reserves are with a "too big to fail" bank, and they drive us nuts with the hoops we have to jump through.

I'll also point out that requiring board members to sign the checks is not a guarantee against shenanigans and may provide a false sense of security. In fact I'm more likely to trust a knowledgeable, reputable PM than board members who come and go.

Cheaters cheat. No matter how many safeguards you put in place, someone will find a way around them and cheat you.

Our MC writes checks on all the monthly regular expenses. My understanding is that it's common in other urban high rises around here. Two officers signatures are needed for reserve expenses over $300.

That pretty well sums up my situation. I can’t say I “blame” my fellow Board members, but I question their judgement. I know I’ve griped about it before, my apologies: but yeah, I do feel like “people in the industry” do their best to encourage certain beliefs and attitudes that favor the “industry”.

At this point I'd recommend looking around for a new PM. Either your current one is hiding something, or they don't know the answer and are hiding that - I'm guessing the latter, although they could be overwhelmed with work too.

In my experience, there is always a surprising amount of activity on the bank statements, there are always items that make you go "huh?" but they will have a good explanation (the abbreviated descriptions on the financial statements can be pretty cryptic).

If your fellow board members are apathetic, see if they'll agree to allow you to do the leg work on looking for a new PM. We found an excellent one through word of mouth: residents and board members in other communities were singing their praises.

I can't speak for all managers obviously, but yes, there is a tendency to want boards to operate in ways that are convenient for the management company. For one thing, it's practical. When you have hundreds of clients, your job is easier if you can get them to all use the same bank, have the same collection policy, etc. When you run into the same situations over and over and over again, it's easier to not reinvent the wheel and offer the same or similar solutions.

On the board member side, most people just want to buy a house and live peacefully in their neighborhood. Most don't want to manage a property, sit in judgement of their neighbors, or make decisions about what to do with other people's money. For many board members, it is a relief to defer to the management company's recommendations.

What training is available to board members comes from management companies or other people in the industry, and they aren't likely to tell you "here's how to see if we are stealing from you or doing a bad job!"

This is not to say board members aren't entirely off the hook - they may not want the job, but if they take it, they should take it seriously enough to read a financial report and pay attention to the condition of the property. If the financial reports say money was spent on repairs, it should be noticeable if they weren't made.

But the blame lies with the person who did the bad act, not with the person who "should have" stopped them from doing it.

I agree completely. Although - I’ve encountered some of the damndest thinking that says that “volunteer” means “low quality”. Ie “well, you certainly can’t expect someone to do a good job if they’re just volunteering!” I vehemently disagree. It’s not just a matter of “why are you the the Board if you can’t do the job?”; it’s also “do you go through life just trying to do the very minimum to get by?” Call me a jerk, but: if I volunteer for a job - and put my name and my rep on the line - I’m going to do the best I can with it.

BillD

An update on the original story - the owner of the property management company accused of fraud is still missing. However, the local paper dug deeper into the story. Four days after he was sued in April, he bought a private jet for over $1 million. And while they can't locate him or his wife and business partner, the jet has been flying all over between Miami, Las Vegas, Mexico and Central and South America in January.

The story also provided details about how some of the money was being stolen. They were writing checks on the association accounts to companies with different names but owned by them. So they were paying fradulent invoices to themselves.

Highlights:

- Thirty-three Collier and Lee county condo and homeowner associations have now accused Orlando Miserandino Ortiz' company American Property Management Services of financial misconduct, with the associations' lawyer estimating losses totaling tens of millions of dollars.

- APMS was first sued in April for failing to turn over client bank accounts. Four days later, Ortiz created a company called Gama Jets LLC.

- By May 7, Gama Jets was the new owner of a 1999 Hawker 800XP business jet — and wasted no time in using it.

- The current whereabouts of Ortiz and Lina Munoz Posada, his wife and business partner, are unclear.