Property Manager with possible conflict of interest

Started by TerriD1 • 17 replies • 419 views

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TerriD1 (Georgia)
Posts: 6

Posted:

I am a new HOA board member. Our current property manager began work for us in 2022. In 2019 we hired a roofing vendor to perform quarterly maintenance on our roof. In 2023 our property manager started working for our roofing vendor as a sales manager.

As a board do we have a duty to amend her contract with our HOA to disclose the potential conflict of interest and specify what role she will have in the future with this roofing vendor. We expect to need major work in the next few years on the roof.

To add a layer of complexity we are currently being sued by a homeowner who is an attorney and was angry that a special assessment had passed after he closed on his condominium. The seller never disclosed that a special assessment was under serious consideration. The assessment passed after he closed on his condo but before he was officially on an email list to get notice of the fact that there was a special assessment vote he could have voted on. It would have passed with or without his vote. He is alleging all kinds of things in his lawsuit including vendor kickbacks to the former President of the HOA. 99% of his allegations are bogus and everything was done according to our bylaws.

Any insight you can provide about how to handle the optics of a property manager having an employment relationship with one of our major vendors is appreciated.

LetA (Nevada)
Posts: 2,679

Posted:

Yes that's a conflict of interest and it needs to be immediately addressed with the board, it reeks of kickbacks
costing the owners more money. As a board member, do your own legwork to find contractors to service your
community, and send them an invitation to bid.

As for the lawyer owner, that is the unfortunate side of lawsuits. As a lawyer, he should know he's fighting a losing battle
suing the HOA when it is the seller who is legally bound to disclose that information. He should be suing the Title company,
seller, their RE agent, and his RE agent.

The unfortunate thing for your HOA is you have to pay the HOA lawyer to push papers across a desk until the judge dismisses
the HOA from the lawsuit with prejudice.

TerriD1 (Georgia)
Posts: 6

Posted:

Thanks LetA. I have reached out to our attorney for how to handle this. I agree it looks bad, although the property manager stated she has a contract with the vendor that she does not receive compensation of any kind on any client that is affiliated with her management company. Not sure how that really protects our HOA, though.

As for the attorney/resident suing us, it appears that he actually created a fake document that purports to make it look like he had reached out to the HOA prior to the assessment vote, seeking information. The attorney for our insurance company stated that if there is an issue of fact to be decided by a bench or jury trial, the insurance company will want to settle it. It really sucks that he may get away with this and he is stirring up negativity in the community on many issues. Most residents know the deal but a couple residents in our 32 unit Condo building are buying into what he's saying.

TerriD1 (Georgia)
Posts: 6

Posted:

Also, for some strange reason the attorney/resident did not pursue the homeowner. The homeowner moved out of state, I am wondering if it was hassle factor.

CathyA3 (Ohio)
Posts: 6,299

Posted:

The best method of dealing with misinformation (such as the lawyer is peddling) is for the board to be as transparent and informative as possible. Communicate accurate info via website, newsletters, etc. These things should be informational only. Avoid social media or other platforms that allow homeowners to post - they give troublemakers a platform from which to spew their nonsense. In addition, the HOA is liable for anything that's posted on official HOA sites. This is why sites such as HOATalk have Terms of Service that limit what people can and can't say, and these Terms have to be enforced to protect the HOA from liability. Allowing owners to post is more trouble than it's worth and board members already have too much to do.

Re: the community manager, even if she isn't accepting direct compensation from the vendor, one of her jobs will be to manage vendors. She can't do her job if she has a business relationship with one of them. (FWIW, she must be receiving some sort of benefit from the vendor - otherwise why would she do the job? I'd be digging deeper, because on its face this story doesn't make much sense to me.)

The board, meanwhile, probably has to decide which of the two they want to keep: the manager or the vendor.

TerriS6 (California)
Posts: 3,284

Posted:

Does your contract with property manager address conflicts of interest?
Your member/lawyer probably does not have any standing to sue the HOA for a failure by the seller.

TerriD1 (Georgia)
Posts: 6

Posted:

The contract does not address conflicts and the conflict happened after we signed a contract with her in 2022. She began working for our roofing vendor in 2023. She disclosed this to the former board president who did nothing about it. Didn't even bring it up to her fellow board members as far as I know. The lawsuit filed by this resident/attorney is flinging a bunch of stuff hoping something will stick. The funny thing is the thing that could stick (the conflict) hasn't been noticed by anyone in the community except myself who just became President in January. All I did was look on the property managers LinkedIn page and I found that she has been employed by our roofing vendor since April 2023.

As far as this homeowner suing the HOA, and not the seller, I guess he is arguing he should have got notice to vote on the assessment after he closed and he that did not receive the information for the vote...

TerriD1 (Georgia)
Posts: 6

Posted:

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I do not know what claim that lawyer has. Not much of a case. It was the seller whom should have informed them of pending special assessment. The HOA can counter sue for their legal expenses if they want. Does not take a lawyer to respond with a counter suit.

The MC is a hired contractor to the HOA. The employee is NOT the HOA employee but the MC. It would not hurt to disclose a MC employee who may handle your accounts also works for roofing company. The MC imo should be looking at the situation to let their customers know.

Former HOA President

TerriS6 (California)
Posts: 3,284

Posted:

Quote:

Posted By TerriD1 on 02/20/2024 8:16 AM
The contract does not address conflicts and the conflict happened after we signed a contract with her in 2022. She began working for our roofing vendor in 2023. She disclosed this to the former board president who did nothing about it. Didn't even bring it up to her fellow board members as far as I know. The lawsuit filed by this resident/attorney is flinging a bunch of stuff hoping something will stick. The funny thing is the thing that could stick (the conflict) hasn't been noticed by anyone in the community except myself who just became President in January. All I did was look on the property managers LinkedIn page and I found that she has been employed by our roofing vendor since April 2023.

As far as this homeowner suing the HOA, and not the seller, I guess he is arguing he should have got notice to vote on the assessment after he closed and he that did not receive the information for the vote...

If the assessment passed by 2 or more votes, his claim would be irrelevant.
There must be something in your PM contract that requires manager to act in the best interests of the association. If there is an option to amend the contract you could tighten the language.

DeanJ
Posts: 1,786

Posted:

Quote:

Posted By TerriD1 on 02/20/2024 5:48 AM
I am a new HOA board member. Our current property manager began work for us in 2022. In 2019 we hired a roofing vendor to perform quarterly maintenance on our roof. In 2023 our property manager started working for our roofing vendor as a sales manager.

As a board do we have a duty to amend her contract with our HOA to disclose the potential conflict of interest and specify what role she will have in the future with this roofing vendor. We expect to need major work in the next few years on the roof.

To add a layer of complexity we are currently being sued by a homeowner who is an attorney and was angry that a special assessment had passed after he closed on his condominium. The seller never disclosed that a special assessment was under serious consideration. The assessment passed after he closed on his condo but before he was officially on an email list to get notice of the fact that there was a special assessment vote he could have voted on. It would have passed with or without his vote. He is alleging all kinds of things in his lawsuit including vendor kickbacks to the former President of the HOA. 99% of his allegations are bogus and everything was done according to our bylaws.

Any insight you can provide about how to handle the optics of a property manager having an employment relationship with one of our major vendors is appreciated.

The situation with the PM is a conflict of interest should you have a dispute with the roofing company. All discussions about the roofing company need to be in executive session and no emails should be exchanged with your PM as a recipient concerning roofing contractor issues.

As for the attorney, the Board or the Association was under no obligation to advise a potential buyer of a pending assessment. The fact he wasnt on the email list was his fault? This is why email for official meeting notifications is a poor procedure. Let you HOA insurance handle the issue and drive on. I do not believe he will prevail in court.

TerriS6 (California)
Posts: 3,284

Posted:

In our area, it is typical for a buyer's real estate agent to obtain 12 months of HOA board meeting minutes for their client which would have referenced an election. Also, there are so many mandated disclosures, I would be surprised if the seller disclosures did not contain language requiring the seller to disclose any pending issues respecting HOA membership that should have included the election information.

TerriD1 (Georgia)
Posts: 6

Posted:

I agree. This is totally seller related issues. There was plenty of time for an inspection and for sellers to disclose well known issues with the building. Maybe the resident didn't go after the seller because they moved out of state which is a hassle, he only practices law in our state, and he thought it would be easier to force the HOA insurance co to settle it. I don't know. We were kind of assured of a slam dunk win until recently, when he filed an amended complaint, over a year later with new allegations, and then we kind of got, well we may have to settle this....

I believe the notification for the special assessment vote was regular U.S. Mail. The HOA had not yet received notice of transfer of ownership at that point in time, and the mail would have gone to the seller, and not the new owner. I think he is alleging he reached out to the HOA by mail around the time of the special assessment vote, not to our property management company, but to our HOA president at her personal address. I believe we would have had a contract with our management company stating that official business of the HOA go to the property management address.

I read our contract with the property manager and she is supposed to disclose any financial interest in any of the companies the HOA does business with. I guess she could argue she verbally disclosed it to our former HOA president. But isn't this grounds for termination of her contract? the fact that she is working for our roofing vendor but didn't amend her contract to disclose this? The roofing vendor didn't disclose this either.

She has been involved in emails with our roofing contractor recently because we had a leak in our hallway ceiling this past month. The roofing company did some repair work as well, that she coordinated.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Terri

She went to work for the roofing company a year after you hired the company. No conflict of interest there. She would have to recuse herself if the BOD wants to discuss the company for what ever reason. Her coordinating work in you association is fine as long as the BOD was aware and agreed the work was needed, and again she should recuse herself from the discussion.

TerriS6 (California)
Posts: 3,284

Posted:

Quote:

Posted By TerriD1 on 02/20/2024 11:50 AM
I agree. This is totally seller related issues. There was plenty of time for an inspection and for sellers to disclose well known issues with the building. Maybe the resident didn't go after the seller because they moved out of state which is a hassle, he only practices law in our state, and he thought it would be easier to force the HOA insurance co to settle it. I don't know. We were kind of assured of a slam dunk win until recently, when he filed an amended complaint, over a year later with new allegations, and then we kind of got, well we may have to settle this....

I believe the notification for the special assessment vote was regular U.S. Mail. The HOA had not yet received notice of transfer of ownership at that point in time, and the mail would have gone to the seller, and not the new owner. I think he is alleging he reached out to the HOA by mail around the time of the special assessment vote, not to our property management company, but to our HOA president at her personal address. I believe we would have had a contract with our management company stating that official business of the HOA go to the property management address.

I read our contract with the property manager and she is supposed to disclose any financial interest in any of the companies the HOA does business with. I guess she could argue she verbally disclosed it to our former HOA president. But isn't this grounds for termination of her contract? the fact that she is working for our roofing vendor but didn't amend her contract to disclose this? The roofing vendor didn't disclose this either.

She has been involved in emails with our roofing contractor recently because we had a leak in our hallway ceiling this past month. The roofing company did some repair work as well, that she coordinated.

If the member's close of escrow date was after any of the election mailings, he would have no standing to sue the HOA as he was not yet a member.
So he can't sue for anything that occurred before COE.
Usually, it is the member's responsibility to provide contact information.
And I believe you said his vote wouldn't have mattered anyway, so his claim would be moot.

It looks like PM violated the terms of the contract but you would need a legal opinion before you take action, for sure.

TerriS6 (California)
Posts: 3,284

Posted:

Another issue is how GA law puts a value on HOA election violations. It would be interesting to see how the member calculated his claim.

MichaelS56 (Minnesota)
Posts: 858

Posted:

The cost of the HOA attorney that will be challenging the owner/attorney claim, should be funded by everyone in the association. Everyone should be assessed for a portion of the cost of the attorney fees incurred by the HOA.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Terri

In one association I was a member of had a Special Assessment ($25K), passed by 88% of owners. A month after the closing when the assessment was passed, a new buyer (also a lawyer who did get to vote) sued their realtor (who was also an owner). The buyer claiming the realtor, as an owner, had to know about the assessment during the sales cycle and did not divulge this information. The judge dismissed the suit.

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