HOA AND CONDO LIARS, CHEATS, WALK AWAYS, SCAMMERS, ETC. – OH MY!
In the best of times there are scammers. The internet is a huge source but there are still telephone and mail scams going on every day. In these difficult economic times, community associations are being hit with their own breed of scams. In the worst of times the scams get more interesting – and challenging. Watch out for these! (And check out the tips.)
Owners of units and lots in common interest developments are walking away all over the country thinking that like their mortgages, they can escape responsibility for paying assessments if they simply abandon the property. Even the likes of famous investment counselors like Suze Orman have suggested that people should walk away from their home investments if the loans are 20% or more “upside down” because of the estimated time of real estate recovery. Walking away from a debt without attempting to reasonably resolve or settle it in some way is an attempt at a scam of sorts (although I have to say the economy has put millions of people in situations they never envisioned). And the sad part is that I have not seen in any of these investor “tips” any acknowledgement that owners cannot “walk away” from their condo or homeowners association assessment debt. Thus, owners all over the country are receiving unpleasant surprises when they receive demand letters for outstanding assessments and collection costs. “I didn’t know that I was still responsible,” is not a defense. The decisions to pursue or not to pursue owners who default and abandon the property depends on a lot of factors. Pursuing an owner who stops paying but continues to live in or rent the unit (and collect money from tenants) is an easy decision to make because the owner is a true scammer. This kind of thing really pisses off the board members. So how to go about it? Locate the owner (a skip-trace or investigator may be needed by the web is the place to start searching on your own). If you can get them served, you can move forward. Small claims court has limits but you can go there without an attorney and very cheaply. If you get the defendant served and they do not show up but you do, and you are well prepared to present your case, you should (if all things in the universe are aligned), be able to get a default judgment. Then you have something to go after or record with the County (which stays on the county property records for 10 years and shows up as an encumbrance on any attempt by the owner at purchase, sale or refinance of property. Sometimes you can catch a break. And before spending “good” money chasing “bad situations”, get good advice first from a knowledgeable attorney who is not also a “scammer” who feeds into the board’s emotions or lack of knowledge about or acceptance of reality.
RENTAL RESTRICTION MANIPULATION
Restrictions on rentals, if approved properly or iterated in original restrictions on common interest development, Declarations or binding recorded restrictions, should be enforceable. There is an entire treatise on my website on the main page (www.californiacondoguru.com/mainpage) called “Rental Restrictions in California, Are They Legal?”. So what I am hearing is that some owners who bought in this “buyer’s market” hoping to reap benefits are looking for ways to get around the rental restrictions. Some are claiming to live in units when they really don’t. Some are offering utility bills in their name as proof of residency that they live there. Some say they have kept a bedroom, placed a roommate, and “share” the unit even though they may not show up for days, weeks, or months. What is a board to do? It is especially grating when you are certain someone does NOT live on premises but has placed renters and is collecting rents. The tenants may be in on the scam so even if you talk to them, they may agree the owner is a resident. What are some other things you can do? Internet search, skip-trace to see what property is owned, check assessor records and see if the mailing address is offsite, checking official records where property is owned to see where the owner is taking the “homestead tax exemption”, asking to see a driver’s license. You should get legal advice however about whether you can or cannot demand to see someone’s license. Though pressure to bear can be put on an owner who “claims” to live in a unit without providing convincing proof, it is best to make sure your demands and policies are legally viable. But under all circumstances, do not let your emotions drive you to spend association funds loosely on a losing cause. A board has fiduciary duties to consider and if it has sought from an owner evidence of residency, and has anything in its files to reasonably support the owner’s argument, it probably should let things go at that. It would not have to characterize the unit as a rental in that case, and that might just prove beneficial enough to call it a day. Of course, if renters are causing problems, there are ways to deal with that. Due diligence in any case is important. Don’t let yourself get talked into spending thousands of dollars trying to disprove a residency situation. Get good advice first from a knowledgeable attorney who is not also a “scammer” who feeds into the board’s emotions.
BOARD SERVICE-DECISION MAKING IN ASSOCIATIONS
Most HOA and Condo governing documents allow owners only to attend meetings, serve on the board, vote, etc. Sometimes an owner will give a family member, spouse, significant other, or tenant a small percentage interest (even as low as 1%), so that they can exercise owner’s rights. This drives boards crazy, and it can result in very bad circumstances. Perhaps the “mother” of all scams took place in Las Vegas, Nevada over the past few years.
If you want to see just how bad it can be, go to the web and Google “Vistana Condo, Las Vegas, Scam”. You will be directed to a number of stories about a major scam where a group of people conspired to take control of an association without any kind of major ownership or investment share. The scam was revealed because of efforts of a 65 year old legally blind woman who just wouldn’t take it! “They really pissed me off”, she was quoted as saying. The story as characterized by “Bloomberg Business Week” was about a “shadowy outfit that cooked up a brazen scheme” that fed off of the frenzy over pursuing construction defect lawsuits in Las Vegas. Lawyers were competing for business, money hungry business people got involved, and this volatile mixture led to greed-based scheme. Some people are just too smart and devious for their own good.
What happened was that the “outfit” would buy some units in the development and transfer partial ownership to individuals “on the take” according to the stories. “By paying off community managers, hiring private investigators to dig up “dirt” on potential [board] candidates, and rigging elections, the straw buyers would use their governing positions to steer millions of dollars in construction and legal fees back to co-conspirators.” The straw buyers were supported by a fleet of lawyers (some of whom were apparently in on the scheme). Also involved was one female realtor or lawyer (??) who was quite flamboyant and dramatic – or at least that is how she was portrayed in the story.
In any event, reports are that the association did get some settlement money from a construction defect lawsuit (19.1 million) – although the lawyers got more than the association did from the settlement (all but 8.1 million), and that legal plea agreements were later reached with many co-conspirators and the FBI, although unwilling to comment, is involved. The story reads like a movie script and involves the realtor’s attempted suicide and arson which have been provoked by guilt but seemed from the accounts more like an attempt to avoid prosecution by woman realtor or lawyer (there were confusing accounts) referred to as “convertible driving TV lawyer”.
Just hope you never end up in that situation.
And note, if something like this seems to be going on, consult an honest, experienced and knowledgeable lawyer, perhaps the Attorney General’s Office, and the D.A in you county. However, don’t let your emotions get the better of you. If there is just one owner in your development who gives that 1% to someone you do not want at meetings or on the board, it may be best to live with it. For a “conspiracy” it takes a “village” of shady co-conspirators. And as always, if this 1% owner becomes a problem, get good legal advice to find out all the options available.
Be sure to watch my blogs for answers to pressing questions asked by readers – they are accessible on the main page of my website at www.californiacondoguru.com .
Beth A. Grimm is an attorney who serves homeowner associations and homeowners alike. She is a frequent contributor to the Echo Journal and other similar publications in the State of California and on a national level. She provides several publications written in plain English to help people who need information about California law as it relates to homeowner associations. She posts a wealth of information on her website.
Check out my new book called “THE CONDO OWNER’S ANSWER BOOK” and my new blog developed especially for homeowner rights questions: Condolawguru.com
Beth has a private law practice in Pleasant Hill, CA, but serves homeowners association and homeowners throughout the State of California. Her practice is largely web based and telephone consultations are available. The information provided here is for advertising and informational use only and does not constitute legal advice or create an attorney-client relationship. Visitors should consult with legal counsel in all cases where legal representation or advice is desired.