Q&A: Court-appointed receiver may be needed for homeowners association

Question: I’m in the military and fought in Iraq and Afghanistan only to come home and find people taking advantage of elderly owners who cannot defend themselves in my homeowners association. Recently all board directors resigned, and we have no board.

We’ve been demanding books and records inspections since 2007 but are denied. The HOA hasn’t had an audit in more than 11 years. The management company was fired in 2008, at which time the board decided to self-manage without an owner vote. Since then, there have been only three meetings, no elections and no annual reports. We’re a “suspended” HOA for not filing and paying state and federal taxes for several years.

One director was treasurer for years, then he was president, and when we found out he lost his home to foreclosure he made himself a manager, taking control of our funds. Some of the owners filed a lawsuit against the manager, and at his deposition he blamed an incorrect audit on software and no staff. He said under oath there are at least 25 out of 150 owners who are not paying fees as “favors.” There are millions of dollars the board can’t account for. We’ve had loads of special assessments for repairs that never take place.

Three directors were foreclosed on, but all directors own properties outside our development. There are numerous reimbursements and payments to directors written by the manager. While directors have not been paying fees, they have been buying gifts and having parties with our association fees. We’ve suffered at least two embezzlements by directors and have filed police reports against the association.

We’ve been paying for association insurance policies that don’t exist. Apparently directors have been getting loans by using association property as collateral and documenting these transactions as insurance.

Owners hired attorneys with our own money to protect us, only to learn both lawyers had secret meetings with defendants without our knowledge or consent. One attorney told us they were “trying to make everyone happy” while the other said to “drop the case, then file another lawsuit later,” which makes no sense due to the statute of limitations. We terminated both attorneys and wrote to the state attorney general, who has not responded. What do owners do now?

Answer: These egregious circumstances subject all titleholders to litigation and diminish all owners’ property values and personal assets.

The violations of law you describe included theft, embezzlement, forgery, fraud and identity theft and could be punishable as misdemeanors or felonies. Crimes against the elderly can carry additional fines and jail time — Penal Code sections 368-368.5. If you have concerns about treatment of elderly homeowners in your complex, you can contact these elder abuse hotlines: L.A. (877) 477-3646, Orange County (800) 451-5155, Riverside (800) 491-7123.

The association’s corporate status needs to be restored. This may require paying past-due taxes and filing additional documents with the Secretary of State and Franchise Tax Board. Your homeowners association may need to incorporate with a new name if the present name has been reassigned to another entity. If reassigned, all stationery, bank accounts, checks, utility bills and insurance policies will have to reflect the new association name.

Improper acts and omissions of previous “boards” should be determined and a functional level of management must be reinstituted. Because of entrenched and conflicted relationships, remove the board and conduct an election for a new board. This may require hiring an attorney of your own.

Although nothing prevents you from representing yourself in court, during complex litigation it is ill-advised to proceed without an attorney. Irrespective of the fact that both attorneys have been terminated for cause, you still have to file a “substitution of attorney” form with the court, substituting yourself. Appear before the judge and request a continuance while you find another attorney.

Your association by law is very likely a nonprofit mutual benefit corporation. But it cannot represent itself in court and an attorney cannot legally represent a suspended corporation (Palm Valley HOA vs. Design MTC). Notifying opposing counsel and the court of this issue may afford time to find counsel.

No association relishes the thought of receivership. But because titleholder money is flowing to the regime presently in charge and not being used for purposes for which it was collected, owners may have to consider a court-appointed receiver.

Technically, an association is not liable for a board that lacked authority to act or for members that willfully acted outside the scope of their directorship; purported directors are each liable for their own improprieties. Self-dealing and theft constitute serious civil and criminal violations. Resigning from their positions when titleholders start to challenge their actions does not limit directors’ exposure and liability.

Under the described conditions, there is no way for a board to justify decisions to self-manage and pay an associated salary, while at the same time not performing a verifiable service. Similarly, there is no justification for gifts or parties when the association is not financially stable, and the only way to describe collecting money for insurance that is never purchased is theft and fraud.

Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.