Tuesday, September 9, 2014

Going To War

Many communities have horror stories with lessons for the rest of us.  Here is one such story, with events happening many years prior to the community becoming our client.  The following occurred within a six month period, back in 2003:

The community was finalizing a legal settlement requiring reconstruction of a 12-unit building.  Two owners held all these units and were obligated for interior reconstruction costs, with all common elements and shell of the building payable by the community.  The Association’s insurance did not cover any of the cost due to a vacancy exclusion clause, triggered when a vagrant burned down the building.

At the same time, the community had revolted against a necessary 40% increase in assessments.  Prior to the annual meeting, many long-term delinquent homeowners paid off their debts, and voted to shift control of the Board to themselves.   It was incorrectly believed that the new Board would be able to somehow reverse the legal obligation to rebuild the destroyed building. 

Things had gotten off to a rocky start.  The new Board members had difficulty understanding HOA regulations and in some instances ignored these altogether. The treasurer immediately alienated all vendors before the new Board was able to line up replacements - he suspended all payments and his inquisition against the vendors eventually drove many away.  The management company terminated its contract.  Vendor liens cropped up.  Within months the President outraged the few remaining vendors, and he particularly enjoyed firing the collection attorney, who until recently, had pursued his own debt.  So much time and energy were spent by the Board fighting enemies (real or imagined) that all resources were exhausted.  Bankruptcy loomed. 

At the same time, the Board realized self-management was too time consuming, and hired a management company to take charge, providing leadership and direction for the Board.  A recall election was attempted by the Board to remove the Treasurer.  He showed up at the recall meeting with his guitar and sang a folk song (sung in Russian, not English) explaining why he should be retained.

All in attendance voted for his ouster, and the Board prematurely declared success. When in fact, voter apathy had prevented the necessary number of ballots for removal, but the Treasurer was stripped of his office and essentially marginalized during the rest of his tenure.

At the same time, things were heating up with the building replacement situation.  The community missed mandated deadlines, placing it in default and exposing it to penalties.   Tied into this were secret, unauthorized meetings conducted by the Board President with the owners of destroyed building.  Negotiations were progressing for the outright purchase of the slab with construction funds already collected in the loss assessment. 

In late summer, the President revealed this to the rest of the Board.  Board members were sworn to secrecy while details were being worked out.  The President expressed complete faith in the building’s two owners, but warned of enemies within the community bent on destruction.

In the weeks that followed, a newly-added Board member reviewed the ramifications of the proposal, and determined that the long term costs were too great to justify the proposed settlement price.  Further, the funds in the loss assessment account could not be touched – being legally obligated for use in construction.  Any homeowner loss assessment insurance proceeds (which accounted for a third of the funds) would have to be returned.  An election by the owners to approve a special assessment would be required.  This was not a do-able deal.

The conclusions were presented to the Board, but ignored.  The President finally consented to consult with the HOA attorney for a legal opinion.  This never occurred, the stated reason that the attorney was part of the conspiracy involved in destroying the community.  After weeks of stalemate, a forced meeting between the President and attorney occurred, with the attorney nixing the proposal.  To prevent further interference by the newest Board member, the rest of the Directors began holding impromptu undocumented meetings.

Meanwhile, collections efforts had ceased and homeowner delinquencies climbed to 50%.  By October the community came within 24 hours of having its water cut off, after defaulting on a payment plan. In November the Board was finally convinced of the need for collections.  The year ended with a special assessment to bridge the cash shortfall and pay the lapsed insurance policy.
All communication with the two owners of the destroyed building continued to filter exclusively through the President, with no means of independent verification.  The President delayed the implementation of an audit, citing the need to resolve unspecified items.  Fulton County revealed discrepancies in the reasons for delays in obtaining a building permit:  lies and interference by the President.

Later it was discovered that the President was preparing to handle the rebuild through his own construction firm.  He also failed to disclose he had been in negotiations to personally buy out the owners of the destroyed building.  He did not recuse himself from votes and deliberations despite this conflict of interest.

With only two months left prior to the next election, another group of homeowners rounded up proxies and voted in new members.  The President lost his majority control in the Board, but remained defiant.  He continued negative attacks against other Board members, driving first one Board member, then that member’s replacement, to resign rather than deal with an atmosphere of animosity. 

His attacks intensified, followed by the resignation of yet another Board member.  He ceased paying assessments, and frequently missed Board meetings.  Finally, days after the departure of the one final director who was his supporter, he abruptly resigned.  It would be four more years before the Association collected his $10,000+ in unpaid assessments.  These years would see more battles before the war was won and the community finally put on a positive path.

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