Blog Post

HOA Fraud is a Hardly Detected and Thriving Cancer of Our Society


Olga Zlatkova-Georgiev

For most people, one of the main goals in life is buying your own home. It is rewarding when effort goes into career growth, diligent savings routines and work-life balance sacrifice, for this single goal of purchasing your first home. The most affordable homes can be the ones built as part of a homeowner’s association (HOA) – nothing wrong with that. The surroundings are always maintained through the HOA and the only thing homeowners need to worry about is the interior of the house, as well as paying regular monthly dues to the HOA. But after settling in, it may quickly become apparent that living under an HOA involves a level of oversight that can be surprising.

Some examples of this are:

  • After moving in the warm weather came and an umbrella needed to be installed on the patio. Immediately after my umbrella installation, a letter was received stating that it is a “violation” letter due to the color of the umbrella being blue.

  • I purchased a potted flower and placed it under my kitchen window. The next day, a note was placed on my porch. It was a letter from the cleaning lady, who is also a renter from this complex. The letter is two pages long, handwritten and explains in detail how to take care of the flower.

  • A few months later, the same lady knocked on my door to give me a brand-new harness for my dog, along with a business card from a dog trainer because she had seen how much my dog was pulling on the leash during walks.

  • Another few months go by, when my investigating intuition kicked in, it was discovered that this same person is the HOA’s “spy,” with access to cameras and was being paid by the management company to clean the laundry rooms and the mailrooms for the complex.

In addition, during board meetings, it was discovered that the board consists of people who do not know what their position is and are being appointed through acclamation, term after term. Soon after it came to light that the management company had been managing the place for 16 years, with no questions about the financial transactions ever, as well how contractors are being chosen, how much money is being spent out of the reserves account of the HOA and for what purpose. Hey, how about asking for the financial statements – something that is normal to ask for?

When I asked for the financial statements of the HOA, the manager’s response was: “The board has advised that your request needs to be reviewed by the HOA’s attorney.” What? It is the most common knowledge related to the HOA laws and rules, that it is the homeowners’ right to review financial statements. Does this sound like a red flag? So, what is inside the financial statements?

Gift card purchases for large dollar amounts with no explanation, returned fines to the owner who appears to be friends with the board member, board member’s home renovation that included upgrades. The most interesting was the comparative analysis of the year-to-year balances of the reserves account: emptied throughout the fiscal year and then re-funded again with the new budget and increase of monthly dues every fiscal year.

One gentleman who had lived in this same HOA for 30 years, remembered seeing the management company’s owner the first day they took over this property, shredding the HOA’s documents.

The homeowners gathered to put our minds together about how to make changes. The main step was changing the board and the management company.

I started doing my homework and researching this particular company and the laws on how to change the board. My research began with searching for “HOA problems” on the web and about HOA problems known to other ACFE members and fraud investigation professionals. The discovery was mind-blowing. When connecting with people who had been experiencing mismanagement by the same property management company, we found a few commonalities with them. These other associations’ reserve accounts were in the red and with an elevated risk for special assessment. For example, it appeared that a lot of people, including members of the ACFE – were affected by fraud within their HOAs at some point in their lives. I started talking to HOA attorneys and one of them said to me after hearing my story that “your community is lucky to have you.”

Together with other like-minded neighbors we called for a special meeting by the members, as per the rules. Immediately, we received sabotage from the operating board and the management company. Their HOA lawyer served their private interest and not the interest of the community. Long story short, they did not recognize the special meeting as being legal and respectively never showed up.

Nonetheless, our community was able to collect more than 50% of members’ votes for board removal. We collectively hired a lawyer who recommended collecting signatures for a petition, in addition to the votes, to make the case stronger. One day, when collecting signatures, I was sending messages to my neighbors explaining to them what the lawyer’s recommendation was. In my messages, I used the expression “this would be a cherry on top.” A few hours later, one of the board members blasted a mass text message to 164 people, by using a VoIP phone, saying, “Do not sign anything and Olga’s cherry is rotten.”

As you can see, harassment during investigating HOA fraud is quite common. When speaking to a lady from the ACFE Community, for example, I learned how a drone had been sent to spy on her right at her window. I have heard a lot of insane stories along the way of my HOA fraud journey.

The main conclusion that was made from all of it was: HOA fraud is not controllable most of the time, due to weak jurisdiction. It is a hardly detected and thriving cancer of our society.

ACFE members have exclusive access to the HOA Fraud group in the members-only online community.

SOURCE: ACFE Insights – A Publication of the Association of Certified Fraud Examiners

Related Posts

Our website use cookies to improve and personalize your experience. Our website may also include cookies from third parties. By using the website, you consent to the use of cookies. We have updated our Privacy Policy.