By Deborah Goonan, Independent American Communities
Articles like When a Co-op Board Misbehaves, in the The New York Times, play a key role in mainstreaming public awareness of corruption, abuse of power, and dysfunction in association-governed, common interest communities.
Finally, condo owners and co-op shareholders who, for many years, have endured conflicted and abusive board members in the shadows, are coming out in the open with their shocking stories.
When a Co-op Board Misbehaves
By JIM RENDON JAN. 26, 2018
The New York Times joins a growing list of U.S. print media, with national and international reach, in exposing real estate industry corruption and housing injustice that grass roots advocates and activists have been warning the public about for decades.
Today I highlight a few of the major points made by Jim Rendon, and add some commentary with a national perspective.
Associations of common interest communities are governed primarily by business or corporate law. In some states, non-profit statutes also apply. Even detached single family planned communities with HOAs are subject to corporate law. An association-governance layer is established, in part, to enforce contractual obligations set out in each private organization’s governing documents, specifically the Covenants, Conditions, and Restrictions (CC&Rs).
Not noted in the NY Times: the fact that state governments have bestowed these corporate governing entities with powers equal to or exceeding those of real government.
That is a fundamental flaw of association-governed communities of all types, all sizes, and all socioeconomic demographics. Putting governing powers in the hands of private citizens operating private corporations is a recipe for abuse, especially when those powers go unchecked.
No government agency enforces corporate laws, even weak corporate laws. As Rendon points out, owners and shareholders cannot expect to eliminate board and management conflicts of interest without spending thousands of dollars, and a great deal of personal time, asserting or defending their rights in civil court.
And that’s a significant burden for housing consumers to bear. After all, it’s fairly common for real estate agents and brokers, owners of management companies, attorneys, insurance brokers, and service providers (landscapers, painters, and more) — or their first and second degree relatives or business affiliates — to “serve” on the board of an association-governed community. More often than not, their motives for being on the board are less than altruistic.
It’s almost impossible to get the Attorney General to investigate or prosecute criminal behavior in association-governed communities. As many residents of homeowners’, condominium, and co-op associations know from personal experience, local law enforcement’s knee-jerk reaction to a complaint involving an association-governed community is to avoid getting bogged down in a “civil matter.” Owners or shareholders must have solid evidence of theft or misappropriation in order for a criminal investigation to begin.
The problem is, a board or manager who may be hiding fiscal misconduct also serves as the gatekeeper of access to official records. And although corporate law gives home and condo owners and co-op shareholders the right to examine financial records, meeting minutes, and more, the primary way to assert this right is to file a lawsuit against the association.
A handful of states, such as Florida and Colorado, have established agencies that are supposed to intervene on behalf of housing consumers, but association boards tend to ignore the limited sanctions of consumer protection agencies, forcing the aggrieved resident to either escalate the issue or simply drop it.
The power to impose fines is easy to abuse, but difficult to overcome. Give an opportunist or bully some unchecked power, and it is certain that abuse and discrimination will follow.
The primary way for owners, residents and shareholders to defend their rights is to hope that a human rights or fair housing agency will investigate and prosecute on their behalf. But the slow and cumbersome process in pursuit of justice can take years. In the meantime, most victims of discrimination and abuse are forced to move out, to preserve their own sanity or safety.
And if the resident facing exorbitant fines (plus interest and legal fees) is not a member of a protected class, the only other option is to sue the association and the board member(s) or manager personally. In other words, the association members or residents are often forced to spend thousands of dollars in an attempt to fight fines and the threat of a lien on their property.
Replacing a rogue board is much easier said than done, especially when the votes are rigged. Election and voting controversies are quite common in association-governed communities, and often lead to bitter disputes. Corporate voting structure ties votes to shares of property rather than distributing voting rights equally to each resident. The use of proxies and ballots, with no neutral third party to oversee the election process, leads to rampant manipulation of votes, if not outright fraud. Developers can control association boards for decades. And owner or shareholder controlled boards can take years to replace, even with an organized group of members committed to change.
Widespread public awareness is first step on the road to positive reform in our communities. Let the national media attention continue.