Fraud In Your HOA: What to Watch Out For

A Sensational Case of Fraud Hits the News

Every so often a community makes the news and becomes infamous. In November 2022, that happened to Hammocks Homeowners Association, a large master community in Miami-Dade County. It all started when homeowners noticed that their annual dues increased by 400%. Instead of paying, the owners filed a lawsuit. Investigators found that current and past members of the Board of Directors used the HOA as a front for criminal activity. Five individuals were arrested and accused of stealing more than two million dollars, and the court assigned a Receiver to run the HOA. The charges include racketeering, grand theft, and money laundering. It seems this Board of Directors thought they were the mob (or maybe they are – keep watching the case to find out). 

Why does this matter to you? Because this case shows that your HOA can fall victim to a crooked Board of Directors if you don’t pay attention. This was not some rinky-dink association in the middle of nowhere. Hammocks HOA is one of the largest homeowners’ associations in South Florida. It oversees 40 sub-associations and has thousands of residents. Fraud can happen to any association. But you can protect yourself from fraud if you live in an HOA. Keep reading to find out how. 

Prevent Fraud by Knowing What to Watch Out For

The best way you can protect yourself and your HOA from a crooked Board is to pay attention. It’s not as hard as it seems, and it doesn’t mean you have to sit through every HOA meeting. But it does mean opening and reading that mail the HOA sends you, like the below documents:

●      The Annual Budget

This is the most important document to review. It tells you what the dues were this year and how much they will be next year. Most budgets are broken out into expense categories so members can see how much each service costs. Landscaping, building maintenance, janitorial services, administrative services, and collections are examples of budget categories. Remember, not all increases are badWhat to watch out for: dues that increase by more than 50% (some states limit increases to 20% or less, others have no limits on increases), individual budget line items that more than double, categories with a big budget but no money is actually used for that purpose. 

●      The Reserve Study

In most states, a reserve study must be performed at least every 3 years, and it’s a best practice to have your reserve study updated annually. What to watch out for: look at the funding level for your reserves and compare it to the line item on the budget. If your association is 100% funded or close to it, and a big increase in reserve funding is part of the budget, it’s time to ask more questions. But, if your association is below 50% funded and a big increase in reserve funds is on the budget, you should applaud your Board. They are trying to fix budgeting mistakes made in the past. 

●      The CPA’s Annual Review or Audit

Most HOAs have an independent CPA conduct an annual review or audit of the financial reports. A report of the CPA’s findings is one of the documents an association should provide for review. What to watch out for: does the CPA report say the Board collected more income than it spent? Does it mention any problems with the financial reports that were provided to them by the Board? It doesn’t hurt to do some research on the CPA and make sure they are licensed, are familiar with the financial requirements and practices of HOAs, and that no conflict of interest exists. A red flag is raised if the “independent” CPA is the son of the Board Treasurer, for example. 

What To Do If You Suspect Fraud is Happening in Your HOA

You reviewed the documents and found some big red flags. What do you do now? First, read this article. Then, get the help of an attorney that specializes in HOA law. They’ll review the association’s governing documents and your state’s laws, paying attention to rules about budgeting, financial reporting, and resolving disputes. Some HOAs are exempt from lawsuits, and others require mediation or arbitration before filing. There may be other options besides suing and a receiver is not always the best choice.

Unlike HOA collections, when attorneys are often used when less-costly collections can get the job done, fraud is a time when lawyers are necessary. A good attorney will be able to give advice on your best course of action to investigate and stop fraud.

While Axela Technologies can’t help if your HOA Board is stealing from you, we can help if homeowners are behind on their payments. We offer merit-based collection programs that are fair for everyone in the association. Contact us today to learn more!

Get Us In Your Inbox!

Subscribe to the Axela Blog for regular updates in your inbox when we publish new articles. Stay informed on all the latest happenings with community association collections.