Fraud can happen to any association. The Hammocks Homeowners Association, a large master community in Miami-Dade County in 2022 had such a problem. It all started when homeowners noticed their annual dues had increased by 400% when the HOA Board adopted an annual budget of $10.7 million up from the previous $3.7 Million. Instead of paying, the owners filed a lawsuit.
According to prosecutors, a significant part of the investigation centered around board members writing checks, in some cases for hundreds of thousands of dollars, to vendors for services that weren’t being provided. Then the vendors would return laundered money after keeping a portion for themselves.
Investigators found that several members of the Board used the HOA as a front for criminal activity. Five individuals were arrested and accused of stealing more than two million dollars. The charges included racketeering, grand theft, and money laundering.
The Hammocks case is a perfect example of what can happen when the actions of the Board of Directors are left unchecked. In January of the same year, it’s been reported that Residents tried to oust the board in an election when hundreds of voters standing in line were not allowed to vote because of a fake phoned-in bomb threat and again during a July recall election when the board threw out two-thirds of the ballots cast.
Fraud can happen to any association and the best way you can protect yourself and your HOA from a corrupt Board is to pay attention. First, the Annual Budget 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. In short, the Annual Budget reflects what the HOA has been paying and what the projected costs are for the coming year.
Next is the Reserve Study. In several states, a reserve study must be performed at least every 3 years, and it’s recommended to have your reserve study updated annually. Pay attention to the funding level for your reserves and compare it to the line item on the budget. Does the reserve amount reflect severe underfunding making it unable to meet upcoming project costs or obligations? A well-planned HOA reserve fund ensures the community can cover the costs of future capital projects without resorting to drastic measures like levying special assessments or taking out loans.
If you suspect improprieties by the HOA Board, it’s always good to document your findings and provide written or photographic evidence. Items such as written statements by those involved, invoices, or canceled checks can be considered as evidence. Inferences and allegations alone are not. Once assembled, seek the counsel of an Attorney specializing in HOA matters. Some HOAs are exempt from lawsuits while others require mediation or arbitration before filing.
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