The "Self Dealer" Board Member

In this blog post, we will delve deeper into the "Key Characteristics of a Self-Dealing Board Member" to better understand these behaviors and their impact on an HOA, outlining strategies to effectively address and mitigate these challenges.

Key Characteristics of a Self-Dealing Board Member

Financial Embezzlement

Self-dealers may exploit their access to HOA financials for personal gain. This can involve embezzlement of funds, where they improperly divert money from the community's accounts. For example, a self-dealer might approve payments to a company they own or receive kickbacks from vendors contracted by the HOA. Such actions can deplete community funds and may implicate fiduciary duties, the HOA’s governing documents, and other applicable California laws.

Misuse of Community Resources

Another common tactic of self-dealers is the personal use of community resources. They might use HOA property, such as tools or equipment, for their benefit. For instance, a board member might keep a community-owned power washer at their home for personal use, thereby depriving the community of its intended use and benefits.

Conflict of Interest

Self-dealing board members often engage in activities that present a conflict of interest. This can include making decisions that benefit their own businesses or those of close relatives and friends. For example, contracting a relative's landscaping company without disclosing the relationship or following the association’s governing documents and applicable conflict-of-interest requirements. Such actions can undermine transparency and fairness in HOA governance.

Lack of Transparency

Self-dealers frequently conceal their actions to avoid detection. This can involve manipulating financial records, hiding transactions, or failing to disclose conflicts of interest. The lack of transparency makes it difficult for other board members and homeowners to identify and address the issue, allowing the self-dealer to continue the conduct unchecked.

Resistance to Accountability

Self-dealers often resist efforts to hold them accountable. They might obstruct investigations, deny wrongdoing, or retaliate against those who question their actions. This resistance to accountability can exacerbate the problem, creating an environment where other board members and homeowners may struggle to maintain proper governance.

Addressing the Challenges of Self-Dealing Board Members

Education and Training

Educating board members about their fiduciary responsibilities and the legal requirements of their role is crucial. Regular training sessions can help board members understand the importance of transparency, proper financial management, and ethical decision-making. This knowledge can empower them to identify and address self-dealing behaviors more effectively.

Clear Documentation and Communication

Maintaining clear and accessible documentation of all board activities, financial transactions, and decision-making processes is essential. Homeowners generally have inspection rights to certain association records under the Davis-Stirling Act (subject to statutory limits and procedures). Effective communication channels, such as newsletters and community websites, can keep residents informed and engaged, helping to identify and address issues early.

Engaging Professional Help

In cases where self-dealing significantly impacts the HOA's operations, engaging professional help may be necessary. This can include hiring a professional management company to handle day-to-day operations or consulting with an experienced California HOA attorney to help evaluate compliance with legal requirements. These professionals can provide guidance and oversight to support proper governance.

Mobilizing Community Support

Homeowners can mobilize community support to address self-dealing on the board. Organizing community meetings, circulating petitions, and fostering a culture of involvement can help residents collectively advocate for better governance. In severe cases, the membership may consider a recall election, which in California must follow the association’s governing documents and the Davis-Stirling election requirements (including secret ballot procedures).

Implementing Accountability Measures

Implementing accountability measures can help reduce the risk of self-dealing undermining the HOA's governance. Establishing clear expectations, conducting regular reviews, and following the association’s enforcement procedures can help ensure that board members take their responsibilities seriously. Associations may also consider maintaining clear internal processes for addressing concerns, including Internal Dispute Resolution (IDR) procedures required by California law.

Conclusion

Homeowners troubled by a potentially self-dealing board member in their HOA may have tools available under California law and their governing documents, but the appropriate approach often depends on the specific facts, available records, and the association’s procedures. Situations involving conflicts of interest, misuse of association assets, or financial irregularities can raise both governance and legal compliance questions.

Listen to the Podcast Episode

Watch/Listen to the Episode on Spotify: https://podcasters.spotify.com/pod/show/bad-hoa/episodes/Persona-Series-IV-The-Self-Dealer-e2kkded

Podcast Transcript

For those who prefer reading, the podcast transcript is provided below:

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Hi, Luke Carlson of LS Carlson Law. Welcome back to our show. Today's episode continues our discussion of problematic conduct in an association. So far, we've gone over the tyrant, the incompetent, and the meddler. Today, we're focusing on the self-dealer, which is its own genre of a problematic director or board member. I also have Jenny on the show. She's back. Welcome.

Podcast Guest and Homeowner, Jenny Carlson

Thanks for having me.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Thanks for being here. And I have Marty. Hello, Marty. Okay, so the self-dealer, how would you guys like to start this one?

Producer and Homeowner, Marty Vasquez

Let's go over the common traits. Give them a quick overview of the self-dealer and we'll go into all of the personality traits.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, the self-dealer is complicated because on the surface, they may look like a very engaged director. The tyrant is often more obvious, right? They have overt personalities where they're seizing power and not listening to people. The meddler, you know, because they're up in everyone's business.

Podcast Guest and Homeowner, Jenny Carlson

Why is that my favorite? This is always going to be my favorite.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

And the incompetent displays their incompetency left and right. So it's apparent. The problem with the self-dealer though, they may be surface-wise "perfect." You say, "Oh my, this is a wonderful director. They do everything that they're supposed to do." It's really under the surface where the problem is. When we talk about the self-dealer, what they're really doing is utilizing their position on the board to benefit themselves. It could be, and it's typically, financial. So that's where you have some form of embezzlement, right? They have access to the financials and under everyone's noses, they're taking money from the community.

Producer and Homeowner, Marty Vasquez

And it doesn't have to be direct. It could be indirect as well.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, so there's different forms. Some setups where they'll actually set up another company, a vendor, a landscaping company, or their uncle owns a landscaping company. In their position as a board member, they'll contract with that company and they'll get kickbacks from it, right? That's a form of self-dealing, which can violate California conflict-of-interest rules and fiduciary duties. But again, you don't always see it on the surface. So that's what we're talking about when we're talking about the self-dealer.

Producer and Homeowner, Marty Vasquez

Perfect. Let's get into some of the definitions.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, we got some good ones. So, going back to financial gain, that really is the driver here because the self-dealer is trying to monetize the relationship with the board individually. They're trying to make money in their position, which is contrary to what they're supposed to be doing. You're supposed to be on the board to benefit the community as a whole. But a self-dealer will sit at the table and not say to themselves, "Hey, how do we make this community better? How do we improve the community?" What they say to themselves is, "Hey, how can I get a cut of what's happening?"

Podcast Guest and Homeowner, Jenny Carlson

How can I profit from this somehow? Correct.

Producer and Homeowner, Marty Vasquez

Now, it could be something a little less egregious, like we're going to buy a power washer so we can power wash the pool area, but they decide to keep it at their house and use it to power wash their car every other week.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, you have these micro events, micro self-dealing, where they're utilizing community property to their benefit. It doesn't always have to be financial in a strictly economic sense. They could leverage other assets owned by the community, but use them for themselves. Another version is a landscaping company comes in, and the self-dealer goes to that company and says, "Hey, I want you to do my personal property." The handyman who works for the community, they say, "Hey, can you fix my light bulbs or patch some drywall?"

Podcast Guest and Homeowner, Jenny Carlson

Just come by real quick.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Correct.

Producer and Homeowner, Marty Vasquez

Now, does that violate the Davis-Stirling Act as well? Some of these little micro dealings, or is there a gray area that you have to kind of navigate?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

It can raise fiduciary-duty concerns. Any time you take association assets and use them for personal benefit, that may be inconsistent with a director’s duties. In terms of economically, what are the damages? Now you're more into whether it is de minimis, right?

Producer and Homeowner, Marty Vasquez

Yeah.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

So if anything, you're not always looking to quantify every minor use. You're often looking at it like, "Hey, you violated your obligations as a director," and then the association has to consider what governance steps are available.

Podcast Guest and Homeowner, Jenny Carlson

Well, interestingly enough, I spoke with somebody at my son's football practice who was on their HOA board. She mentioned something about pool cleaning supplies that I guess the organic version of chlorine is really in right now. If you store that in a public or an access point where everybody can reach it, people will often use or take the pool cleaning supplies. What a surprise. So, little things like that.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

That's interesting because, in that scenario, what you're having is owners pulling out assets from the community.

Podcast Guest and Homeowner, Jenny Carlson

Well, one was a board member.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Well, there you go. And other homeowners.

Podcast Guest and Homeowner, Jenny Carlson

And other homeowners, there you go.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah. The other one you identify as conflict of interest. This sort of explains itself. When you're there to promote the community, and you're looking out for your own self-interests, the conflict arises immediately.

Producer and Homeowner, Marty Vasquez

And that would go back to your uncle owning the landscaping business, and they're not contracting with anybody else, not getting fair bids, and you're not disclosing it, and you move on.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, you're driving this one vendor because you are going to benefit in some way.

Podcast Guest and Homeowner, Jenny Carlson

What if it's not even you're going to monetize, but just it's almost like a family favor? Like you're actually just trying to benefit your uncle.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Well, it's derived from self-interest in some way. Really, what a board is supposed to do is ask, "Which vendor is going to best serve the community?" Not, "I should pick this person because it's a family thing." That shouldn't factor into the decision.

Producer and Homeowner, Marty Vasquez

Well, that goes into the next one a little bit with lack of transparency. I would assume that if you're being above board and getting several bids and you disclose, "Just so you know, this is an uncle of mine. I'm going to recuse myself from making a selection here based on X, Y, and Z."

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah. So, the lack of transparency could be very egregious. It could be actual concealment. You might have someone who is taking money, embezzling from the community, but they're hiding their tracks. Now, what's interesting with embezzlement nowadays is everything's electronic, so it's harder to hide if you do a deep dive into the financials and you see these transfers going out to some third party, and the third party ends up being an LLC owned by that director. There could be concealment, though, on the documents generated explaining the transfers. Lesser forms might be, "Here are five vendors. I really like vendor three," and they don't tell you that their cousin owns it.

Podcast Guest and Homeowner, Jenny Carlson

Cousin Vinny. I love it.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Vendor three, right?

Podcast Guest and Homeowner, Jenny Carlson

Yeah.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

So that's the lack of transparency. But yeah, that's a common thread in these.

Producer and Homeowner, Marty Vasquez

You're so on top of this. I do my best here.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

So lack of transparency also goes to non-disclosure. Non-disclosure is essentially the same thing. They're not disclosing material information, which is important. That may bias their decision. The unfair advantages: when you're in a director chair, you have power to influence decisions. If you're using that position to influence decision-making for personal benefit, that's problematic.

Podcast Guest and Homeowner, Jenny Carlson

The greater good, not self-serving.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Correct.

Producer and Homeowner, Marty Vasquez

Are there term limits defined in HOAs?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

It depends on the association’s governing documents, and term limits (if any) are commonly addressed in the bylaws.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

So excessive compensation, that's another form of self-dealing in the sense that somehow they're being compensated improperly. Often, directors are not compensated for serving as directors, and some governing documents prohibit compensation, though reimbursement of expenses is common.

Producer and Homeowner, Marty Vasquez

I have seen in some situations, though, if they take a particular role, at least on Reddit, with a grain of salt, that some board members are paid to perform certain functions like bookkeeping or something in particular.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

That can come up in some situations, particularly in smaller associations, but it raises potential conflict-of-interest issues and should be evaluated carefully under the governing documents and applicable California law.

Podcast Guest and Homeowner, Jenny Carlson

Gotcha.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Because ultimately, you get on the board, you don't want to be sitting there at your home mailing out checks. You agree to think about these things, make decisions, do board meetings, serve in that function and as that role, but a lot of the mechanical stuff, you just don't have time for.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Now, what's interesting there is a lot of the disputes that we see involve management companies. The homeowner will say, "Hey, the management company isn't responding," or "The management company keeps fining me even though whatever infraction has been addressed," or "The management company is supposed to repair a common area roof, they failed to do so."

HOA Attorney and Podcast Host, Luke Carlson, Esq.

What you have to understand is the association has hired the vendor, which is the management company. If the management company is failing or is acting negligently, that conduct may, depending on the circumstances, be attributed back to the association under agency principles.

Podcast Guest and Homeowner, Jenny Carlson

Well said.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Thank you.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

All right, so that's excessive compensation. Resistance to accountability: if someone calls them out and says, "Hey, you're siphoning off money," there's probably going to be a resistance to that. They may try to spin it out. But once you catch a self-dealer, they may have limited explanations.

Producer and Homeowner, Marty Vasquez

A lot of these are entangled because I can see the resistance to accountability goes to lack of transparency and whatnot. A lot of these, you're usually ticking a couple of these boxes when you talk about self-dealing.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah, and I think resistance to accountability is maybe better said: they do not want to be visible. They're not taking accountability because they don't want to get caught. This is different than a mistake or negligence. With self-dealing, the allegation is intentional.

Podcast Guest and Homeowner, Jenny Carlson

Malicious in nature, yeah.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Correct.

Producer and Homeowner, Marty Vasquez

So the question is, kind of moving on to the next area, if you suspect someone is self-dealing, I would assume it's pretty low-key in most situations, but you start suspecting it and you don't want to call somebody out that you live next door to, right? How do you broach the subject? How do you start raising the red flags and trying to get them out of the board or their role?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

With self-dealing and embezzlement, it can get complicated quickly. I'll try to break it down in very simplistic form. If you're an association, the association is a legal entity. When you have a legal entity and someone is self-dealing, claims are often pursued by the entity, though owners may have potential remedies depending on the facts.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

If you're a homeowner and you're saying, "Hey, something's wrong here, we keep burning money, the numbers don't add up," at that point, there's smoke, right? You suspect it. There are certain things you can do in California. You can request association records under the Davis-Stirling Act (for example, Civil Code section 5205 and related provisions) so you can review the association’s financial records that are subject to inspection.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Let's say you find something where you have a good faith reason to believe there's some self-dealing or embezzlement or however you want to frame it legally. At that point, you're putting the association on notice. To an extent, you have to decide whether and how to raise the issue.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Once you put the association on notice and the association is looking at it and there's some credibility to what you're saying, the association may need to investigate. Often how we see it play out is the association hires counsel to investigate and provide findings to the board. The association then has to make decisions about next steps.

Producer and Homeowner, Marty Vasquez

Is that a criminal charge at that point?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Potentially, depending on the facts.

Producer and Homeowner, Marty Vasquez

Interesting.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Whether a prosecutor gets involved can depend on the amount at issue and available resources.

Podcast Guest and Homeowner, Jenny Carlson

Is there a number? Like a financial number?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

There isn’t a single bright-line metric that applies in every situation.

Producer and Homeowner, Marty Vasquez

Yeah, if it's in the tune of millions of dollars, it might catch their eyes.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Exactly.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

At that point, the association has to make decisions. That decision is often influenced by the economics of pursuing recovery.

Producer and Homeowner, Marty Vasquez

Interesting.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Here's where it gets interesting. Let's say it is a million dollars and the board decides not to do anything against this individual. The owner says, "What are you going to do about it?" Nothing. At that point, the owner might claim the association failed to act appropriately, and the specific legal theories would depend on the facts.

Podcast Guest and Homeowner, Jenny Carlson

Because it was their fiduciary duty.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

That could be a fiduciary-duty or negligence issue depending on the circumstances.

Producer and Homeowner, Marty Vasquez

What if they execute some sort of action? Let's say they just kick them off the board, but no funds were paid back.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

If the association lost a significant amount of money, the board would typically need to evaluate what remedies are available and appropriate.

Podcast Guest and Homeowner, Jenny Carlson

Have you ever seen that happen?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

I've seen situations where boards did not take action that owners expected, yes. Facts can vary.

Producer and Homeowner, Marty Vasquez

I've got a curveball for you. You ready?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Oh no.

Producer and Homeowner, Marty Vasquez

You know how an association can put a lien on the property or even sell the property if they have unpaid dues? Let's say in this situation, they steal a million dollars and they don't repay it. Could they take their house?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

If the association (or another party) obtains a money judgment against someone, there are judgment-enforcement tools under California law that may include recording an abstract of judgment to create a judgment lien and potentially pursuing collection through legal process. The available methods and exemptions depend on the circumstances. That process is different from an HOA assessment lien foreclosure, which is governed by specific statutory procedures and limitations.

Producer and Homeowner, Marty Vasquez

Interesting.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

You can also levy bank accounts once you have a judgment. You can do a judgment debtor examination, which if you have a judgment against somebody, you can go to the court and the court can compel them to appear and answer questions about assets. If they don't show up, the court can issue a bench warrant.

Producer and Homeowner, Marty Vasquez

The court will give them two bites of the apple though. So if you show up and the judgment debtor was supposed to show up, they don't show up, you go in front of the judge and say, "Hey, they didn't show up, can you issue a bench warrant?" Typically, they'll issue a bench warrant, but they'll hold it. They'll give them one more chance to show up. If they don't show up a second time, a bench warrant is typically issued. But that's a great way to get into the financials. It's a significant remedy though. If they show up with cash, you can actually ask what cash they have.

Podcast Guest and Homeowner, Jenny Carlson

Wow.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Say they have $1,000. You can go back to the bench and do what's called a turnover order and request that the judgment debtor turn over the $1,000 to help satisfy the judgment.

Podcast Guest and Homeowner, Jenny Carlson

Or their watch or something else.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah.

Producer and Homeowner, Marty Vasquez

What would you recommend for this to be avoided in the first place? What would you recommend as an attorney? I guess this goes more maybe towards the other side. You represent homeowners, but maybe on the other side too, to try to keep this from happening in the first place.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Sometimes you don't see people's fangs ever, right? You could think this person is wonderful. I think it goes to the election process: know who you're voting in as best you can. But sometimes you won't know.

Producer and Homeowner, Marty Vasquez

Transparency is just key. In most aspects, if there's one thing we've learned in all of this, it's transparency.

Podcast Guest and Homeowner, Jenny Carlson

Maybe you need Colby assessments before you go on a board.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Colby's I don't think is going to teach you whether or not someone's going to steal money though.

Podcast Guest and Homeowner, Jenny Carlson

And it's voluntary.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

And you can't ask them. You can't say, "Hey, you're a great candidate, but are you going to take money from the community?"

Podcast Guest and Homeowner, Jenny Carlson

On a scale of one to 10, how likely are you?

Producer and Homeowner, Marty Vasquez

I'm very, very, I'm definitely a threat.

Podcast Guest and Homeowner, Jenny Carlson

Like when you go on a jury and they're like, "Do you know an attorney?"

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Right. So, I don't know if there's anything you can do other than know the candidates, know them as well as you can, and cross your fingers. It does come up. It's not a major thing that we see all the time. We see it, but it is not as common as issues like maintenance disputes, enforcement disputes, or governance complaints.

Podcast Guest and Homeowner, Jenny Carlson

Okay.

Producer and Homeowner, Marty Vasquez

You ready for the Reddit?

Podcast Guest and Homeowner, Jenny Carlson

Am I reading this or are you, Marty?

Producer and Homeowner, Marty Vasquez

No. I'll stutter through that where it'll sound like a machine gun.

Podcast Guest and Homeowner, Jenny Carlson

This is where my pre-teacher knowledge comes in.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

These are always weird too, because I never know where they're coming from.

Podcast Guest and Homeowner, Jenny Carlson

Reddit has such fascinating people.

Producer and Homeowner, Marty Vasquez

They do.

Podcast Guest and Homeowner, Jenny Carlson

Alright, here we go. Hello, I'm turning to this platform for guidance because my neighbors and I are facing a significant issue. Five years ago, I moved into my California community, and initially, our homeowners association was satisfactory. However, two years ago, the HOA board made a regrettable decision to switch management companies, leading to poor landscaping, water leaks, and a generally unkept community. In response, many of us began attending meetings and offering help. We discovered a conflict of interest. A board member, let's call her Lisa, is also an employee of the management company and consistently approves their expenses, despite needing a majority of three out of five votes. This arrangement seemed questionable, especially as our community's conditions deteriorated, looking neglected for over nine months while fees were still collected. Frustrated homeowners living in properties valued around $600,000 demanded change. Typically, our HOA votes by secret ballot, usually by mail, but due to suspicions...

Podcast Guest and Homeowner, Jenny Carlson

...of fraud and to ensure transparency, it was recommended that voting occur in person (while still using the required secret ballot process). This led to the election of two new board members and the ousting of Lisa and another member. However, when the new board proposed changes, including switching management companies, the current management contested the election's legitimacy, claiming undue influence because of the in-person voting. They continued to operate with the previous board members, ignoring the new board's decisions. Legal intervention became necessary as the management company refused to relinquish control, leading to a deadlock where they continued collecting fees without acknowledging the new board's authority. Additionally, the management company increased their fee five-fold without raising our dues, essentially profiting exorbitantly. A petition for their removal is underway, though Lisa actively sabotages this effort by removing the petition from the communal area. The entanglement deepens as the old management holds on...

Podcast Guest and Homeowner, Jenny Carlson

...to the community's funds, preventing the new board from making any significant changes. Some homeowners, including myself, ceased fee payments, which led to threats of liens and additional charges. We've engaged a lawyer to navigate this complex situation, but I'm seeking advice and insights from anyone who might have experienced something similar. This ordeal has become incredibly stressful to the point where selling my home seems like the only escape. Thank you for reading through my predicament.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

That sounds like a very difficult situation.

Producer and Homeowner, Marty Vasquez

Most of these on Reddit are intense.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Yeah. So, framing it in California terms, initially what you're seeing is, on the one hand, potential claims related to maintenance obligations and governance duties. Even though the hands-on work is done by a management company, depending on the facts, the association can remain responsible for decisions and oversight.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

The self-dealing component is interesting in the sense that you have a board member who is driving the relationship with a management company because she's also employed there. So, there’s a conflict issue there.

Producer and Homeowner, Marty Vasquez

Unless she's getting a commission. Possibly. A rainmaker over there or something.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Possibly.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Where it gets very weird is the control that the management company supposedly has over the association. You have to remember, the management company is a vendor. It's a contractual relationship. In a typical setup, the board controls the association, and the management company operates under the board’s direction and the contract.

Producer and Homeowner, Marty Vasquez

It must be a corrupt board or the board's in cahoots.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

It sounds like something's way off in this fact pattern. If a management company is withholding access to association funds or accounts, that may raise contract and governance issues, and it may require legal action to resolve.

Podcast Guest and Homeowner, Jenny Carlson

Interesting.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

In California, an association might consider legal options against a management company in a situation like that. There might have to be some sort of court intervention to untangle some of this, depending on the facts. The potential remedies would depend on the contract terms and what actually occurred.

Producer and Homeowner, Marty Vasquez

Fraud land.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Potentially, but it’s very fact-specific.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

They should have an attorney as well, the HOA should have their own attorney.

Producer and Homeowner, Marty Vasquez

Typically, they do. Maybe, unless it's a very, very small community and it's just kind of internally a mess.

Podcast Guest and Homeowner, Jenny Carlson

Yeah, we're finding more.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

It might be one of those where it's just so loosey-goosey that a management company exerted control and is dominating the association. With the right information and documentation, these issues can sometimes be clarified, but it presupposes that the association leadership actually wants that to happen.

Producer and Homeowner, Marty Vasquez

We do know one board member for sure is in cahoots with...

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Correct. So, you almost have two things in this scenario. You have an association as an entity, and it's the entity which may have claims against the management company. But then owners may also have remedies depending on what is happening with the community.

Producer and Homeowner, Marty Vasquez

That wraps the personalities. Are we done with personalities?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

We are done with personalities.

Producer and Homeowner, Marty Vasquez

Alright, let's see what...

HOA Attorney and Podcast Host, Luke Carlson, Esq.

We're starting a new series too.

Producer and Homeowner, Marty Vasquez

Yeah, a new series, the infractions or case types.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

Now that we've gone over bad HOA board member personality types, what do we see? Now that you've identified the players, you have a better idea of why these things happen, some of the motivation, I think it's important to identify, from a legal perspective, how to articulate issues. Next series, we'll go over the different causes of action. Just to tease it, as you like to say, there you're looking at breach of fiduciary. What does that look like? What does that mean? Breach of contract, negligence, just common law negligence. What is the standard of care? How does it materialize?

HOA Attorney and Podcast Host, Luke Carlson, Esq.

By knowing this, I think an owner is in a much better position to start labeling these things. We speak with a lot of owners and they have a lot of bad around them, right? It's like our common area is falling apart. The pool doesn't work. The roof is leaking. That's one way to describe it. That's a factual articulation of what is happening. But to elevate that vocabulary, yes, it's a leaking roof, but ultimately it may be negligence or a breach of the governing documents because the association has obligations to repair and maintain common area elements.

Producer and Homeowner, Marty Vasquez

Okay. Exciting.

HOA Attorney and Podcast Host, Luke Carlson, Esq.

That'll be fun. So, hope you guys enjoyed the series and we look forward to seeing you next time.