What duties must board members of nonprofit corporations uphold?
Duty of Care. Community association boards must give the business of their associations the same degree of care and diligence that prudent persons would exercise in their own affairs in similar circumstances. The duty of care requires directors to invest time and attention in association business, make reasonable inquiry into association matters to enable informed decision-making, and take reasonable, not arbitrary or capricious, actions.
Duty of Loyalty. Directors of community associations, like their counterparts in for-profit corporations, have a duty to the association and to its members to act for the association’s benefit only and with an eye to its best interests, without regard for any personal interest the directors may have. Courts take this duty very seriously, using expressions such as “utmost good faith.” If a transaction is challenged, courts place the burden on the director to demonstrate the fairness of any transaction in which the director is personally involved.
Duty to Act within the Scope of Authority. Directors owe a duty to their associations and to their members to perform their duties in accordance with the authority granted to them by statute and in their governing documents. If directors exceed this authority and damage results, the directors may be personally liable for their unauthorized actions.
Friday, November 30, 2007
Thursday, November 29, 2007
Free Speech in the 21st Century
This is rich. I greatly enjoyed this story.
Click on the title to access the link to the story.
Jay
Click on the title to access the link to the story.
Jay
Food for Thought
a quote from Thomas Jefferson over 200 years ago:
"But I have always found that rogues would be uppermost, and I do not know that the proportion is too strong for the higher orders and for those who, rising above the swinish multitude, always contrive to nestle themselves into the places of power and profit. These rogues set out with stealing the people's good opinion, and then steal from them the right of withdrawing it, by contriving laws and associations against the power of the people themselves."
--Thomas Jefferson to Mann Page, 1795. ME 9:306
"But I have always found that rogues would be uppermost, and I do not know that the proportion is too strong for the higher orders and for those who, rising above the swinish multitude, always contrive to nestle themselves into the places of power and profit. These rogues set out with stealing the people's good opinion, and then steal from them the right of withdrawing it, by contriving laws and associations against the power of the people themselves."
--Thomas Jefferson to Mann Page, 1795. ME 9:306
Not guilty plea in embezzle case
By Robyn Moormeister
A Story from Nevada
12:01 a.m. PT Nov 22, 2007
A Nevada City woman accused of embezzling more than $100,000 from her homeowners association as its treasurer pleaded not guilty Wednesday to felony embezzlement and theft charges.
Linda Balch, 61, appeared in Nevada County Superior Court to face three charges of felony embezzlement and one count of theft from an elder. She was joined by her attorney, Thomas Leupp of Auburn, and her husband Tom Balch, a former Nevada City mayor.
Eight of Balch's alleged victims sat in the back row of the crowded gallery, accompanied by two county victim advocates.
When Judge Candace Heidelberger called Balch's case, Balch stood before the judge while Leupp entered the not guilty plea. With Leupp's arm sheltering her, she quickly left the courtroom without responding to questions.
"Is there any chance we'll recover the money?" Woodbridge Townhomes Homeowners Association board secretary Uli Kaestner asked District Attorney Cliff Newell outside the courtroom.
Newell told Kaestner and the other alleged victims that restitution is possible.
"The Balches have assets," Newell said. "They're not destitute, as opposed to some of these cases, where the defendants have nothing."
Balch allegedly used her position as association treasurer to embezzle more than $100,000 from the Woodbridge homeowners association between September 2005 and Sept. 30 of this year and used the funds for personal gain, Grass Valley police Sgt. Doug Hren said.
Grass Valley police arrested Balch Oct. 25. Her bail was set at $100,000, and she posted a $10,000 bond the same day of her arrest.
Balch told residents at a recent homeowners association board meeting that she would do "everything in her power" to pay the money back, Kaestner said.
"She said she did it to keep up her lifestyle," Kaestner said.
Leupp did not return a phone call from The Union.
Mishandling of homeowners association funds is nothing new, said Marjorie Murray, president of the Center for California Homeowners Association Law.
"This is an issue we've been tracking for a long time," Murray said. "There are few controls over money collected by a homeowners association."
According to the center, California law does not demand financial accountability by homeowners associations. Residents hand over more than $200 million in assessments annually to association boards, but they often have a difficult time finding out how boards are spending the money they have entrusted to them, according to Murray's Web site.
Newell said every homeowners association is different, and it is up to the board to assure adequate oversight of its funds.
"This might be a wake-up call to homeowners associations," he said. "They need to be sure there is a system of checks and balances and their procedures are followed."
Since Balch's arrest, the association board removed Balch from her position and assigned four people to run the treasury position instead of one, Kaestner said.
After Wednesday's court hearing, the DA reassured the group of elderly homeowners it is possible that Balch could change her plea in coming months and be ordered to pay restitution.
Newell said he would like to resolve the case as quickly as possible, and he is confident that Leupp - with whom he has worked before - will also help to ensure an expedient resolution to the case.
The maximum possible sentence for Balch's alleged crimes is 13 years in prison if she is sentenced consecutively for each count, but that's not likely, Newell said.
"It could end up being anything down to probation and community service," he said.
According to California law, many crimes occurring out of the same set of circumstances can't be sentenced consecutively, Newell said.
In addition, a clause exists in the sentencing guidelines for the alleged crimes Balch is facing that allows the judge to take into account unusual circumstances.
"It's really up to the judge," Newell said. "It's very unlikely for a first-time offender to go to prison, but there are aggravated circumstances. The victims are elderly and the amount of money is large. These are things a judge would consider."
Balch is set for a pre-trial hearing at 1 p.m. Dec. 13 in Nevada County Superior Court.
ooo
To contact Staff Writer Robyn Moormeister, e-mail robynm@theunion.com or call 477-4236.
A Story from Nevada
12:01 a.m. PT Nov 22, 2007
A Nevada City woman accused of embezzling more than $100,000 from her homeowners association as its treasurer pleaded not guilty Wednesday to felony embezzlement and theft charges.
Linda Balch, 61, appeared in Nevada County Superior Court to face three charges of felony embezzlement and one count of theft from an elder. She was joined by her attorney, Thomas Leupp of Auburn, and her husband Tom Balch, a former Nevada City mayor.
Eight of Balch's alleged victims sat in the back row of the crowded gallery, accompanied by two county victim advocates.
When Judge Candace Heidelberger called Balch's case, Balch stood before the judge while Leupp entered the not guilty plea. With Leupp's arm sheltering her, she quickly left the courtroom without responding to questions.
"Is there any chance we'll recover the money?" Woodbridge Townhomes Homeowners Association board secretary Uli Kaestner asked District Attorney Cliff Newell outside the courtroom.
Newell told Kaestner and the other alleged victims that restitution is possible.
"The Balches have assets," Newell said. "They're not destitute, as opposed to some of these cases, where the defendants have nothing."
Balch allegedly used her position as association treasurer to embezzle more than $100,000 from the Woodbridge homeowners association between September 2005 and Sept. 30 of this year and used the funds for personal gain, Grass Valley police Sgt. Doug Hren said.
Grass Valley police arrested Balch Oct. 25. Her bail was set at $100,000, and she posted a $10,000 bond the same day of her arrest.
Balch told residents at a recent homeowners association board meeting that she would do "everything in her power" to pay the money back, Kaestner said.
"She said she did it to keep up her lifestyle," Kaestner said.
Leupp did not return a phone call from The Union.
Mishandling of homeowners association funds is nothing new, said Marjorie Murray, president of the Center for California Homeowners Association Law.
"This is an issue we've been tracking for a long time," Murray said. "There are few controls over money collected by a homeowners association."
According to the center, California law does not demand financial accountability by homeowners associations. Residents hand over more than $200 million in assessments annually to association boards, but they often have a difficult time finding out how boards are spending the money they have entrusted to them, according to Murray's Web site.
Newell said every homeowners association is different, and it is up to the board to assure adequate oversight of its funds.
"This might be a wake-up call to homeowners associations," he said. "They need to be sure there is a system of checks and balances and their procedures are followed."
Since Balch's arrest, the association board removed Balch from her position and assigned four people to run the treasury position instead of one, Kaestner said.
After Wednesday's court hearing, the DA reassured the group of elderly homeowners it is possible that Balch could change her plea in coming months and be ordered to pay restitution.
Newell said he would like to resolve the case as quickly as possible, and he is confident that Leupp - with whom he has worked before - will also help to ensure an expedient resolution to the case.
The maximum possible sentence for Balch's alleged crimes is 13 years in prison if she is sentenced consecutively for each count, but that's not likely, Newell said.
"It could end up being anything down to probation and community service," he said.
According to California law, many crimes occurring out of the same set of circumstances can't be sentenced consecutively, Newell said.
In addition, a clause exists in the sentencing guidelines for the alleged crimes Balch is facing that allows the judge to take into account unusual circumstances.
"It's really up to the judge," Newell said. "It's very unlikely for a first-time offender to go to prison, but there are aggravated circumstances. The victims are elderly and the amount of money is large. These are things a judge would consider."
Balch is set for a pre-trial hearing at 1 p.m. Dec. 13 in Nevada County Superior Court.
ooo
To contact Staff Writer Robyn Moormeister, e-mail robynm@theunion.com or call 477-4236.
Hand in the HOA's Cookie Jar
by Richard Thompson
An excerpt from a recent news story read: "Bridgett Freeman of Sheboygan stole more than $11,000 from the Westridge Homeowner's Association in West Bend. Thursday, she was sentenced to six months in jail and three years probation, and was ordered to pay back $11,617.41. She said she was sorry."
From time to time, these stories hit the local rag with the really big ones making national news. While embezzlers can be found in virtually every type of business, homeowner associations are not immune. In fact, because of the volunteer nature of HOAs, business practices tend to be somewhat lax and HOAs are even more vulnerable than traditional businesses.
In the past, big time embezzlement was less likely because most HOAs had little money to steal. It was like mugging a panhandler. What was more likely to happen, is something, like board members buying themselves dinner or other perks on the HOA's dime. Those so engaged, view it as a legitimate expense for a volunteer position. Trouble is, since directors usually serve for no compensation (see your governing documents) and there is rarely a budget line item called "Board Perks," this is just another form of petty embezzlement. Like Enron, this kind takes collusion of the board members to keep the practice alive.
With reserve planning for homeowners on the rise (thankfully) comes increased amounts of cash which can add up to hundreds of thousands of dollars. With larger amounts of cash comes the unfortunate temptation to dip into the HOA's cookie jar. Embezzlement can happen by either a board member or management company that has access to the funds. Usually, managers are restricted (or should be) from reserve accounts where most of the HOA's money is. This leaves the HOA cookie jar under the control of the Board President and Treasurer.
When it comes to protecting against embezzlement and other forms of fraud, it's best to have a number of controls in place that are designed to preempt the act. In other words, if there is a good chance an embezzler is going to get caught, the temptation is much less than if stealing is a piece of cake.
Getting caught with a hand in a cookie jar is no big thing if you're five years old and the goal is a macaroon. But when the prize is the HOA's cash, the Board needs to place aggressive measures in place to help keep those "certain someones" from helping themselves.
An excerpt from a recent news story read: "Bridgett Freeman of Sheboygan stole more than $11,000 from the Westridge Homeowner's Association in West Bend. Thursday, she was sentenced to six months in jail and three years probation, and was ordered to pay back $11,617.41. She said she was sorry."
From time to time, these stories hit the local rag with the really big ones making national news. While embezzlers can be found in virtually every type of business, homeowner associations are not immune. In fact, because of the volunteer nature of HOAs, business practices tend to be somewhat lax and HOAs are even more vulnerable than traditional businesses.
In the past, big time embezzlement was less likely because most HOAs had little money to steal. It was like mugging a panhandler. What was more likely to happen, is something, like board members buying themselves dinner or other perks on the HOA's dime. Those so engaged, view it as a legitimate expense for a volunteer position. Trouble is, since directors usually serve for no compensation (see your governing documents) and there is rarely a budget line item called "Board Perks," this is just another form of petty embezzlement. Like Enron, this kind takes collusion of the board members to keep the practice alive.
With reserve planning for homeowners on the rise (thankfully) comes increased amounts of cash which can add up to hundreds of thousands of dollars. With larger amounts of cash comes the unfortunate temptation to dip into the HOA's cookie jar. Embezzlement can happen by either a board member or management company that has access to the funds. Usually, managers are restricted (or should be) from reserve accounts where most of the HOA's money is. This leaves the HOA cookie jar under the control of the Board President and Treasurer.
When it comes to protecting against embezzlement and other forms of fraud, it's best to have a number of controls in place that are designed to preempt the act. In other words, if there is a good chance an embezzler is going to get caught, the temptation is much less than if stealing is a piece of cake.
Getting caught with a hand in a cookie jar is no big thing if you're five years old and the goal is a macaroon. But when the prize is the HOA's cash, the Board needs to place aggressive measures in place to help keep those "certain someones" from helping themselves.
Where does the money go?
WHAT ARE THEY DOING
WITH YOUR DUES?
by Karen Conlon,
President, CACM
You keep your patio neat, your radio down and your homeowners association dues paid on time. But how can you be sure those dues are being used for property repairs, maintenance, taxes and other association costs?
Approximately 98 percent of the time, your dues are being properly applied. However, there are those rare instances of embezzlement or mismanagement, from either a member of the homeowners association board of directors or an employee of the association management company that you, as a homeowner, need to guard against.
For example, in one instance an association board member who was a contractor by trade worked on the landscape committee and offered to purchase all the association's materials. He set-up an account at a local nursery, under the association's name, and began buying a wide variety of items.
After several months during which several thousands of dollars worth of goods had been purchased in this manner, an investigation of the nursery account revealed that: 1) all the items purchased on the association's account had been delivered directly to the board member for use in his own contracting firm, and 2) the board member had received financial kick-backs from the nursery for all the purchases.
Embarrassed by their oversight, the other board members reimbursed the association out of their own pockets and asked the contractor to resign from the board.
But other associations can't resolve the problem of fraud that easily. Since they have a monthly income flow, associations do not want to file for bankruptcy which leaves homeowners themselves to fill in the financial hole. As the number of homeowners associations grow, so does the possibility of these unexpected special assessments.
In Northern California there are approximately 10,400 common interest developments (CIDs) such as condominiums, condominium conversions, planned unit developments and cooperatives which require a homeowners association and an association management firm. This figure represents 1,100,000 individual units housing approximately 2.5 million people.
According to recent projections by the California Department of Real Estate, some 80 percent of all future residential communities in Northern California will be common interest developments. With that in mind, homebuyers are best advised to protect themselves and their investments by knowing the questions to ask before they buy, how to spot fraud or mismanagement, and what to do if they suspect problems.
Some of the most important questions homebuyers should ask prior to purchasing a common interest development home is whether or not the community requires any major repair work, and if there are pending lawsuits or a history of litigation. Buyers might speak with the board president regarding any other current community concerns, and to ascertain when the association holds open board meetings that homeowners are allowed to attend.
Secondly, homebuyers need to make sure that the association management firm and the homeowners association have the appropriate types and levels of insurance. In fact, it's a state statute that the seller of the home provide this information about the association.
Typically, the homeowners association board of directors hires the association management company. That company has a fiduciary responsibility to collect dues and pay bills. However, the board has the ultimate responsibility for the association with the association management firm following the board's policy.
Depending upon the number of units involved and the level of possible exposure, the management firm should have at least $1 million in professional liability insurance which covers breach of duty, errors and omissions. The management group also needs to carry fidelity insurance which covers employee theft of management company funds, as well as a general office package that includes such basics as workers compensation, general liability and fire.
The homeowners association should also carry fidelity insurance. And it's very important to have the management firm listed as an additional co-insured on this policy.
Several years ago, a large management firm was caught embezzling millions of dollars of homeowner associations' funds. Eventually, the company's owner went to jail and the company itself filed for bankruptcy. Unfortunately, the management company was not listed as a co-insured on the association's fidelity insurance policy and thousands of homeowners were faced with unexpected assessments to make up the lost funds.
Homeowners associations should also carry directors and officers liability insurance as well with the minimum standard amount of $1 million. In fact, many times the community's covenants, codes and restrictions (CCR's) and California statutes require minimum levels of insurance coverage.
Finally, buyers should ascertain whether or not the community association manager and/or the association management firm is certified by a recognized trade association such as the California Association of Community Managers which is the only state-specific organization for association managers in the country.
Once the buyer has moved in, how can he or she spot mismanagement or fraud before it's too late? Actually, it's a lot easier than one might think.
By law, the homeowners association must send out certain financial documents on an annual basis. Each owner should be sure to read them, checking for such things as: Is the management entity collecting at least 85 to 90 percent of the monthly association dues owed by homeonwers; are the funds being held in an interest-bearing account in the name of the association; and has a reserve account been set aside for long-term maintenance and repairs?
If the answer to any of these questions is no, the homeowners association may be on shaky financial ground. Owners can also be on the lookout for fraud by verifying that the endorsement stamp on the back of their monthly dues check is that of their association and by walking around their community from time to time to make sure it is being maintained in acceptable fashion.
If a homeowner has a complaint, what can he or she do about it?
First, owners should call the association management company and ask for answers to their questions. If necessary, a complaint documenting concerns should be filed. If it takes more than 30 or 45 days to get a response, the problem may well be with the management firm itself.
If owners don't get a response, or receive one that's unsatisfactory, their concerns should be presented at the next board meeting. It's up to the board to resolve the issue and if the board doesn't do so, owners can actively pursue the election of a new board.
It all boils down to owners, the board association and the management company doing their homework and communicating their concerns. When each member of the team works in concert and respects the rights and duties of everyone else, it's a win-win situation for all concerned.
WITH YOUR DUES?
by Karen Conlon,
President, CACM
You keep your patio neat, your radio down and your homeowners association dues paid on time. But how can you be sure those dues are being used for property repairs, maintenance, taxes and other association costs?
Approximately 98 percent of the time, your dues are being properly applied. However, there are those rare instances of embezzlement or mismanagement, from either a member of the homeowners association board of directors or an employee of the association management company that you, as a homeowner, need to guard against.
For example, in one instance an association board member who was a contractor by trade worked on the landscape committee and offered to purchase all the association's materials. He set-up an account at a local nursery, under the association's name, and began buying a wide variety of items.
After several months during which several thousands of dollars worth of goods had been purchased in this manner, an investigation of the nursery account revealed that: 1) all the items purchased on the association's account had been delivered directly to the board member for use in his own contracting firm, and 2) the board member had received financial kick-backs from the nursery for all the purchases.
Embarrassed by their oversight, the other board members reimbursed the association out of their own pockets and asked the contractor to resign from the board.
But other associations can't resolve the problem of fraud that easily. Since they have a monthly income flow, associations do not want to file for bankruptcy which leaves homeowners themselves to fill in the financial hole. As the number of homeowners associations grow, so does the possibility of these unexpected special assessments.
In Northern California there are approximately 10,400 common interest developments (CIDs) such as condominiums, condominium conversions, planned unit developments and cooperatives which require a homeowners association and an association management firm. This figure represents 1,100,000 individual units housing approximately 2.5 million people.
According to recent projections by the California Department of Real Estate, some 80 percent of all future residential communities in Northern California will be common interest developments. With that in mind, homebuyers are best advised to protect themselves and their investments by knowing the questions to ask before they buy, how to spot fraud or mismanagement, and what to do if they suspect problems.
Some of the most important questions homebuyers should ask prior to purchasing a common interest development home is whether or not the community requires any major repair work, and if there are pending lawsuits or a history of litigation. Buyers might speak with the board president regarding any other current community concerns, and to ascertain when the association holds open board meetings that homeowners are allowed to attend.
Secondly, homebuyers need to make sure that the association management firm and the homeowners association have the appropriate types and levels of insurance. In fact, it's a state statute that the seller of the home provide this information about the association.
Typically, the homeowners association board of directors hires the association management company. That company has a fiduciary responsibility to collect dues and pay bills. However, the board has the ultimate responsibility for the association with the association management firm following the board's policy.
Depending upon the number of units involved and the level of possible exposure, the management firm should have at least $1 million in professional liability insurance which covers breach of duty, errors and omissions. The management group also needs to carry fidelity insurance which covers employee theft of management company funds, as well as a general office package that includes such basics as workers compensation, general liability and fire.
The homeowners association should also carry fidelity insurance. And it's very important to have the management firm listed as an additional co-insured on this policy.
Several years ago, a large management firm was caught embezzling millions of dollars of homeowner associations' funds. Eventually, the company's owner went to jail and the company itself filed for bankruptcy. Unfortunately, the management company was not listed as a co-insured on the association's fidelity insurance policy and thousands of homeowners were faced with unexpected assessments to make up the lost funds.
Homeowners associations should also carry directors and officers liability insurance as well with the minimum standard amount of $1 million. In fact, many times the community's covenants, codes and restrictions (CCR's) and California statutes require minimum levels of insurance coverage.
Finally, buyers should ascertain whether or not the community association manager and/or the association management firm is certified by a recognized trade association such as the California Association of Community Managers which is the only state-specific organization for association managers in the country.
Once the buyer has moved in, how can he or she spot mismanagement or fraud before it's too late? Actually, it's a lot easier than one might think.
By law, the homeowners association must send out certain financial documents on an annual basis. Each owner should be sure to read them, checking for such things as: Is the management entity collecting at least 85 to 90 percent of the monthly association dues owed by homeonwers; are the funds being held in an interest-bearing account in the name of the association; and has a reserve account been set aside for long-term maintenance and repairs?
If the answer to any of these questions is no, the homeowners association may be on shaky financial ground. Owners can also be on the lookout for fraud by verifying that the endorsement stamp on the back of their monthly dues check is that of their association and by walking around their community from time to time to make sure it is being maintained in acceptable fashion.
If a homeowner has a complaint, what can he or she do about it?
First, owners should call the association management company and ask for answers to their questions. If necessary, a complaint documenting concerns should be filed. If it takes more than 30 or 45 days to get a response, the problem may well be with the management firm itself.
If owners don't get a response, or receive one that's unsatisfactory, their concerns should be presented at the next board meeting. It's up to the board to resolve the issue and if the board doesn't do so, owners can actively pursue the election of a new board.
It all boils down to owners, the board association and the management company doing their homework and communicating their concerns. When each member of the team works in concert and respects the rights and duties of everyone else, it's a win-win situation for all concerned.
Thursday, November 8, 2007
The importance of water
I found this article on CNN today. You can click on the title of this entry to link to the story or you can paste the link into your browser below. Interesting story. It establishes why water conservation is so important. We tend to take it for granted, however, our supply is not endless. We only have so much that we are allowed to take out of the ground on a daily basis. Not protecting our watersource could lead to situations like the one the City of Atlanta is going through and this city in Orme, Tenessee.
The City of Orme only gets water for three hours a day because they don't have enough to go around. They have a spring that feeds their supply. That supply has dried up. You can bet it is from overuse in the surrounding area.
Enjoy the reading.
http://www.cnn.com/2007/US/11/08/dry.town/index.html
Jay S. Jump
Seven Bays Homeowner and Board Member
The City of Orme only gets water for three hours a day because they don't have enough to go around. They have a spring that feeds their supply. That supply has dried up. You can bet it is from overuse in the surrounding area.
Enjoy the reading.
http://www.cnn.com/2007/US/11/08/dry.town/index.html
Jay S. Jump
Seven Bays Homeowner and Board Member
Subscribe to:
Posts (Atom)