Tuesday, February 26, 2013

Las Vegas HOA corruption probe continues

"Federal prosecutors have charged nearly 40 conspirators in the scheme to take over Las Vegas Valley homeowners associations. But more than four years after the investigation became public, they still haven't revealed the full extent of the massive scheme. New details likely will surface as prosecutors prepare for the next phase of the long-running investigation: the trial of Leon Benzer, accused of being the "architect" of the corruption scheme, and 10 other defendants indicted with him in January."

I was on Nevada Public Radio the other day with the state ombudsperson, an HOA lawyer, and an owner advocate.  It was a good conversation.  But there was something that kept going through my mind that I never got a chance to say, so here it is.

Nevada is one of the few states that has any state-level oversight of HOAs and condos.  They have the ombudsperson and a state commission, and they have a pretty comprehensive statutory scheme that was the result of also having a legislator, state Senator Mike Schneider, who knows a lot about this issue area and cares about it. Compared with the almost-total absence of oversight that is the norm in nearly all other states, Nevada is at the forefront of regulation of CIDs.  I mean, in nearly every other state, if you report something like this, there is nowhere to turn except the courts.  Every state and local government official will just tell you to go file a civil suit, which few people can afford to do.  And if somebody does that, after 7 years of litigation and $100,000 in legal fees they will have...what?  Maybe a declaratory judgment?  Maybe small damages, and an appeal by the association? Maybe a big fat goose egg? It is unpredictable.  And everybody in the neighborhood will hate you for making them pay the association's attorney fees. Private litigation may be necessary and can be effective in some cases, but clearly it can't be the only answer.

But in Nevada, there are other avenues.  However, despite all that Nevada has put in place, the biggest HOA corruption ring ever discovered in the United States was running a gigantic, multi-million dollar fraud operation involving at least 11 associations. They took over these associations and turned them into ATMs, using association funds to pay themselves and shake down developers and insurance companies. And it was the US Attorney's office and the FBI, not state officials, that brought down this empire of corruption.

So, I have to ask myself what the prospects are for effective regulation of CIDs, if something of this magnitude can happen right under the noses of state officials whose job it was to provide oversight. I am not blaming or even criticizing these officials. As the attorney on the KNPR radio show said, maybe there is no way (under the current laws) to prevent something like this from happening.  That is a scary thought.

And if that is true, as it may well be, I am saying that maybe we need to take a much more comprehensive look at what would really need to be put in place, if we were to take seriously the job of protecting CID unit owners and others against inappropriate, illegal, and even felonious actions of CID boards and their professionals.  If an oversight commission, an ombudsperson, and a detailed statutory scheme are inadequate to prevent multi-million dollar takeovers and ripoffs, what is needed?  Or are our state legislatures content to allow these predations to continue?

Maybe the time has come for federal congressional hearings. Maybe we need national legislation mandating much more public disclosure, transparency, and accountability from developers, local governments, CIDs, and the professionals who profit from their proliferation. Maybe more.

I would be interested in hearing what readers have to say.  However, I will say at the outset that those who keep saying they want to "abolish HOAs" need to understand that it isn't that simple, and they need to educate themselves about why this institution has spread so fast. Local governments and developers are very dependent on this form of housing, and that isn't going to change anytime soon. So...what is to be done?


Anonymous said...

I think it is not only time for federal intervention, but well past the time. There are a number of reasons. First, as I wrote on my blog, people living in HOAs are still citizens of the US and of their respective states. However, it is quite clear that state legislators have ignored not only the US Constitution and Bill of Rights, but their own Declaration of Rights as found in their state constitutions. The state legislatures have abdicated their responsibilities to their citizens.

Second, each state has its own set of laws governing HOA private governments creating a confusing and conflicting state of affairs as to what is law and what is not law. It depends on the state you are living in. Only the federal government — and not a national lobbying organization nor a uniform laws commission that have been devoid of any homeowner representation — can legitimately set a single, comprehensive set of laws governing the rights, freedoms, privileges and immunities of citizens.

Third, a decision to settle the issue of HOAs as state actors or as de facto government entities must be made, and that can only come from a decision by the US Supreme Court upon a complaint filed by the DOJ. Can HOAs exist as a government entity? Why not? If not, then what?

Fourth, it is an issue affecting some 20% of the US population, a percentage greater than the percentages either for the Hispanic or the Black minorities.

It’s time to bring unity to this country and stop independent HOA principalities. And that must come from Washington. It can start with hearings to air those constitutional issues that have been avoided by every state and court for far too many years.

Cynthia Stephens said...

Dr. McKenzie,
Your assessments, evaluations, expertise, suggestions and insight are excellent, as always, concerning this true tragedy, in American housing in far too many locales, it appears. Yes, without question, Congressional Hearings are a must and states like The Commonwealth of Pennsylvania have to initiate criminal investigations, in areas like Monroe County, equivalent to the Las Vegas, investigations in my opinion and experience. Homeowners have been duped, dragged through the courts like criminals, had their lives, families, careers and finances devastated and their homes stolen, due to the criminality of a select few. This is the truth of the matter and until these thugs with pens, who will make up, fabricate, anything and everything and use "connections," are prosecuted for exactly what they have done no matter who they are, or who they know, the criminality goes on and on. The criminal investigations have to include some attorneys and some in the judiciary. The cover ups have gone on far too long and no one, not even "officers of the courts," should be above the law.

Fred Pilot said...

I think you've boosted the position of the abolitionists per your observations of the difficulty of effectively regulating private local government, particularly considering these entities are not political subdivisions of the states and subject to state government codes.

IC_deLight said...

Come on now, Evan!

"Maybe we need national legislation mandating much more public disclosure, transparency, and accountability from developers, local governments, CIDs, and the professionals who profit from their proliferation"

Placing the surgeon general's warning on HOA-burdened property does not alleviate, solve, or avoid anything when the government mandates HOA-burdened housing.

"Disclosure" pre-supposes that a "choice" is available. Maybe there is a choice in some parts of the United States. There has not been a choice for a significant part of the population for quite some time now. Disclosure of the HOA scheme is akin to disclosing that the air you are breathing might be off-gas from a toxic waste site. Stop breathing if you don't like it. People need housing just as they need air. The involuntary membership HOA-scheme should simply be rejected, period. [Condominiums are a purely statutory form of ownership so let's focus only on HOA-burdened (non-condo) properties.]

"Disclosure" and "oversight" are not excuses or rationalization for these manmade disasters. Nevada state agencies and officials were wholly ineffective. After listening to the NPR show, it is quite clear that the Nevada "ombudsman" office is an example of regulatory capture.

HOA problems could be self-settled. State agencies are incapable of solving the problems and suffer from regulatory capture. People only fund the abuse and the fraud because they are forced to under threat of losing their homes.

People won't pay if they are prohibited access to records. People won't pay if they are sued by the HOA corporation and its vendors. People won't pay when they receive threatening or accusatory mail. People won't pay when they are denied voting privileges or the ability to run for office. It's time to dispense with blind obedience to involuntary membership corporations.

Evan McKenzie said...

Presently there is no disclosure of association affairs until the buyer is locked into a contract. What I have in mind is the kind of disclosure that would give prospective buyers much more detailed information on an association while they are deciding what places they want to visit. Buyers would be surfing the web, as they do now, and could find out about the associations's full financial situation including reserves, assessments, and budget; history of litigation including assessment collection; rules and other restrictions; the contractors they have hired (property manager, attorneys, etc.); governance details including elections; and other information that would let them skip the places that are trouble. One proposal I like is to create an index of financial health for associations that would take into account a variety of factors. The idea is to allow the market to work by providing real information. Right now, the ball is hidden so that people stumble into trouble. As far as government mandates go, that's a different issue and obviously I think that should be illegal. But unless and until that happens, the best approach is to let potential buyers avoid trouble, which will put pressure on association directors and professionals to stop behaving as if they could get away with murder.

Fred Fischer said...

Last week I had a conversation with one of Arizona's legislative policy advisers and we both agreed. That until the CID members stop being so apathetic, start their own trade group and start lobbying legislatures to protect their rights and best interests, little will change and that especially applies to those who believe that the Federal government will make things better, not likely. Because like in States those who are organized (CID/HOA industry) and at the creation table most often get their best interests represented and those who are not organized (CID members) end up on the menu !!!

A good example is how proposed legislation is decided in legislatures which also applies to the Fed. In Arizona a few weeks ago a committee chair invited all the CID stakeholders to discuss which bills should be placed on the agenda for this years legislative session. Consequently several excellent bills that would have greatly benefited property buyers and existing CID members was rejected by consensus by those stakeholders present and will not be heard this year. Why, because in the real world, "all stakeholders" means, the developer, municipality, HOA, real estate and other lobbyists, with no person representing the largest stakeholder group, the CID members because no trade group exists. This is how legislatures think and how they operate, through formal organization representatives and not through individual stakeholders like Ed, Joe or Lisa. Furthermore what most CID members don't realize is that those lobbying against them in the Statehouses are being fully funded by them through the fees they pay to their CID service providers. This is why all the States need to create a CID department (with no upper management housing trade group members as employees) with licensing, oversight, investigative and penalty powers funded by the CID members to equalize the playing field.

Finally I understand that their are a great number of negative issues associated with private ownership and governance of housing. Consequently their is no one fix other than not using private ownership itself because their are primarily three groups involved, who each have different goals and responsibility's. So as long as the largest stakeholder group in numbers and who has the most to loose economically chooses to be apathetic and not organize. Then the other two much small stakeholder groups will continue to dominate/control CID members, their private property's, lifestyles and laugh all the way to the bank !

Evan McKenzie said...

Fred, there is no doubt that you are right about the need for organization. American legislatures are responsive only to organized groups. They are not interested in hearing from individuals with ideas unless they are backed by organized interest groups. And CID owners have never been able to make common cause and form a national group with state branches--a group that could form coalitions with other interest groups like consumer organizations, seniors organizations, and maybe others. Unless they do that, the industry will continue to eat their lunch.

Anonymous said...

Fred, I’m glad you brought this important aspect of HOA reforms up – speaking out. I know Evan has long been an advocate for getting organized and has called attention to the lack of an organized presence by advocates. I’ve heard the same from FL Rep. Julio Robaina when he fought for HOA reforms back in 2008. And just this day I received a copy of Colorado Senate Majority Leader Morgan Carroll’s book, Take Back Your Government.
Her opening chapter contains advice, such as, “We elect people to represent our interests, but our elected representatives cannot adequately represent you unless they hear from you. . . . If you don’t participate in your government, then the only remaining participants in the system are legislators and lobbyists.” And we know who the lobbyists are!
However, this is not the entire answer. I recall the origins of HOA reforms in Arizona back in 2000 when an interim legislative committee sought input from homeowners. At the 3rd meeting, where about 100 people had attended each of these meetings, a Senator told the attendees, “We don’t want to hear anymore horror stories.” The key is an organized plan that not only educates the legislators, and the media as well, but sets the record straight and deals with the systemic and inherent defects of the HOA legal structure.
Until advocates are able and willing to step up to the plate and address these defects, all the legislators will continue to see and hear are local, personal complaints that address the operational aspects of HOAs, and serious requirements of a democratic government go ignored.
You cannot get justice in what really amounts to living in a banana republic. No clean elections protections, no true due process, ex post fact CC&R amendments that make your contract at signing meaningless, consent by filing a document without the need to sign or even read in order to be binding upon the buyer, and no enforcement against HOA board violations that are an effective detriment to continued violations and abuse. These are the issues to confront the lobbyist and legislators.
BTW, have you noticed the silence by the national lobbying organization concerning these very fundamental defects of HOA governance? Ask yourself why.

noname said...

Local municipal governments want to increase their tax base without having to do anything for it. Developers want to increase density to maximize their financial gains. The “New Urbanists" want everyone to walk to work or use public transportation, consequently the parking lots here are growing entire villages.

You can still have multi-unit buildings. People the world over have been building, buying and living in such buildings for centuries without having all the problems we have here. In fact the New Urbanists will show you images of places like Paris, London, and other European cities, pointing out how well designed the streetscapes are and recommend using those cities as models. There are some fundamental differences. The buildings in Europe have been standing for hundreds of years. They are well constructed and don’t need the never ending patching and plugging of the junk built here. They don’t seem to need bags of money sitting around waiting for a leaky roof and tempting the employees. The European buildings are run very democratically. It is the OWNERS who get together, discuss what needs be done, vote on a budget and instruct the manager on what to do, not the other way around. The manager is an employee, NOT the parent, as they seem to be in the US. Homeowners are actually scared of their employees (managers/attorneys) because the latter have all the power, including the power to fine and foreclose if the owner fails to toe the line.

The parent/child dynamic is wrong. You will never get it to work. The HOA industry has all the power and all the rights. No real surprise since they have written the governing docs and all the legislation that is introduced and enacted stripping owners of ownership rights annually. We have stripped homeowners of all the basic rights that ownership entailed.

The Farrans proposed amending the governing docs in Olde Belle Haven, stripping the association of all the powers they had. They extinguished all the restrictive covenants, disbanded the ACC. The result? People made improvements to their houses, values went up, neighbors worked together and fostered a real sense of community, something that is lacking in HOAs across the country.

You will never get the current governance system to work. It goes against everything people hold dear.