As you have probably figured out by now, I follow HOA headlines from across the country. Yesterday, a story reported by WFAA.com really caught my eye and not because there is a dispute in a Dallas area HOA about how funds are being expended by the association. Unfortunately, disputes of this ilk aren’t all that uncommon. What caught my eye is the level to which the anger has escalated. Residents have allegely been receiving threatening letters, have been physically threatened in the community and one resident evidently got so out of control that he was tased by local law enforcement.
Based upon what I can piece together from the story, there are some real questions about how funds are being expended and accounted for by the association. There are also allegations of impropriety by directors. I have no idea whether there is any truth to these allegations. However, at least in Colorado, there are constructive ways to deal with this scenario.
● Get involved in your association. Do your homework before making serious allegations of financial impropriety. You don’t want to face a lawsuit for defamation! Instead, attend board meetings and ask questions at the appropriate time and in an appropriate manner.
● If you really think there are serious issues, under Colorado law you have the right to request and review financial records of the association. Make sure to go through the proper procedures to request and review these records.
● If after asking questions and reviewing records you still have serious outstanding questions, the Colorado Common Interest Ownership Act (“CCIOA”) gives residents of HOAs the ability to demand that an audit be conducted under the following circumstances: (1) The association has annual revenues or expenditures of at least two hundred fifty thousand dollars ($250,000); and (2) An audit is requested by the owners of at least 1/3 of the units in the association.
● After getting informed, if you still reasonably believe the directors are breaching their fiduciary duty or engaging in actionable misconduct, waging a recall of those directors is always an option. However, I would caution that a recall is an extraordinary remedy that can tear apart the fabric of your community. As a result, I strongly recommend that this option be used wisely, constructively and as a last resort.
● If you are unhappy with how your association is being governed, you should run for a position on the board. Getting involved in the governance of your community is a great way to make a difference!
● When governing your association, it is essential to act in a transparent manner. If there is a perception the board is governing behind closed doors, it is human nature for residents to assume something inappropriate is going on.
● If you are concerned another director or an agent of the association is handling funds inappropriately, deal with this issue immediately, constructively and directly. Your board may decide that it’s in the best interests of the association to have an audit conducted by an independent third party.
● If you are confronted with angry and rude residents – make sure to respond constructively and professionally. Do not engage in a food fight with these folks. Instead, keep to the high ground and deal with the issues and allegations in an appropriate manner.
I’m happy to report it’s rare that financial misconduct actually occurs in HOAs. However, perceptions are reality. That’s why it’s important for homeowners and directors to deal with these issues in an informed and constructive manner. Getting into physical brawls and being tased should not be an option in your association!