HOMEOWNER
ASSOCIATION TITLEHOLDERS ARE "HUMAN
CAPITAL"
August 22, 2007
by D.
Vanitzian
(c) 2007 Donie Vanitzian
When criminal liability
is not charged against the "criminals" in
an association, then the titleholders become the
Human Capital used to fund the criminal activities
and wrongdoing.
Titleholders fund the
excesses of errant boards and their errant third
party vendors and agents because the California laws
have no meaningful incentive for deterrence of such
crimes when they occur in a residential common
interest development.
While homeowner
association-related "crimes" are taking
place in record numbers today, little is being done
to prevent their occurrence. The criminality
linked with wrongdoing in homeowner associations
more often than not revolves around an economic and
financial benefit flowing to the wrongdoer--whether
it be a third party vendor or board director or
association advisors. Even a board director's
$15.00 haircut paid or reimbursed by the association
might be viewed as a "financial benefit."
If the board member uses the services of the
association to improve himself and his own property,
he has obtained a "financial benefit" that
is quantifiable and should be prosecuted by the
corporate entity. If the board member is not
fined for paying his association's monthly dues
late, he has obtained a "financial
benefit." If a board director takes his
friends to lunch at association expense, that is a
financial benefit to the individual board
member--NOT the association and certainly NOT the
titleholders who fund the bank accounts for the
association or who funded the lunch. [FN1]
BENEFITS TO THE
ASSOCIATION AND BOARD
What of the board
director who does not receive a "financial
benefit" for his services on the board?
There are also non-economic benefits for being a
director. In one such situation a board
director was known to "get off" by signing
his name as the association's C.E.O. This
allowed him to represent himself to the outside
world as a "somebody" where he would have
otherwise been a "nobody." Playing
C.E.O. and receiving the non-economic benefits of
"recognition" accolades, plaques,
applause, and the like, are no different than the
$15.00 haircut. Why? Because they
deprive the titleholders of full advantage of the
corporate protocol at the expense of an inept board
director who has nothing better to do than waste his
position on the board and misuse authority => for
no other reason than "he can." [FN1] The
same can be said for the board director who is a
"yes man" to a management company or
association advisors. Actions like these
should be considered a WASTE of corporate
assets--the assets being valuable time lost that
cannot be regained at any cost due to the connivance
individuals merely sitting on the board of directors
because it makes him/them feel important or boosts
their collective egos. Doing
"nothing" but sucking up to vendors is
also costly and it is a breach of the board's
fiduciary duty to every owner who has an interest in
property and whose assets are at risk in that
development. [FN1]
Board directors are
supposed to be independent thinking decision makers.
Playing "follow the leader" is a breach of
duty, especially when the "leader" is a
board director beholden to a vendor with a contract
at that association. It is also a breach of
duty to "follow" third party vendors AS IF
they are leaders, and to do the same with management
companies, their personnel, association advisors, or
managers in general places the association and all
its titleholders at risk. The board's duty is to
supervise and oversee every such entity without fail
and to NOT follow them to the grave or jail,
whichever the case may be. Yet at the same
time, every board of directors are vested with the
authority to, in a sense, criminalize and punish the
behavior and actions of their neighbors who own
property and reside under the same corporate
umbrella that the board director controls. [FN1]
One author states
"punishment is a conventional device for the
expression of attitudes of resentment and
indignation, and of judgments of disapproval and
reprobation."[FN2]
Therefore, if the board of directors' failure to
impose punitive measures against the wrongdoer
and/or it does not punish another board director or
its own agent(s) for wrongdoing, then the message to
ALL others is that the deterrence factor is
undermined and a new benchmark has been set for the
corporate value system.
HOMEOWNER
ASSOCIATIONS VALUE LAWBREAKERS AND WRONGDOERS
If the wrongdoer is
allowed to remain in his or her position on the
board or as an agent of the association, the message
becomes this: There is "value" to
breaking the corporate laws (i.e., governing
documents and statutes) and goodwill, because
prosecution is not forthcoming and there will be no
stigma attached to the individuals who committed the
wrongdoing. Compounding that problem are the
fines and penalties levied against titleholders when
they [subjectively] break a so-called rule.
For sake of argument, say the owner is late in
paying his homeowner monthly assessments. The
owner is typically vilified in the association's
newsletter or minutes, and shunned in this
oh-so-wonderful-community. This owner has just
witnessed board members commit crimes amounting to,
for sake of arguendo, hundreds of thousands of
dollars in misappropriation of funds (or worse)
without any punishment or stigma of criminal
prosecution.
What now is the actual
"value" of punishment consisting of late
charges, interest, and fines against the owner who
paid his monthly assessment after the due date?
Why should that owner be forced to pay even one
dollar in fines, interest, and late charges after
witnessing board directors ripping-off hundreds of
thousands of dollars from the association that this
same owner, along with the other Human Capital,
statutorily fund?
Another example could
easily consist of a board's actions that are
willful, but not statutorily remedied, such as
failure to generate minutes, provide notice of
meetings, produce a pro forma budget, and more.
What happens to the board of directors who commit
their wrongdoing through third party vendors acting
as association agents? Is the board held
statutorily liable for failing to supervise those
agents' actions, if not, why not? In an
attempt to avoid prosecution, boards are always
free to hire board advisors using
titleholder Human Capital deposited in the
association bank account--aren't they?
Because of unbalanced
laws, owners are deprived their indignation against
the criminal or the perpetrators of the wrongful
acts. It is the lack of condemnation by those
at the helm of the corporate structure against the
perpetrators that so infuriates owners who are used
as Human Capital to fund those bad acts and the façade
of "community."
Unfortunately, too many
titleholders will spit out phrases like
"conflict of interest" as if the
accusation itself has meaning. In the venue of
homeowner associations, "conflict of
interest" is a meaningless nondescript phrase
that, unless the phrase exists in the association's
governing documents--it is nowhere PER SE to be
found in the California statutes as it pertains to
common interest developments. Needless to say,
don't count on those words being in your
documents--and--don't look to the California
statutes to provide a meaning for "conflict of
interest" as it applies to homeowner
associations so that the wrongdoer may be
prosecuted--it won't happen. Thank the California
Law Revenge Commission and their Legislature buddies
for that. Nearly all corporate culpability has
been neutralized by statute to favor, if not
"protect" the "business" of
associations. The legislature has consistently
diffused the association's responsibilities as it
relates to any wrong doing by its corporate
officers.
California's
legislature's view towards homeowner associations
appears to be a combination of (a) legislative
diffusion (b) punishment is left up to the
association, and (c) use the election process of
removing and replacing the board. The
legislature fails to recognize the ineffectiveness
of the Davis-Stupid Act in general, and the fatally
flawed statutory scheme for association election
processes; using either "in the place of
prosecuting wrongful behavior" is equivalent to
sinking in quicksand. It is because of this
inherent circular flaw, that any deterrent in
situations like this must be sufficient to
"qualify" as a "deterrent" and
must be sufficient enough to prevent future abuse.
With the presence of a built-in "prisoner's
dilemma" no such deterrent can be effective. [FN3]
TITLEHOLDER EQUITY
IS THE ASSOCIATION'S WINDFALL
Human Capital is used to
supply the homeowner association's cash flow.
Other than a pat on the back, if lucky, titleholders
producing said Capital get nothing in return.
If the Capital is stockpiled at the time the owner
sells and moves away, the stockpiled money is left
behind. If the homeowner association is a
debtor and a creditor suffers a loss, because the
homeowner association is a corporation, in the name
of "nonprofit mutual benefit corporation"
that creditor's losses become the debtor
association's reorganization process. Of
course, the oxymoron of "mutual benefit"
is not to be missed. This may answer the
question as to why gardeners now contract with
homeowner associations so that a breach or failure
to pay may then be remedied in court by an order to
assess the Human Capital.
The California
legislature along with the California
Law Revenge Commission a.k.a. California Law
Revision Commission is very clever indeed.
Knowing that "corporations" are rarely
prosecuted "criminally," and on the odd
chance that they are prosecuted -- it's typically
years in the making. One of the few ways that
type of prosecution would occur would be through
stripping away its corporate immunity.
Another reason owners
who have been harmed by the flailing legal structure
of homeowners associations is because they have been
unable to attach any meaningful
"liability" to the corporate fiction.
Courts apparently are extremely hesitant to hold the
board members and their aider and abettor management
companies or other advisors "responsible"
for their actions. [FN3]
This is evidenced by the fact that white collar
crime, now becoming a mainstay in these so-called
communities, is rarely prosecuted in-house (i.e., by
the board and association against the tortfeasors
and/or wrongdoers) AND is also rarely pursued by the
corporation against its third-party vendors, such as
management companies. The crime is condoned.
Look how sneaky the California
Law Revenge Commission has been in the past seven
years with their support of the California
legislature and their industry buddies.
Through promoting the nonprofit mutual benefit
corporation fiction and negating "corporate
liability" in general, the California
Law Revenge Commission -- a wholly useless agency at
best -- has ensured the longevity and existence of
homeowner associations to the detriment of the Human
Capital banking system. Of course, those
funding the fraudulent schema are the titleholders.
Because common interest developments live in
perpetuity, that is "forever;" without any
readily enforceable statutory deterrence measures in
place, the path of destruction is virtually endless.
It's really very simple;
unless you are prepared to be the Human Capital for
that homeowner association, don't buy in a common
interest development.
~0~
[FN1]
Author note: this article uses "he" to
mean gender neutral. Vanitzian, Common
Interest Developments--Homeowners Guide
(Thomson/West, 2006-2008)
[FN2]
Joel Feinberg, Doing and Deserving (1970) pg 78.
[FN3]
Vanitzian, Villa Appalling! Destroying the Myth of
Affordable Community Living (2002). Send information
and file complaints against management companies and
managers here: http://www.certifymyass.com
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