HOMEOWNER ASSOCIATION TITLEHOLDERS ARE "HUMAN CAPITAL"

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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