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September 2, 2014

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Henderson HOA to pay up for board member’s mistake

Anthem

A former board member of a homeowners association in Henderson whose landscaping company performed work for the association he represented -- while he sat on the board -- was disciplined last week by the state board that regulates homeowners associations.

At the hearing, some members of the Commission on Common Interest Communities and Condominium Hotels, however, expressed disappointment when they discovered that his $500 fine, like many of the fines they have handed out over the years, would be paid by the association he represented and not out of his own pocket.

According to the complaint against former board member Abe Klein, he served on the Board of Directors for the Coventry Homes at Anthem Community Association from 2002 until earlier this year. In 2005 while Klein was a board member, the board hired his landscaping company, Beyond the Rocks, to maintain the community’s park and common areas.

The complaint alleges that Klein violated the state statute that governs homeowners associations by entering into a contract with the board on which he sat and failing to disclose his conflict of interest when he ran for re-election to the board in 2007.

For the violations, Klein was fined $500. Fellow board Member Clint Wellis, who also sat on the board when the contract was awarded, was fined $250. A complaint against a third board member, Ken Shelton, was dropped because Shelton moved out of the state.

As with other fines they handed out last week as part of their quarterly meeting, some commissioners expressed surprise and dismay when they discovered that the community association the men represented has indemnified them and will pay their fines.

“It’s an act that they have committed and it shouldn’t be a financial burden on the other members of the community,” argued Commissioner Gary Lein, who is the commission’s representative for certified public accountants.

Commissioner Favil West, who represents homeowners associations on the commission, echoed the concern and suggested that community associations should have to approve paying the fine before the settlement is brought to the commission.

“What’s troublesome to me is that the association is paying for this, and the gentlemen (Klein and Wellis), one or both of them, benefited from this,” he said.

Despite the concerns they voiced, the commissioners unanimously voted to accept the settlements for Klein and Wellis, adding a provision that a notice in the Coventry Homes at Anthem’s community newsletter be published, informing the community that the two men had been fined and that the association paid the fines.

Commissioners said they added the condition because they wanted to stress transparency in the operations of community association boards.

Attorney Nicole Guralny, who represented Klein and Wellis at the hearing, told commissioners that community associations need to indemnify their board members, or else no one would be willing to step up and take on the risks of leading homeowners associations.

“That’s why the community association agrees to indemnify them when they’re acting in good faith,” Guralny said.

A spokesman for the Community Associations Institute, a Virginia-based organization that provides education and resources for community managers and board members across the nation, said his organization doesn’t have an official stance on the subject, but agreed with the argument that failing to indemnify board members could have a chilling effect on homeowners associations.

“It’s important to remember that these people are volunteers,” spokesman Frank Rathbun said. “They’re not being paid; they’re volunteering their time to improve their communities. …To make a board member subject to a fine would suppress volunteerism in many communities.”

While making volunteer board members pay fines for honest mistakes out of their own pocket might save the association money up front, Rathbun said, it would cost residents in the long run by discouraging individuals from volunteering.

“It’s kind of like people talking about what the federal government should do,” Rathbun said. “No matter what is done, it’s the citizens who pay for it.”

Rathbun said the question of whether community managers will be indemnified is often handled in contract negotiations and through the insurance they carry.

Nevada Deputy Attorney General Nancy Savage, who presented the settlement agreements to the commission, told commissioners that in situations where a board member or community manager does not act in good faith, the fines assessed are paid by the individuals. One such case was on the Commission’s agenda that day, though Savage said such cases are the minority.

“Generally, (board members) act in good faith,” Savage said.

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