Las Vegas Sun

October 1, 2014

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Sun Editorial:

The ‘king’ of scandals

Legislature should address HOA laws, add more clarity, accountability

Homeowners associations are ubiquitous in Southern Nevada, so the unfolding HOA scandal has garnered plenty of attention. It’s troubling.

So far, more than 25 people have pleaded guilty in a case that has been stunning for the brazenness and scope of the crimes, and prosecutors expect to indict more people in their federal corruption probe.

The investigation centers on an attorney and a contractor who allegedly referred work to each other in construction defect cases. But as Steve Green reported in the Sun last week, the allegations blossom from there. Prosecutors have outlined a major scheme to control HOAs and line the pockets of those involved.

Bloomberg Businessweek last year called it “The king of all Vegas real estate scams,” and that’s not an overstatement. The facts that have been revealed so far are almost too much to believe. For several years, HOA boards were allegedly stacked through dubious means, including fraudulent ballots and straw purchases so those buyers could be elected to the boards to benefit those involved. Some management companies even went along with it all as the HOAs were overbilled for repairs and sometimes charged for work that didn’t get done.

Before anyone turns this scandal into something bigger than it is, there is no evidence that this type of behavior is pervasive. Court documents name just 12 of the 2,356 HOAs in Southern Nevada, so this case shouldn’t be used to tarnish the many upstanding associations and management companies.

However, this case is important not only because of the breadth of the conspiracy but also because of those who pulled it off. Although there are a few high-profile people involved, the indictments largely target people who could have been your next door neighbor and in many cases purportedly were. They include attorneys, management company employees and three retired police officers — a captain and two lieutenants.

It is shameful that those involved targeted average homeowners who had entrusted them to run their HOAs. They have upended the concept of a “common interest” community.

It’s notable that the case was broken open due to the persistence of some condo owners who suspected and then rooted out the problems. Some residents knew there were serious problems, but they had a difficult time getting the authorities’ attention.

In 2008, after the investigation by the FBI and Metro Police became public, condo owner Wanda Murray told Sun columnist Jon Ralston that originally the FBI “wouldn’t even talk to us.”

“They said it was a civil matter,” she said. “They said go to the district attorney. So we went to the district attorney. We were turned away. They said, ‘We don’t want it.’ We called and talked and sent messages and emails to every state official we could find. We begged and pleaded all the way to the legislators, and nothing happened.”

Thankfully, something finally changed and law enforcement took the matter seriously as it should have. This case reminds us that too often, HOAs aren’t often taken seriously enough. The laws governing HOAs have been widely criticized by both advocates and detractors as being ineffective and complex, and it’s time to see that change.

The Legislature should work next session to clarify and simplify the law. HOAs should have the ability to carry out their work, but there should also be more transparency and accountability. As well, homeowners should have a clear way to address problems, and hopefully after this, authorities will listen to their complaints.

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  1. To my fellow bloggers;

    Crime is nothing new here. As far reaching and intricate as the HOA Scandal is, as long as everyone associated with the Scandal is identified and indicted for their part, is the real measure that our community is getting back on tract. I sincerely hope that the high powered individuals who are involved in the Scandal, are properly identified and equally and fairly prosecuted. Unless this happens, my home Las Vegas, will continue to be considered by the rest of the country, to be nothing more than a community of prostitutes, gamblers, and drunks. Just an old cop reflecting,

    Gordon Martines.....curre.org

  2. ".....prosecutors expect to indict more people in their federal corruption probe.....Court documents name just 12 of the 2,356 HOAs in Southern Nevada, so this case shouldn't be used to tarnish the many upstanding associations and management companies."

    SUN -- what you failed to address here is why Nevada properties involving Nevada players became a federal matter. Nobody remembers the Tenth Amendment?

    "Where once the criminal law might have stood as a well-understood and indisputable statement of shared norms in American society, now there is only a bloated compendium that looks very much like the dreaded federal tax code. The end results can be downright ugly: a soccer mom thrown in jail in a small Texas town for failing to wear a seatbelt; a 12-year-old girl arrested and handcuffed for eating french fries in a Metro station in Washington, DC; and defendants serving 25-year to life sentences in California prisons for, among other things, pilfering a slice of pizza." -- "Overextending the Criminal Law" @ http://www.cato.org/pubs/policy_report/v...

  3. Part 1

    Sadly, the prosecutions and plea deals described above are simply a "show trial" which neatly pack away the economic corruption at 12 homeowners associations, so that other 'corrupt' homeowners associations and their sophisticated devious management companies in Nevada can go their merry way and the abuse of homeowners and their pocket books can continue unabated in Nevada.

    Attorneys from the Dept. of Justice in Washington could stay in Las Vegas FOREVER, prosecuting HOA managers' and Directors' self-dealing and breaches of fiduciary duty to homeowner victims, and never finish the job, because the crooks are continuously learning from what the DOJ lawyers are doing.

    MORE IMPORTANT Nevada statutes passed by the Nevada Legislature over the past decade absolutely bar homeowners from taking matters into their own hands in terms of filing simple state court litigation against HOA Directors and managers for wrongdoing. Instead, if a homeowner finds anything wrong with what his HOA is doing, the homeowner has to spend tens of thousands of dollars to arbitrate the claim through the Nevada Real Estate Division's arbitration program. Those who manage HOAs, and their lackeys in the Nevada Legislature, know darn well that the arbitration mandate empowers HOA Directors and managers to do what they please, because the average homeowner can't afford to spend $30,000+ to arbitrate over-reaching or wrongdoing by the HOA Directors and managers.

    Also, it's important to note that there are roughly 5 land developer-controlled HOAs in Las Vegas, "regulating" huge master planned communities, where by clever drafting of CC&Rs and in some cases by not-so-clever lying by the developer's employees who serve as Directors on those HOA Boards, the actual homeowners in these master planned communities probably NEVER will get control of their own HOA Boards of Directors away from the developer, and never be rid of management companies cozy with or outright controlled by the master planned community developer. (When the management company for Summerlin was one of hundreds of companies controlled by Rouse which was put into Chapter 11 bankruptcy, the Las Vegas print press never covered the story and Nevada's Real Estate Division did nothing publicly to protect the HOAs "managed" by the bankrupt management company".)

    It's useful to note that managers of HOAs and lawyers representing HOA Boards of Directors are carefully watching this Federal prosecution as a means of learning how they should maneuver to avoid prosecution or civil litigation for what they are doing.

  4. Part 2

    Until the Nevada Legislature abolishes the Nevada Real Estate Division's Ombudsman program, and abolishes costly statutorily mandated arbitrations, Nevada homeowners will continue to be denied their rights to equal protection, due process and access to the courts for redress of their grievances. Until those repeals of anti-homeowner laws by the Legislature happens, each and every homeowner living in an HOA should know that their State Senator and Assemblyman are not working in their best interest, and instead are working in cahoots with CAI (the sophisticated self-serving club for HOA managers, HOA management companies and HOA lawyers.) Plain and simple, Nevadans are abused by their HOA Directors and managers because Nevada's morally corrupt Legislators want it that way.

    HOA management companies and managers know that because of the "mandatory arbitration/can't go to court" provisions in Nevada laws that the HOA managers and HOA Board of Director members are above the law and free to do what they want to homeowners they don't like. HOA managers and HOA lawyers advise HOA Boards of Directors that they are above the law, and that no aggrieved or abused or lied-to homeowner has any meaningful or economically feasible way to seek redress of their grievances. In short, the HOA managers and Directors know they can stick-it-to dissident homeowners and they do it all the time, with impunity.

    This gross abuse of homeowners' due process rights "to go directly to civil court" simply does not exist in most major states where HOAs are common. In many senses, one can still say that in Nevada the public's rights are still controlled "by the Mob". It's just a different Mob than the one the FBI under the FBI's Agent in Charge Joseph Yablonsky tried to neuter in the 1980's, before the late real estate developer and newspaper editor Hank Greenspun forced his transfer and retirement.

    In Nevada CAI/HOA manager community have incredibly powerful undue influence over the Nevada Real Estate Division as the regulator of HOA managers, and until that "captive regulator" situation stops nothing will change in terms of self-serving, manipulative and sometimes corrupt HOA managers. A complete sea change in who the Nevada Real Estate Division wants to protect will not happen unless Governor Brian Sandoval changes both the state employees on the executive level of NRED and the identity of the appointees to the "Commission" managed by NRED which is supposed to oversee and discipline HOA managers.

  5. Part 3

    The legislative history of the legal requirement the homeowners complaints against their HOA Boards of Directors and HOA managers to go to mandatory, outrageously costly arbitration controlled by the Nevada Real Estate Division is directly traceable, through minutes of Nevada Legislature committees, to former Sen. Mike Schneider who has billed himself to the press "as the homeowners advocate". The reality about Sen. Schneider is that the legislative committee meeting minutes for the year the mandatory arbitration was imposed on Nevada homeowners show that it was Sen Schneider who justified that mandatory arbitration provision by saying, to his committees, 'There are too many lawsuits being filed by homeowners against their HOA Boards and management companies'.

    Bottom line, these criminal prosecutions relating to 12 homeowners associations change absolutely nothing for the benefit of the average homeowner living in an HOA in Nevada.

    Instead, the entire legislative scheme in Nevada is rigged to insulate HOA managers from their own wrongdoing, incompetence and waste and is rigged to protect HOA Board of Directors from their own lack of attention to and lack of supervision of what their managers are doing (as is required under the principal/agent common law.) Even within one homeowners association, Nevada law is rigged so that HOA Directors can "selectively prosecute and fine" one homeowner while ignoring the same or worse CC&R violations at a home right down the street. The law is rigged so that HOA Directors can selectively elect to collect unpaid assessments and fines from some homeowners while waiving them for other homeowners. The entire legislative scheme in Nevada is also rigged to protect the HOA Directors from consequences for stupidity or favoring their friends or outright venality.

    In Nevada the laws are also rigged so that even if an HOA Board of Directors wildly exceeds its powers under the HOA's CC&Rs and Articles of Incorporation, doing things like taking over costs which should be borne by the project's developer, the HOA member who sees the ultra vires activity has no recourse, except the riduculously expensive and rigged Nevada Real Estate Division arbitration process. That renders the original law enforcement "advice" to dissident homeowners at the 12 projects involved in the case described above, to "treat it as a civil matter" a complete joke, and as a result, the HOA managers and HOA Directors involved in breaches of fiduciary duty, favoritism and self dealing continue to be "enabled" by the Legislature in their wrongdoing.

    Until each and every homeowner in a Nevada HOA has the right to go directly to District Court, to seek "redress of grievances", nothing will change. Shame on you Sen. Schneider and Nevada Legislators for affirmatively denying Nevada homeowners their rights to due process and equal protection in a court of law.

  6. One of the areas of HOA management that no newspapers cover are the number of what I call "CRAZIES" who live in these communities.

    Our HOA has about 5 such individuals. I watch them at meetings. Our Board can't explain anything to them. They're functionally illiterate moron's complete with loud mouth's.

    These are the people who usually whine to the media that their constitutional rights are being violated, but they refuse to comply with CC&R's, Rules and Regulations, pay any fines for miscreant behavior. Most of them are the dregs of society who couldn't pass a basic intelligence test.

  7. If local real estate was snapped up because people wanted to live in our condos and moderate-sized homes, we'd be able to work our way out of the sour economy. Legislators need to keep in mind that we'd like Clark County real estate to come back in a big way. One facet would be for the area to be ATTRACTIVE to seniors, retirees, allergy escapees from elsewhere: CONDOs could fill the bill as retirement homes or second homes for frequent visitors. So can we get around to enforcing basic expectations for homeowners / condo-owners? I've read where retirees are fleeing Florida because of the numerous monthly fees--condo fees, association fees, landscape fees..... And then there would be a need for LOWER REAL ESTATE TAXES that don't fluctuate with the rise and fall of the markets, that aren't threatened to double 'cause teachers and firefighters demand 3-10 times what others make.