What is HOA and COA Fraud in California?
There are many forms of homeownership. When people own a single-family home, they don't have to deal with neighbors who share the property's ownership or use.
When people live in a condominium or home that shares the use or ownership of any part of it, they typically will be part of a homeowner association or condo owner association. These ownership/management associations are structured to allow multiple property owners to share their expenses in maintaining their properties.
Homeowner association (HOA) fraud or condominium association (COA) fraud in California are terms used to describe the white-collar crime of fraud related to these organizations. This crime is also called homeowner association corruption.
The individuals accused of committing HOA fraud or COA fraud are usually members of the board. Service on these boards is often time-consuming without any pay. They are responsible for dealing with many complaints from homeowners and surrounding communities. HOA fraud allegations are typically financially related.
Frequently, homeowners will blame the board members for just about anything in the neighborhood. There are vast differences of opinion that soon turn into political or even legal disputes. Simply put, disagreements between the owners and board members are pretty commonplace.
Homeowner association board members often face allegations that they have committed fraud. In this article by our Los Angeles criminal defense attorneys, we will examine this subject in greater detail below.
What is a Homeowner Association?
A Homeowner Association is common interest ownership and management structure for homeowners that share common spaces or a common structure. Suppose you live in a condominium, townhome, or single-family home that is part of a development that has common land or facilities?
In that case, you are likely part of a homeowners' association. The homeowners have space they own, such as their condo, but the entire community uses shared areas such as hallways and recreational facilities.
Homeowners who are part of an HOA pay a monthly association fee meant to cover everyday expenses such as maintenance, lawn care, and other recurring costs. If you own a home or condominium within a gated community, you are most likely a homeowner or condominium association member.
When someone is part of an HOA, they have full freedom to do what they wish inside their properties but are often limited on what they can do outside, if anything, on their own. Any significant changes or updates to the outside areas often require approval of the HOA.
HOAs are structured as an elected board, where the owners of the properties hold monthly scheduled meetings to discuss property issues and agree on expenditures.
In California, the Davis-Stirling Act governs HOAs and outlines how they are supposed to operate. HOA boards operate through a voting process for significant issues, where each owner has a vote regarding different ownership issues.
What are the Common Types of HOA Fraud?
Several positions on an HOA board can lend themselves to criminal activity. HOA board members are tasked with controlling and implementing money into various everyday expenditures. Some common types of fraud that occur within HOAs are discussed below.
Embezzlement – Penal Code 503 PC – embezzlement involves someone taking money or property from someone who entrusted the cash or property to that person. A typical example of embezzlement is when a cashier at the grocery store steals from the register. The cashier is entrusted to take in money and give change, but the money is not theirs.
Once the cashier takes money from the register without prior permission, the cashier has committed embezzlement. This holds even if the cashier intends to return the money later. In HOA situations, embezzlement can occur from common HOA funds collected from the HOA members.
To convict of embezzlement from an HOA or COA, the prosecutor has to prove (elements of the crime) that the HOA entrusted funds or property to you, and they did so because the board members trusted you. They must further prove that you fraudulently took the funds or property for your benefit and you had the intent to deprive the Homeowners association.
Corporate law violations – HOAs are corporations in California. Because of this, they are governed under corporate law. Breaches of these laws include lying or exaggerating about the condition of a property to gain from it improperly. If an HOA “cooked the books” to get a loan for a significant expenditure, the HOA has committed a corporate law violation.
HOA election fraud – HOAs are formed by-election where the members vote on who is the President, Vice President, Treasurer, etc. These positions can hold significant influence, and some may choose to commit fraud to be elected. Fraud can include paying people for votes or forging signatures.
Illegal kickbacks/steering – When HOAs need work done to their properties, they enlist outside companies to come in and do the job. If an HOA member improperly steers or influences a company to get a work contract and then takes a finder's fee on the side, then both parties have committed an illegal act.
These are not the only forms of HOA fraud that can occur, and it is essential to understand the laws surrounding HOAs before you take any steps towards conducting HOA operations. Common defenses to HOA fraud include lack of intent to commit a crime and mistake of fact. HOA fraud is a specific intent criminal offense.
What are the Penalties for HOA Fraud?
HOA fraud can be prosecuted in several ways. If the matter is more minor, such as HOA election rigging, the guilty parties can be charged with a misdemeanor under state law and potentially:
- serve up to one year in a California county jail, and
- pay a fine of up to $1,000.
If the matter involves significant service contracts, the guilty parties can be charged with federal wire fraud or mail fraud, which carries:
- up to 20 years in federal prison, and
- fines and fees, or both.
If the HOA fraud crime involved forgery, such as dealing with ballots or falsifying essential documents, then you could be facing Penal Code 470 PC forgery charges. Forgery is a wobbler that can be charged as a misdemeanor or a felony. If you are convicted, the penalties include:
- one year in county jail for a misdemeanor,
- 16 months, two, or three years in jail for a felony.
There are several types of crimes associated with HOA fraud, so it is important to understand what charges can be authorized for different types of activity.
What are the Best Legal Defenses?
If you were charged with HOA fraud, then the District Attorney must prove that you had the specific intent to commit fraud beyond a reasonable doubt. Any fraud crime, such as embezzlement, forgery, mail fraud, and wire fraud, requires an intent to defraud a third party. The two most common defenses are:
- lack of intent, and
- mistake of fact.
Proving intent requires a prosecutor to convince a jury they knew precisely your state of mind when the crime was allegedly committed. This is challenging, and if the prosecutor can't prove this crucial factor, they are unlikely to convict you. A lack of intent is often one of the best legal defenses against HOA or COA fraud charges.
A mistake of fact is another legal defense to fight the HOA fraud accusations. Perhaps you were mistaken about an important fact. Maybe your actions were misinterpreted, or you made an honest mistake dealing with all the financial documentation.
If guilt is not in doubt, perhaps we can negotiate with the prosecutor for reduced charges or a diversion program to avoid a conviction.
Further, through prefiling negotiations, we might be able to persuade the prosecutor from filing formal criminal charges in the first place. Eisner Gorin LLP is located in Los Angeles County, and you can reach us for a consultation at (877) 781-1570 or by filling out the contact form.