The house that took over a life

Six years ago today my fiance Bruce died, leaving me to deal with an underwater house that has consumed many of my waking hours to this day.

The story of this house, the source of so much aggravation, is the poster child for how homeowners and HOAs have been victimized by banks, debt collectors, managers and attorneys in the aftermath of the housing market crash a decade ago.

Long story short starts with the banks

  • Housing market crashed.
  • Bruce died at the bottom of the market.
  • He left a trust with one asset – an underwater house.
  • The banks would not refinance it nor approve any short sale.
First plot twist

In the vast majority of the legal battles over an HOA foreclosure, the homeowner is gone before the fight.  The homeowner doesn’t fight if the delinquent debtor was a deadbeat, debilitated by debt, or died.

I am not a deadbeat, or even the debtor, nor debilitated nor dead.

I am a fiduciary, fighting for the rights of Bruce’s trust.

Back to the bank….
  • After B of A botched several sales, I refused to keep paying maintenance costs, such as HOA assessments and utilities.
  • B of A took possession but would not take title and did not foreclose nor accept a deed in lieu offer from me.
  • Nationstar took over servicing from B of A, but Nationstar’s investor also refused to close any deal no matter how good the offer was.
Enter SCA agents to try to beat the bank
  • Story continues for a couple of years.with SCA agents starting and stopping, scheduling and then withdrawing a threatened  foreclosure for delinquent assessments
  • B of A tendered the super-priority portion of delinquent SCA assessments, but SCA’s agents (FSR and Red Rock Financial Services) refused to accept less than their version of full payment – very similar to the $55,000 Citibank settlement Rex reported out from the December 7 Board meeting.
  • After SCA’s agents cancelled the foreclosure sale multiple times, they sold it in 2014 to a Realtor for 18% of its value, $63,100 without ANY notice to me, my agent, or the bank. This Realtor worked in the Berkshire-Hathaway office where my listing agent worked.
Unbeknownst to the SCA Board, its agents were secretly working for themselves
  • SCA’s agents told the Ombudsman that the sale was cancelled, but then secretly held the sale anyway and did not EVER report to the Ombudsman that a foreclosure sale had occurred.
  • After the surprise sale in 2014, SCA agents credited SCA with only $2,700 of the $63,100 sale proceeds as payment in full, and SCA agents unlawfully kept the $60,400 balance.
  • FSR did not ever report in HOA records that the house was sold to the Realtor, or that the Realtor ever paid any assessment enhancement fees or new owner fees.
  • HOA records (created by FSR) are in direct conflict with recorded documents and show that a dentist took possession after the foreclosure, not the Realtor named on the foreclosure deed created by FSR.
  • There are two recorded title changes in the county records that do not exist in SCA’s records for which FSR has some explaining to do.

SCA is in, but can’t win

Three lawsuits to quiet title from 2015 to the present have thousands of pages of documents filed.

SCA is in the middle of this complex litigation even though there is nothing SCA can win and where there is nothing to lose but attorney fees.

Lawsuit 1

The dentist who currently has possession of Bruce’s house sued SCA and B of A for quiet title in 2015.

Records conflict about when the dentist took possession of Bruce’s house. It was either in 2014 after SCA agents foreclosed (which is what SCA records say), or he took possession in 2015 when he recorded a fraudulent quit claim deed (which is what County records say).

The court issued a judgment of default against B of A who did not respond to the summons. SCA was still in the lawsuit because the dentist inexplicably never served SCA a notice to appear.

Lawsuit 2

In 2016 Nationstar sued the Realtor who held the foreclosure deed, but then found out about lawsuit 1.

Nationstar took B of A’s place in the lawsuit. even though neither bank is owed any money from the mortgage.

Lawsuit 3

On behalf of Bruce’s trust, I sued all parties in 2017 to claim the title should be returned to Bruce’s trust because the foreclosure sale was conducted unlawfully in SCA’s name by SCA agents.

The dispute over the title to Bruce’s house is between me, the dentist, and the bank.

SCA has no financial interest in the title and was already paid in full for delinquent assessments in 2014.

Why is SCA being sued for its agents’misconduct?

SCA’s former agents foreclosed under SCA’s  statutory authority.

SCA is responsible for its agents, and the SCA Board is responsible for ensuring that its agents act lawfully.

SCA Board President Rex and SCA’s current agents refused to negotiate or do anything whatsoever to attempt resolution without litigation.

SCA could have gotten out of the litigation without cost by simply stating that the Board did not authorize SCA’ former agents to conduct the foreclosure sale unlawfully and affirming that no current or former Board member profited from the non-compliant sale.

How does this all relate to the big picture of protecting homeowners from being forced to pay for agents’ misconduct?

What happened to Bruce’s house has happened a thousand times in Nevada in the last decade.

After getting rid of FSR, SCA jumped from the frying pan into the fire and hired Alessi & Koenig in 2015 to be SCA’s debt collector attorneys without noticing that they had been sued in 500 of 800 HOA foreclosures they conducted between 2011-2015.

The situation worsened when Alessi & Koenig hid their assets from creditors, dissolved their corporation and morphed into HOA Lawyers Group. SCA continued to use HOA Lawyers Group after they were put on notice of the fraudulent scheme.

The downward spiral in how SCA handles debt collections continues to this day by contracting with the Clarkson Law Group despite their unethical practices designed to prevent these problems from being disclosed to the membership.

A 2017 UNLV/Association of Realtors study showed that HOA foreclosures have cost the real estate market $1 billion due to the approximately 700 cases they identified  Clark and Washoe Counties alone between 2013 and early 2016.

HOA Boards statewide have been duped (like SCA Board has been) into facilitating this major rip-off contrary to the financial interests of the associations and their members.

Next time:

The high price of protection
Analysis of the UNLV study estimating $1 billion property value loss due to HOA foreclosures in Clark and Washoe Counties alone.

Rating Rex’s Self-Management Report Card

Demonstrating all the transparency and humility we have come to expect from our supreme leader, Rex Weddle once again used SCA’s official house organ, the Spirit, to stroke the ego of the Board and GM by giving a glowing Self-management Report  Card. Although Rex didn’t give any letter grades, let’s fact-check his assertions of outstanding performance, and I’ll offer the letter grade I think is warranted:

SCA made the right decision to be self managed.

True. The former Boards’ grade should be a B for taking action based on specific plans and goals to correct deficiencies.
The current Board should get an F for failing to follow through on good work done by prior Boards.

SCA’s management company FSR needed to be replaced, but for more reasons than either Board acknowledges. FSR was double dealing by being both the managing agent and the debt collector following the collapse of the real estate market.

Even with a solid management agreement, previous Boards did not keep FSR from grabbing profits from abusive collection practices. Prior Boards were unaware of the negative impact these abuses had on owners’ property values. Their attention was overly focused on deterioration of property values caused by excessive deferred maintenance of the common areas.

The current Board has also over-emphasized catching up on deferred maintenance, and has not held itself or the GM accountable for other critical areas (customer service, owner relations, transparent communications, fair and open culture, strategic planning, protection of individual property values, and maintenance of high quality amenities and other lifestyle options). Ultimately, this Board has a failing grade because their lack of accountability to owners is supported by paying an attorney to say that the rules don’t apply to them.

According to Rex, a Human Resources model was included as part of the transition.

False. This Board scores an unequivocal F.

Adequate human resource systems are not in place needed to protect SCA from “employer liability”. It is a disgrace that since 2015, the GM has not presented ANY plans or timetables for developing these internal controls or for incorporating essential expert owner oversight. The most important feature of transitioning to self-management is that SCA is now an employer. This failure has already resulted in:

  • excessive management compensation (the GM gets $100,000+ more than the market requires and three other managers annually take in more than a quarter million dollars more than SCA should be paying);
  • lack of performance standards (GM bonuses provided without justification despite massive owner dissatisfaction with her performance);
  • lack of contractual service level expectations (they remain undefined and unmeasured);
  • lack of written terms and conditions controlling GM employment (no management agreement makes her an “at-will employee” who is subject to the SCA Personnel Handbook. Unfortunately for SCA owners, SCA’s attorney has fabricated imaginary“rights” for her that she has asserted against SCA in threats of frivolous litigation and that allow her to act like a “super Board member” rather than as staff).

No 2018 assessment increase.

True, but the grade is still D.

Assessments were increased without clear justification in 2017, and those excess funds have been repeatedly used as validation of the quality of self-management. But, many questions remain unanswered:

  • Why were rates increased in 2017 if $300,000 in budgeted transition costs were saved by reducing the 9 of the 12-month budgeted overlap of the GM and FSR?
  • Why was a 12-month overlap of the GM and FSR budgeted anyway?
  • Why was the entire 2017 rate increase transferred to reserves? If the assessment increase was intended to reserve for walls & fences, what happened to the construction defects settlement for the walls if there was no remediation of the defects?
  • Was the 2017 increase intended to bring up the reserves funding level? If so, that has nothing to do with the difference in operating costs between using a management company and being self managed.
  • Was it for the Liberty Center? If so, why was it not a one-time assessment?

Whatever the reason the 2017 assessments were increased by over 10%, it can’t be ignored while the Board congratulates itself and the GM for not having another assessment increase in 2018.

Per Rex, Tom Nissen’s December Board report comparing SCA to other self-managed HOAs, shows the transition is going well.

False. The grade is D.

Tom should be given credit for researching other HOAs, but should be given no credit for answering the wrong question and deserves no credit for  timeliness and no credit for owner participation.

Tom’s report simply reaffirms that going to self-management was the correct thing to do. It might also support the idea that it was good that the Board adopted a policy to increase the reserves by increasing assessments in 2017. Regardless, neither of these have anything to do with whether the Board and the GM are doing a good job in the transition to self-management.

Showing that SCA’s assessments are relatively low says nothing about cost-effectiveness or about any differences between using a management agent and being self managed. Further, comparing assessments with other HOAs is not really informative unless you eliminate all gated communities from the comparison.

“The Board has made it clear that the complete transition would take a minimum of three years. There is still much to do and more culture change to undergo.” -Rex

True, and yet, the grade is still a big, fat F.

If there is another 1 ½ years to complete the transition, what specifically is planned?

  • Why are there no written plans and timetables?
  • Why is there no transparency and no standards for GM accountability?
  • Why is this Board resisting the necessary culture change by treating owners who are even mildly critical of the Board or GM with such disdain?
  • Why has the Board strenuously rejected developing the committee structure needed to provide expert owner oversight over HR, legal services, insurance and other amenities that has been successful in other self-managed HOAs?
  • What steps has the Board or GM taken to change SCA’s culture to be more inclusive, fair and transparent?
  • What steps has the Board taken to ensure that SCA owners won’t be taken advantage of by unscrupulous agents?

The transition to self-management is very successful in handling deferred maintenance.

True. The grade could be an A, but since there is no transparency, no way of measuring cost effectiveness, and no standard for defining priorities, I can’t be that generous. But remember, no matter how well this portion of property management is done, the grade for it should count only as about 25% of an overall grade for a successful transition to self management, not be given the nearly 100% weight the Board has given it. 

What kind of HOA do we want SCA to be?

And what owners can do to make it that way

Taking a cue from Jim Mayfield’s article “Distinctions between Governance and Management” re-published below, here are a few action items.
In italics: how I see things are currently being done around here.

  1. Encourage owners to run for the Board who are willing to contribute to creating more transparent, competent and accountable governance, or volunteer to serve yourself.
    There is a battle for control of the Board between those who want a fair and open system created that’s good for all owners vs. those in power who want to keep centralized control by excluding anyone who has complained about this GM or who signed a recall petition. 
  2. Utilize the expertise of residents on a Personnel Committee to protect SCA against employer liability, to propose GM performance standards using customer ratings and  objective measures to prevent excessive executive compensation.
    These functions currently are done, if at all, by 1-2 Board members who don’t have the requisite skills, and the Board and GM have acted unlawfully to block necessary owner oversight.
  3. Require the GM to utilize an inclusive process and resident expertise to recommend goals and strategic plans to bring SCA back to be #1 Active Adult Community in USA.
    SCA had this #1 rating in 2011, but has slipped, and we currently have no adopted goals or shared vision about how to get SCA back on top.  Instead, the Board abdicates to a GM who has not evidenced any strategic approach to lessening owner dissatisfactions or community divisions.
  4. Demand that governance be completely transparent to owners.
    Right now, the Board pays lip service to improving owner communications, but allows the GM to use the attorney to conceal SCA records for reasons other than serving the best interests of the association. This secrecy allows SCA owners to be put at risk of being bilked by SCA agents, and it inhibits the SCA Board from being held fully accountable for its duty of care to owners.
  5. Get control of the budget out of the hands of the GM. Although the law prohibits the Board from delegating policy decisions about the budget and prohibits the GM from expending funds for unbudgeted purposes, the blurring of the lines of authority regularly occurs, and owners just have to pay the bill.
Former Director thinks SCA Board chose wrong path
Jim Mayfield served six years as an independent voice on the SCA Board. His experience with fractured governance in the last couple of years had some interesting parallels to what I  suffered during my short tenure:
  • President, GM, and attorney exerting excessive self-interested power;
  • Board rejecting any owner oversight and
  • punishing owners or individual Board members who complained.

Jim’s comments in his article, published in the November issue of the Community Association Institute magazine is re-published here with his permission.   – Nona

“Two and a half years ago, the Board was offered a clear choice between two forms of governance.
One form was the legal model embedded in NRS 116 and approved by CAI.  This form is based upon a model in which all elected Board members are considered equals and participate in a transparent, collaborative relationship, and the President (CEO) is directed by the Board and speaks only for the Board.  It also establishes the major responsibility is to protect homeowner rights and to establish processes for oversight of management.  This is the model described in the above article that was published in November.
The second form is a dictatorship that empowers the President (CEO) to exercise dictatorial powers, makes decisions, imposes his/her decisions on the Board (the Board reports to the President).  This model sees its primary responsibility to represent and protect management from the homeowners.  The model also expands the ability of the President, Board, and GM to operate in secret meetings and to empower its attorneys to use legal process to accomplish its objectives and those of the GM.
SCA is now reaping the fruits of this decision.  I hope all persons thinking about running for the Board in 2018 will read the article and commit to the principles outline therein.” -Jim Mayfield (see Page 10 in link below.)

Is SCA Board retaining lawful control of the budget?

Just saying that the Board acted “on the advice of counsel” doesn’t cut it

If the Board learned and followed these simple legal requirements, the GM and the attorney would be prevented from taking control of our budget and spending our money for something other than our benefit:

NRS 116.31151 (1)(a) requires the Board to prepare and distribute to owners a “budget for the daily operations of the association” which per CC&Rs 8.1(d) is deemed ratified “Unless 90% of all Owners reject the budget…”
The budget is distributed as required and is always ratified. No surprise. Hard to imagine 90% of all owners being mobilized to object to any budget the Board puts forward, but at least everybody knows what expenditures the Board has approved. 

NRS 116A.620 (1)(i) requires any management agreement to define spending limits for the GM.
Here’s the start of the slippery slope toward abdicationSCA Board and GM did not execute a management agreement nor have spending limits for the GM been defined. Pretty easy to rob Peter to pay Paul and then blame Peter for the missing money.

Per SCA bylaws 3.20, the SCA Board is prohibited from delegating policy control over the budget or, for that matter, deciding the amount of assessments, or deciding who can open bank accounts or sign checks or enforce the governing documents.
Here’s where SCA is really careening down that slippery slope. SCA is unprotected by not the Board not defining GM spending limits or service-level expectations in the legally-mandated terms of a management agreement.
Of course, without an agreement, the GM is not legally protected either. She is just an “at-will” employee, meaning she can be fired for any reason or no reason, just not a discriminatory reason. Her terms & conditions of employment are defined in the SCA Personnel Handbook and nowhere else.
But, don’t feel sorry for her. Not only does the Board coddle her, the SCA attorney has
 magically , albeit unethically, created “rights” for the GM that do not exist in black letter law and which are in direct conflict to the interests of the membership.

SCA bylaws 4.6 requires two Board members must sign all checks for any amount, and bylaws 3.25 requires that directors act on an informed basis while carrying out this duty, i.e., sign a check only if it is for something that has been approved in the budget.
Two Board members do sign all checks, but they may as well let the GM use a rubber stamp.

SCA Board Policy Manual 4.10 limits authority to request legal opinions to the Board as a whole or, in narrowly defined circumstances, to the President for the purpose of “…assessing the legal risks on actions under consideration…”. This provision specifically limits the GM’s authority to “…contact legal counsel regarding NRS 116 or other compliance issues…” not to act only “on the advice of counsel”. The SCA-Clarkson Law Group legal services agreement ONLY allows the attorney to provide legal opinions in response to specific Board requests. The attorney has NO decision-making authority over SCA policies.
Previous Boards had enough common sense to govern SCA without having to spend four times the budget to get the attorney to bless every action before it’s taken.
But then, Clarkson is a bully who has, using tactics bordering on elder abuse, and in clear violation of his professional standards of conduct, convinced the Board that it is a violation of their fiduciary duty to act without consulting him even in areas outside his firm’s practice specialty.
As a result, the President and the GM blithely use the attorney far in excess of what is legally permissible for self-serving purposes and in defiance of all common sense.

In conclusion…

The GM’s takeover of the SCA budget is happening on a grand scale because the attorney has blessed it (thereby being unjustly enriched), and the Board (who thereby gets to stay in power) self-righteously allows such foolishness as:

  • Spending an unbudgeted $85,000 for a CPA to do the Election Committee’s normal job to mess up the recall election was allowed by the GM solely “upon the advice of counsel”, but absent the inconvenience of legal Board action.
  • Six months spending for legal services was approved in the budget to cap at $45,000, but four times that amount, $185,000, was spent by the GM without any formal Board action to approve it and without conforming to the laws governing civil actions (NRS 116.31088), or sanctions for violations of governing documents (NRS 116.31085, CC&Rs 7.4) or limits on authority of the Board (NRS 116.3103, NRS 116.31036, NRS 116.31084) or owners rights (NRS 116.1104, NRS 116.31083, NRS 116.31175), or good faith  (NRS 116.1113, NRS 116.1112), and prohibition against harassment and retaliation (NRS 116.31183, NRS 116.31184).

I’m as amazed as you are at their gall.

Who benefits from spending SCA homeowners’ money?

Assessments levied against the unit owners’ property can only be used for the sole and exclusive benefit of the membership of the Association, e.g., maintenance of the common areas, actions to protect the property values of all our homes, preserving amenities and high quality lifestyle.

It is not ever acceptable for the Board, the GM or the attorney to put their personal, financial or political interests ahead of the interests of owners AKA “the common good“.

Therefore, allowing SCA management or agents to spend owners’ money for highly controversial and unbudgeted purposes that provide no benefit to SCA membership should not be tolerated.

Board decisions must always be evaluated against the standard of “Who benefits by it?
If the answer is anybody or anything other than “the common good“, don’t do it.

Here are some examples where no benefit accrued to “the common good“, but they did it anyway.

  • The SCA membership lost when the Board vindictively evicted the Foundation Assisting Seniors after the GM failed to mediate a mutually-acceptable solution to CSG’s problems, blamed the Foundation President, and made up a silly story to justify forcing members to pay more after damaging a valued community resource.
  • Paying $85,000 for a CPA to conduct the recall election in a manner designed to keep the current Board majority from being recalled for cause provided no benefit to the association. It was more than a waste of owners’ money to keep those Board members in power. It allowed the attorney and the GM to keep their over-compensated jobs, too.
  • Paying untold thousands of dollars to make repeated threats of frivolous litigation of defamation against a Board member and unlawful orders for her to  cease & desist making inquiries regarding GM compensation clearly wasted owners’ money. It’s easy to see how using the attorney this way was protecting the GM and her fat paycheck. But, it’s impossible to see how such extreme action was protecting the association.
  • There is no benefit to the association for the Board to unlawfully remove an elected Board member on the false charge that she is making a profit from her Board position. It is simply a power trip and a nasty way of showing 2,000 voters that their votes don’t matter.