Category: Attorney fees

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 abdication. SCA 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.

December 7 Board meeting: Part 4 Penny wise, pound foolish

SCA agreed to pay $55,000 to settle dispute over $4,400 delinquent dues

In his President’s report, Rex reported the Release and Settlement of A-14-702071-C.  SCA agreed to pay Citi Mortgage  $55,000 as full and final settlement of all claims in a case where the homeowner defaulted and so the fight was between SCA and a bank. This is an example of how the Board is very wasteful by not avoiding problems or solving them when they are small. The excessive use of attorneys is a core failing of this Board under Rex.

Rex stated that Citi insisted on confidentiality and so he could not comment further. I seriously doubt that because what I’m going to tell you is in the public record. I happen to be familiar with this case from before I went on the Board. I learned nothing about it as a Board member because I was forced to recuse myself from ANY SCA collection matter “so as to prevent even the appearance of impropriety” regardless of whether it had any bearing on my quiet title case whatsoever.

Long story short.

In 2014, SCA’s agent RRFS refused to accept Citi ’s tender of the $825 super-priority portion of SCA’s lien for delinquent assessments claiming it was less than the full super-priority amount due. After four years of nonpayment of assessments ($275/quarter x 16 quarters = $4,400), RRFS claimed Citi owed $17,591.81. Citi paid it under protest, and RRFS cancelled the SCA foreclosure sale. Citi filed to get $16,766.81 back from RRFS that the NV Supreme Court said it was unlawful to force Citi to pay more than $825, the amount that has “super-priority” over the bank’s loan.

The Court ruled in Citi ’s favor against SCA, a year ago, stating:

“…(SCA’s) position ignores the question presented in this action, whether a homeowners’ association can force a first-security lienholder, or agent acting on its behalf, to satisfy the entirety of its lien, rather than pay the super-priority piece to protect its secured interest. The Court concludes it cannot.”

Even though this overcharging was done by SCA’s former agent’s, SCA was on the hook for it since RRFS was acting on SCA’s behalf. I don’t know why SCA even stayed in the fight. Why didn’t they make RRFS pay it and get out of the litigation years ago? Anyway, SCA deposited $5,000 with the court last December toward the $16,766.81 the Court ordered SCA to pay Citi . Then,  Citi demanded $51,000+ in attorney fees and court costs.

Bottom line:

SCA owners are on the hook for $55,000 to settle with a bank over the misdeeds SCA’s former agent in collecting delinquent assessments of less than $5,000.

  • Wouldn’t writing off $3,575 in delinquent assessments have made more sense?
  • Or even better, shouldn’t SCA handle assessment collection in house rather than being on the hook for the wrongdoing of unscrupulous attorneys and debt collectors?
  • Can you see any risk SCA homeowners face by my telling you about all this?
  • Can you see any way I would profit by sharing this information with owners?

I guess you can see that the real risk is to the attorney’s profits. That’s why attorney Clarkson (SCA’s current legal counsel and debt collector) insisted that I be forced to recuse myself from all SCA collection issues even if they are not remotely connected to my quiet title action. 

Cost of collections and fraud by SCA agents are other reasons SCA needs to be (better) self-managed.

Here is another reason SCA needed to go to self-management that Tom didn’t mention and probably isn’t even aware of. FSR was actually unfairly profiting from failing to pay SCA asset enhancement fees and new owner set up fees when there was a foreclosure. This happened twice with my late fiance’s house so it’s a better than even bet that this scam was done when other houses were snatched for a few dollars of delinquent assessments.

October Financial Report

This issue is also connected to a good reason why SCA needs to be self-managed, but also needs to have better control over its agents and managers.

The CFO reported that the revenue from Asset Enhancement Fees are $103,268 over budget. SCA gets 1/3 of 1% of the sale price when a home is sold, and other fees associated with home sales are up a similar amount. This is due to an increase in the number of sales reported to SCA which is, in small part, due to SCA’s former agents not crediting SCA with these fees upon sale of foreclosed properties. Title to my late fiance’s house was transferred three times in country property records, and FSR twice failed to record that SCA was paid any of those fees as if two of those three sales never happened. Those two incidences can’t be the only times that SCA was shorted fees due to us.

I mention this not just because it’s something nobody else would notice, but SCA’s way of handling collections is flawed and when I offered evidence of it, I was seriously and wrongfully attacked. I reported this problem to Lori Martin and Rex Weddle before I decided to run for the Board and they refused to even talk to me about it, let alone assess the degree of loss to SCA. I included it in my court filings in the quiet title case, and our current attorney (who is also SCA’s debt collector) used it as a bogus justification for kicking me off the Board (putting matters before the Board from which I could make a profit) rather than looking at how SCA was getting ripped off by our agents who are supposed to be fiduciaries.

CFO Jim also reported that there are 45 cases in collections with $77,000 outstanding. This is a small amount, a fraction of the nearly $9 million in annual assessment revenue, but it is a completely unsatisfactory level of accounting and reporting to prevent problems. This level of Board control/owner oversight is insufficient to prevent possible mismanagement, theft or fraud by SCA agents.

Turning collections over to attorneys when there is only a budgeted projection of having to write off $12,000 in 2018 is a gross waste of money. It is truly fighting fire with Napalm, and then making owners pay for all the collateral damage.