Fraud cases related to condos, HOAs, or property management are all too common. It's important to learn how embezzlers and con artists operate, what motivates them, and how they get away with their crimes for so long, so you as a association member, director, or property managers can prevent or mitigate theft involving your properties.
The Department of Justice just broke up a complex condo mortgage fraud scheme, resulting in the indictments of 17 defendants scattered across 3 Florida counties.
The U.S. Attorney's Office alleges that the defendants conspired to get mortgage loans for unqualified buyers at two condominium developments: Portofino at Largo in Largo, FL, and Bayshore Landing in Tampa. They've been accused of submitting fraudulent loan applications to lenders. Four of these defendants are alleged to have operated sham marketing companies that laundered the scheme's proceeds.
Other defendants got involved in the HOA fraud scheme by disguising kickback payments to buyers as "marketing fees," according to the U.S. Attorney's office.
The potential penalties are substantial: Each defendant faces potential fines of $1 million, mandatory restitution to defrauded parties, and incarceration of up to 30 years.
The alleged acts of HOA fraud occurred in 2007 and 2008—just as the mania for Florida real estate was reaching its peak, with sellers scrambling to find the last few people willing to buy property before the music stopped. At the time, the pressure to sell units in the overbuilt Florida market were extreme, and it's not surprising that unscrupulous individuals would take advantage of the situation by operating a criminal fraud scheme. However, while the bubble has since deflated, HOA fraud is still a common occurrence. More recently, we've been seeing evidence that drug trafficking organizations along the Mexican border are looking to buy real estate to launder ill-gotten gains from the illegal drug business.
An accountant in Cartersville, GA has been charged with embezzling nearly $100,000 from a local homeowners' association over the course of just one year. The defendant, Gregory James Heath, was the owner/operator of H&H Tax and Accounting, which the HOA hired for financial work. He's been charged with 60 counts of theft by taking, which indicates that if he did steal the money as alleged, he had been siphoning money in small increments over time, hoping to fly under the radar and evade HOA fraud controls for larger transactions.
A property manager from Tuscon, AZ had been hired by 30 landlords to handle rent collection and property management. While this manager had been performing as agreed for some time, she allegedly stopped forwarding rent payments to landlords in November 2015 and disappeared.
Investigators tracked her down on the run in Florida, and she was then extradited back to Arizona to face her many fraud and theft charges. Meanwhile, her Arizona real estate broker license has been revoked.
In late December, a grand jury indicted a mother and son duo for stealing over $183,000 from a condo association. According to court documents, the 78-year-old mother, Judith Remy, wrote over $149,000 in fraudulent checks to her son, Raymond Jr., for routine painting and carpentry work. He had been doing work for the association, but the work was worth nowhere near $149,000. Later, Judith Remy began writing checks to herself from the association account. The association was left with a massive debt that they must repay via higher dues and monthly assessments.
There's an element of human tragedy to this story of HOA fraud: Judith only became treasurer when her husband, Ray Sr., the original treasurer, suffered a stroke. She told officials that her son pressured her into writing the checks because he needed money for child support and taxes.
This case could develop into a lawsuit against derelict board members. This scheme should have been discovered with monthly, quarterly, or even annual reconciliations or audits. This fraud could also have been prevented with routine conflict of interest precautions: The treasurer should not be writing checks to a vendor who happens to be her son without the Board's approval. If such an arrangement is unavoidable, then the Board has a responsibility to exercise an extra degree of oversight over these transactions. In addition, due diligence on the part of the HOA board should have uncovered a clear issue: In 2007, Raymond Jr. had been sentenced to 6 concurrent terms in prison after committing 3 counts of larceny.
This case also underscores the importance of maintaining solid directors' and officers' insurance coverage on board members.
A former property manager was indicted for allegedly stealing nearly $8500 from a Kennessaw homeowners' association in Georgia. According to The Atlanta Journal-Constitution, the HOA had issued her a credit card on the HOA account, which she allegedly used to make over $2600 in unauthorized purchases. She's also alleged to have stolen nearly $6000 in clubhouse rental payments, dues, and social event funds.
A bookkeeper in West Palm Beach has been charged with fraud and larceny following the disappearance of nearly $95,000 from the Cypress Lakes homeowners' association.
In this case, the association's property manager noticed $10,700 in personal purchases over a period of 5 months. This discovery sparked a more detailed review of the association's accounts, which uncovered dozens of fraudulent purchases on the association's credit card: $3,000 at Best Buy, $8,000 at Walmart, and more charges at various retail establishments around town, including a jewelry store and Victoria's Secret. They also discovered hotel bills and, inexplicably, 46 cell phone cases.
All signs pointed to their 36-year-old bookkeeper, Kristine Moore, who had worked with the association for almost 6 years. She was earning a salary of $44,000, according to the HOA's president, Merrill Gottlieb. In all, Moore had allegedly been stealing money for personal expenditures since 2011, and had been doctoring the books to deceive the board. In March of 2014, she apparently overheard the property manager discussing the serious discrepancies with an accountant. Moore promptly gathered her belongings and left the office, never to return.
One lesson to learn from this outrageous case of HOA fraud: Thieves often spend money on consumer electronics, so purchases at a store like Best Buy should attract a higher level of scrutiny from the Board, which should be reviewing credit card purchases on a regular basis. If Best Buy wasn't enough to alert them to a problem, they should have figured it out from the jewelry, lingerie, and hotel spending.
Liked this post? Check out our our other on HOA fraud and embezzlement: When Board Members Go Bad: Theft, Fraud & Embezzlement and How to Detect and Prevent Theft, Fraud & Embezzlement in HOAs.