Community

3 reports of association fraud on same day show importance of prevention, vigilance | Opinion

By Michael L. Hyman

October 21, 2022 4:30 AM

As these three cases that came to light on the same recent September day illustrate, community association theft, fraud and embezzlement can come in all types and sizes. What most cases typically have in common is that too much trust and control had been ceded to one or a few individuals, with insufficient reviews and oversight for any potential malfeasance. Getty Images/iStockphoto

For community association directors, members and property managers, the three similar news reports from across the country making headlines on the very same day on Sept. 26 should send a clear message: Fraud, theft and abuse can happen to any community, and only those with stringent preventative measures stand a chance at thwarting potential schemes.

The reports began in Minneapolis when several local outlets as well as the Associated Press chronicled how a California woman had been indicted in federal court for embezzling more than $1 million from several local HOAs. Mai Houa Xiong, 47, of Fresno, California, was charged with wire fraud, aggravated identity theft, making and subscribing a false return, and other charges.

Xiong, who worked for an unnamed Minneapolis property management company from May 2013 - Oct. 2021, “had nearly unfettered access to the victim homeowner’s associations’ financials, bank accounts, vendor and contractor payments, and bookkeeping systems,” according to a U.S. Attorney’s Office news release. She is accused of devising and executing a scheme in which she used her access to the HOAs’ bank accounts to transfer money directly into her personal bank accounts by mislabeling and disguising the electronic transfers as legitimate expenses. She is even charged with using her signatory authority to make cash withdrawals from the HOAs’ accounts, including some withdrawals after she had been fired from the property management company in July 2021.

These news reports were followed by one from the Winston-Salem Journal in North Carolina of a former president and treasurer of an HOA for a local 162-unit condominium who was charged with embezzling more than $13,000 in 2017, according to arrest warrants.

Lori Deane Phillips, 57, was charged with two counts of felony obtaining property by false pretenses and illegally obtaining a total of $13,295. As president and treasurer of South Wind Villas Homeowner’s Association, arrest reports indicate she falsified documents showing a payment was being made to a specific person or company in the association, but the funds were actually being deposited into her account.

Industry watchers then noticed yet another story of possible association fraud on the very same afternoon, this one coming from the Durango Herald in Colorado. The newspaper’s article reported that Wendy Crane, 42, is suspected of stealing more than $75,000 over the course of 12 years from the Clover Meadows HOA in Bayfield. The former board member is alleged to have transferred funds from the HOA’s bank account into her personal account, according to the Bayfield Marshal’s Office.

Crane’s fellow Clover Meadows residents and owners who attended her hearing told the newspaper they felt betrayed by her actions.

“It’s disappointing to learn we can’t trust our neighbors as much as we thought we could,” said Benjamin Ferrier.

Things got to a point in which Crane was running the board by herself without checks and balances, according to Ferrier’s comments in the article. “In Small Town America, you just kind of take for granted that we’re all upstanding people. To me, it’s the abuse of trust that bothers me more than the money,” he concluded.

Indeed, those sentiments are often shared by many of those whose communities fall victim to unscrupulous fraudsters who have been posing as cordial and caring neighbors for years. They typically feel angry and betrayed, and those who held board seats while the schemes were perpetrated right under their noses feel particularly duped.

Michael L. Hyman is a shareholder with the South Florida law firm of Siegfried Rivera.

As these three cases that came to light on the same recent September day illustrate, community association theft, fraud and embezzlement can come in all types and sizes. What most cases typically have in common is that too much trust and control had been ceded to one or a few individuals, with insufficient reviews and oversight for any potential malfeasance.

Recovering funds that have been pilfered away can be extremely difficult, so community associations should make ample use of the most effective precautions and preventative measures. Some of the most recommended safeguards include requiring two signatures on all checks, keeping the stockpile of blank checks securely locked away, conducting monthly reviews of all account and financial statements by multiple directors/managers, and maintaining adequate insurance coverage to protect against the loss of funds. Communities should also conduct independent audits of all financial records by certified experts on a regular basis.

Florida added teeth to the criminal penalties against community association fraud and embezzlement in 2017, and state prosecutors and law enforcement have indeed been making it more of a priority ever since. However, even with the more stringent legal repercussions, fraudsters and crooks have been and will likely continue targeting community associations in the state as well as across the country. By making effective use of all the recommended safeguards and precautions, together with the help of association property managers and attorneys of the upmost integrity and qualifications, boards of directors and the communities they serve can avoid becoming victims of fraud and theft.

Michael L. Hyman is a shareholder with the South Florida law firm of Siegfried Rivera who has focused on community association law since 1970 and is based at the firm’s Coral Gables office. He is the author of the two-volume “Florida Condominium Law and Practice” and is board certified as an expert in community association law by The Florida Bar. Michael is a regular contributor to the firm’s association law blog at www.FloridaHOALawyerBlog.com. The firm also maintains offices in Broward and Palm Beach counties, and its attorneys focus on construction, real estate, community association, insurance and bankruptcy law. www.SiegfriedRivera.com, MHyman@SiegfriedRivera.com, 305-442-3334.

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