What can residents do when the HOA or condo board hasn't posted audit or held elections?

Live in a home governed by a condominium, co-op or homeowner's association? Have questions about what they can and cannot do? Ryan Poliakoff, an attorney and author based in Boca Raton, has answers. 

Question: According to the Condominium Act, “each year the board of administration must prepare and complete a financial report of the previous year’s financial activities within ninety (90) days following the end of the Association’s fiscal year, or on such other date as the bylaws of the association require.” The statute continues to state that a copy must be made available to all owners. Our association’s fiscal year matches the calendar year.

There has been no mention of a 2022 audit in any of our posted meeting agendas, nor has it been referenced at all in any scheduled board meeting to date. There has been no waiver by owners and neither the board members nor the property management company has said a peep about this annual requirement.

I am beginning to think that both parties the forgot this is a required activity. I have asked but about the audit but have never received a reply.

There are a group of owners who are very concerned as we question the current state of financial integrity in our community. How do we proceed? Signed, D.L.

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Dear D.L.,

I am assuming that your association falls within the statutory requirements for a full audit (that it has total annual revenues of $500,000 or more). It’s possible that the auditor is just late — I see this with a lot of my clients, the statute is a bit unrealistic regarding how long it takes to prepare the audited financial statements (which is particularly the case because they rely on the cooperation of a lot of different people).

Or, as you surmise, they could have simply forgotten that responsibility (though that seems very unlikely). Or they just decided, improperly, that they didn’t want to conduct an audit this year.

The board has no obligation to respond to your email or telephone inquiries, so instead send an inquiry by certified mail asking whether they conducted an audit this year and when the audited financial statements will be delivered.

In addition to, or instead of that, you can file a complaint with the Division of Condominiums — the Division has jurisdiction to investigate financial issues such as a failure to prepare an audited financial statement.

Keep in mind though that if they find the association has violated the statute, there will be a fine applied, and it could be significant — several thousand dollars, depending on the number of units in your community. That fine will be everyone’s common expense.

So, you might win the battle, but end up losing the war in that you’ll be imposing an expense on all your neighbors (and yourself). You may be better off waiting for an official answer from the board, and then pursuing the issue at board meetings and with other like-minded owners, to convince the board to follow their statutory responsibility.

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Question: Our current board has refused to hold elections since 2018, and they have not conducted audits as required by law.

Does the rollover law apply, such that they are indemnified against legal action; or are these individuals considered unelected usurpers and therefore can be held personally and criminally liable for misappropriating HOA funds? Signed, J.L.

Dear J.L.,

I am not certain if you are in a condominium or homeowner’s association, but failure to hold elections and failure to conduct audits are both violations of the Condominium Act and the Homeowner’s Association Act. However, they are not crimes.

You ask about these board members “misappropriating” HOA funds, but that would mean they are using such funds for improper purposes. Are they actually self-dealing (acting through the HOA to enrich themselves in some way), or are they just failing to allow a democratic election to occur, but otherwise they are using the common funds for proper common expenses? There is a big difference. These board members are not personally (or criminally) liable for using HOA funds for legitimate HOA purposes.

I think what you really care about here is getting your association to hold an election and conduct an audit, as is required.

If you’re in a condominium association, both issues can be investigated by the Division of Condominiums, and they can order the association to both conduct an election and prepare audited financials (and fine them for the violation, to boot). If, instead, you are in a community governed by a homeowner’s association, you will unfortunately have to pursue private legal action and get a court to order the association to abide by the statute.

That will be very expensive, so it would be best to have a group of like-minded owners to pursue these issues.

Ryan Poliakoff, a partner at Poliakoff Backer, LLP, is a Board Certified specialist in condominium and planned development law. This column is dedicated to the memory of Gary Poliakoff. Ryan Poliakoff and Gary Poliakoff are co-authors of "New Neighborhoods — The Consumer’s Guide to Condominium, Co-Op and HOA Living." Email your questions to condocolumn@gmail.com. Please be sure to include your location.

This article originally appeared on Palm Beach Post: When boards fail to deliver audit reports, investigations, fines follow