Thursday, November 3, 2016

Is your HOA's laundry clean?

Following the article in today’s Scottsdale Independent - click HERE
When the Patriot Act was signed after 9/11, one of the little-known features were provisions to combat Money Laundering, especially for terrorism. Having written the anti-Money Laundering facilities for the bank I ran in London owned by the Italian Government, this is hardly new ground for me as international banks historically paid much more attention to this than their American counterparts.  One famous case in London followed a High Court decision against a foreign company. When they tried to deposit the money to pay the court ordered judgement, no bank would open an account. One of the biggest anti-Money Laundering measures in Italy of course was the conversion to the euro – the “Dons” could hardly turn in all those old Lire.
Anti-Money Laundering relies on a centuries old banking principle – KNOW YOUR CLIENT. (“KYC”). (It shouldn’t require any new legislation).  And a very simple principle called the “point of entry” into the banking system. Once you’ve opened an account – bingo - you’re in. For chapter and verse on the Patriot Act, click HERE
So much of this relates to account opening and knowing your client. 
The facts are this: 
  1. The typical HOA Management Company sets itself up as the “agent” of an HOA. It then has a master agreement with a bank. Take the example of First Service with US Bank and Mutual of Omaha.  See their agreement HERE
  2. In practice, they are acting as fiduciaries which might cause real problems with FDIC insurance. We estimate FirstService in Arizona alone has as much as $100 million on deposit with US Bank. Is that one account – or 400? In other words, how many $250,000 FDIC deposit insurances are there? One – or 400?
  3. No mention of the owner of the moneys – the HOA
  4. The Management Company can shuffle HOA’s in and out using the same agreement
  5. They could create fictitious HOA’s and how would the bank ever know?
  6. The states with the most HOA’s are “border states. Draw your own conclusions.
  7. The account signers are typically not bonded with zero experience of banking
  8. The banker never gets to know who the HOA is - they don’t care as it makes like difficult
  9. Most Boards don’t even know who they bank with.
  10. So far, not one HOA Management Company has met the acid test – allowing online read only access to HOA bank accounts
  11. Management Companies, supposed to be running landscaping etc. are totally unlicensed

Other 2014 national data from CAI’s own web site:
  1. The estimated value of homes in associations is $4.95 trillion.
  2. Associations collect an estimated $70 billion in assessments from their homeowners. 
  3. About $22 billion of assessment dollars are contributed to association reserve funds for the repair, replacement and enhancement of common property.

Other facts viewable elsewhere on this blog:
  1. Mutual of Omaha is the successor to First National Bank of Arizona (“FNBA”). Their Community Banking Division(“CAB”) quickly amassed over $1Billion of HOA deposits. Of which they relent back $75mm.
  2. Where did the other $925 million go?
  3. The President of CAB’s only experience was property management, CAI membership, and running Las Vegas Nigh Clubs
  4. When FNBA went belly up in 2008, the FDIC had to inject $862 million to rescue it
  5. Why did they also in an unprecedented step bail out the uninsured depositors as well?
  6. US Bank has $21 million of First Service’s Revolving Credit. Click HERE
  7. First Service Residential declare all their business relationships in their HOA Management Contracts. Click HERE
  8. Why don’t they disclose their relationship with US Bank who they are depositing HOA moneys with?
NOTE: Subsequent to this posting, an article appeared in the Scottsdale Independent. This triggered questions for Kevin DeMenna, CAI lobbyist. To see how your mortgage could be impacted by troubles with the Management Company, go to the blog dedicated to The Crossings at Willow Creek Prescott by clicking HERE