Monday, February 13, 2017

HOA Attorneys and HOA Insurers

We had two hearings down at the Office of Administrative Hearings this week. The issue was access by homeowners to HOA bank accounts on a read only basis. So that any homeowner can log in, check things out, but not transact. Whatever the result, there was no doubting that’s feasible. We were not allowed to bring it into evidence, but even CAI advertises this as good practice for fraud prevention. Nor did the bankers turn up. Click HERE
The two cases couldn’t have been different. Six hours of slogging it out with TWO Carpenter Hazlewood attorneys. The usual allegations. Except this time, banks are feeling so “harassed”, they’re closing bank accounts because of “regulators”. The shocking thing of course, the bill for Grayhawk must have run up mightily. All over a $500 filing fee, even though Curtis Ekmark seemed to have forgotten that’s the only award the Judge can order to the prevailing Petitioner.
In the second case, no attorneys for either side, no big deal. Except for FirstService’s attorney –  for a witness, John Kemper, who as Arizona President, seemed not to know much about anything. Although they did drop their objection to the subpoena on the grounds they’re in a foreign country – Salt River Reservation. The Vintage at Grayhawk Board having done their utmost to get records out of FirstService, I dropped that petition, foregoing the filing fee.
But not before I thought I saw the penny drop with the Judge – you mean you don’t have any Board Members signing on the bank accounts?
Finally, in Grayhawk’s case, it was the insurers paying. My guess - $35,000.
See the letter below to the insurers

Dear (HOA Insurer – see LIST)                                                                                                                       February 13, 2017
I am part of an Arizona homeowners group exposing serious risks to the financial system because of financial malpractice in the HOA industry. But we are also fighting legal terrorism on homeowners by their HOA’s via their attorneys if they dare ask questions, especially about money. See the list in Attachment 1.
You are financing much of this.  In 2007 legislators instigated an Administrative Law process via the Office of Administrative Hearings (“OAH”) designed to prevent disputes over garbage cans escalating, leading to $hundreds of thousands of legal bills in Superior Court, and occasionally foreclosures.
Arizona Superior Court data has confirmed that Court actions since 2007 involving HOA’s and these attorneys numbered 16,744 compared to 150 at the OAH. It also indicates 90% of these stem from HOA’s. So much for Alternative Dispute Resolution. Lawsuits and debt collection, see Attachment 2, are major sources of revenue for these attorneys. The other is defending OAH and other cases paid for by you.
My wife and I are members of 4 HOA’s and big believers in using the administrative process. We have had 5 prior OAH cases, all of which involved transparency issues. The first case we won was constitutionally challenged in Superior Court in 2008 by HOA attorneys. Thanks to the then Senator O’Halleran, the HOA blinked, and withdrew its appeal. Ekmark & Ekmark then “resigned” leaving the HOA to fight for reimbursement from CNA of almost $40,000 of legal fees fighting a simple records request.
Standard practice for these attorneys is to intervene with you on the HOA’s behalf. See a recent case in Attachment 3. They argue this is the start of a lawsuit because an unfavorable Administrative decision compromises a subsequent Superior Court appeal by the Administrative ruling. BUT AN ADMINISTRATIVE HEARING IS NOT AN “ACTION”. The claim is simply enforcement of regulations with the maximum cost being a $500 filing fee. Note this may become abundantly explicit pursuant to two bills, SB-1289 & SB-1072, the latter part of a national constitutional group’s efforts to reinforce the separation of powers. See Attachment 4. The goal being to uncouple completely the OAH process and Superior Court so that any appeal would be close to a nuevo trial. Consequently, the need to defend an Administrative proceeding disappears, if it ever existed anyway. As insurers, you might ask to be notified of such proceedings but, properly worded, you would not be obliged to defend something where you cannot recover attorney’s costs. Please support these bills.
Furthermore, as a banker and risk manager, and with your significant risk to the HOA industry, I would be remiss if I did not alert you to one of the biggest financials swamps I’ve seen working on Wall Street. This affects the 68 million of American homeowners who pay $75billion annually to a totally unregulated group of players – HOA Management Companies acting as shadow banks. See more below.
We’d welcome a dialogue.
John Sellers
$1BILLION was needed from taxpayers via the FDIC in two Arizona HOA banks in 2008. Future risks include:
1.       Failures by certain banks to respect the Patriot Act anti-Money Laundering regulations as Management Co.’s harvest HOA deposits as unlicensed intermediaries create a shadow banking stem. The banks have no idea in most cases who the owners of the deposits are.
2.       FDIC insurance may also not be flowing through to HOA Deposits because Mgmt Cos, acting as mere agents rather than as fiduciaries, do not meet the FDIC’s requirements as stated to us, regardless of the deposit amount.
3.       Management Companies are accepting direct debit authorities from members in their name. This evokes serious risks to the $27 Trillion ACH payment system, in a worst case by ISIS intrusion.
Nationally, this raises the risk of a repeat of 2008.
This is all documented on my personal blog at
We have obtained banking records covering possibly 1,000 Arizona HOA’s. We personally also have three OAH hearings in the coming weeks over the denial of basic banking records. 6 senior HOA Bank Executives and 3 CFO’s of Mgmt Co.’s. have been subpoenaed to testify. For full details click HERE

1.       The Arizona legislators enabled the OAH process for simple no frills resolution of disputes.
2.       AZDRE and the OAH are part of the Executive Branch. As such, the separation of powers applies:
3.       Numerous consequences follow:
·         The first Amendment kicks in.
·         The petition documentation does not say “Complaint” which would apply to a lawsuit.
·         It says “Petition” as in the “right to petition government”.
·         Anti-SLAPP protections therefore apply.
·         OAH Administrative Law Judges are part of the Executive Branch and not subject to Judicial Branch procedures or discipline in any way.
·         The Arizona Rules of Civil Procedure do not apply, as would be the case in Superior Court.
·         No damages can be awarded.
·         No attorney’s fees can be awarded by the OAH. The Arizona Appeals Court has said so- TWICE
·   Semple vs Tri-City Drywall ruling that an Administrative Hearing was not an “Action”.
·   Brown vs Terravita.

·         If one attempts to enforce an administrative order in Superior Court they will not accept it with a formal complaint being filed.