Phoenix, AZ asked in Real Estate Law for Arizona

Q: HOA Directors and Management company's mismanagement is causing huge special assessment fees and loss in equity of home.

I own a single family residence in Mesa and the community association is in financial crisis. After speaking to the management company, who advised me to sell quickly, I found out that we are looking at first a very large special assessment, and then even then still there's a strong possibility of bankruptcy all due to the directors mis-spending LARGE amounts of funds/reserves that cannot be explained nor have any results to show for the missing funds, our asphalts still need to be replaced and we are in the negative. So I've gained all of the financials, and researched deeper. There was never a Reserves Study since the property was created yet it's on the budget every year. So it shows clear mismanagement, negligence, and possibly even further "foul play". But it's now affecting my equity and my financial well being. WHAT CAN I DO? DO I HAVE A CASE I COULD WIN?

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1 Lawyer Answer
Peter H. Westby
Peter H. Westby
  • Scottsdale, AZ
  • Licensed in Arizona

A: You and the other homeowners may have a case against the board of directors for their mismanagement and breach of duty. From the information you disclosed, this should be considered. The directors may have purchased a policy of errors and omissions insurance coverage. If so, a claim could be made. You might also review your CC&Rs to determine how the current board members can be voted out and a new board elected. The new board could have an audit done by a forensic accountant to support any claim against the old board. All of this will require effort by a team of volunteer owners. The steps are to change management, investigate to find out what was done and then make such claims as appear to be in the interest of the HOA.

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