Statute of Limitations and Financial Audits

Statute of Limitations and Financial Audits

By Ryan D. Poliakoff / Published February 2018

Photo by iStockphoto.com/AndreyPopov

Q

uestion:

 

I’m a homeowner in a gated community in Tampa, Florida, and I have received a first notice on behalf of the HOA for an alleged violation of a covenant that has not been enforced for more than five years (beyond Florida’s statute of limitations). In fact, this covenant has not been enforced for a decade or longer. I’ve resided at this residence for more than five years, and this recent notice from the HOA is the first time I’ve ever received any communication from the HOA concerning this particular covenant (to wit, the screening of the pool pump and gas heater and such apparatus (e g., pipes, valves, etc.) as may be seen above ground on a very narrow residential lot toward the back of the residence). What should I do?

Answer:

       As you are clearly aware, with respect to any type of legal dispute there exists a “statute of limitations”—a law expressly stating within how many years of the inception of a matter you must bring a lawsuit before you lose your right to litigate the dispute. Disputes regarding the enforcement of community association documents are considered contract disputes, and so, pursuant to Section 95.11, Fla. Stat., such an action must be commenced within five years.

       So, first, assuming that your particular violation has been open and obvious for five years or more, and that the association has not taken any steps to enforce its covenant, it would likely be precluded from doing so as to your own home. Further, the fact that the HOA has not enforced this specific covenant for a decade or more would likely raise a “waiver” defense that could be raised by any owner against whom the HOA attempted to enforce the covenant, whether or not that owner’s violation was greater than five years old.

       If the association wants to begin enforcing this covenant, it would be required to “clean the slate” and republish the covenant by sending each owner a letter informing them that the rule will be uniformly enforced going forward. However, existing violations would likely be grandfathered and could not be pursued.

       Assuming that, despite the above, the association insists on fining you or enforcing this covenant against you, your only remedy would be to start with a mandatory demand for mediation and then proceed with an action in court (or, alternatively, wait for the HOA to proceed against you—although, this might be more dangerous, as the HOA has the right to enforce fines of $1,000 by lien and foreclosure, which would put you on the defensive).

Question:

       I reside in a 40-unit complex. We have not had an independent CPA financial audit for at least five years. This year, some extensive concrete work, totaling expenditures of $900,000, triggered the requirement for an audit. However, the owners voted against one. Our bookkeeper, who is also a licensed community association manager, worked together with our board to orchestrate a confusing ballot campaign to successfully waive the audit requirement. My question is, in the event any of these board members are guilty of financial wrongdoing, would they be personally liable for those misdeeds?

Answer:

       Whether or not your community conducted an audit is irrelevant to the question of whether the board members would be personally liable for their financial malfeasance. They are. The audit is only a tool that might indicate whether a misdeed has occurred.

       You don’t state whether your community is a condominium or a homeowners association, but either way, given that your total revenues this year were greater than $500,000, the association was obligated to prepare audited financial statements. How-ever, as you noted, the membership was entitled to instead vote to prepare a report of cash receipts and expenditures or a reviewed or compiled financial statement in lieu of the audited statement. I assume that your membership voted to provide the lowest level of reporting—a report of cash receipts and expenditures.

       You don’t state any particular reason why you think there may have been financial misdeeds related to the concrete project, but, regardless of whether the association conducted an audit, you as an owner are entitled to inspect and copy all of the financial documents for the year, and you certainly could use those documents to have an accountant perform a forensic audit to determine whether any misdeeds occurred. While condominium and HOA directors and officers are statutorily-protected from many types of personal liability, they may be held liable if they have committed fraud or a bad act (stolen money, for example), or if their acts were maliciously reckless. Note also that the type of audited financials that would be prepared by a condominium or HOA accountant is very different from the (far more costly) deep forensic audit that is usually required to ferret out theft of funds. If you are concerned, start by reviewing the financial records on your own, and if you see red flags, you can decide how to proceed. 

Ryan D. Poliakoff

Partner of Backer Aboud Poliakoff & Foelster

Ryan D. Poliakoff is a Partner of Backer Aboud Poliakoff & Foelster and serves as general counsel to condominiums, homeowners associations, and country clubs throughout South Florida. He is the co-author of New Neighborhoods—The Consumer’s Guide to Condominium, Co-Op, and HOA Living. In addition to representing associations, he is a frequent contributor at seminars and workshops for attorneys and board members, and he has written hundreds of articles for magazines and newspapers throughout the United States. He can be reached at email hidden; JavaScript is required. For more information about his firm, visit www.bapflaw.com.