HOA Manager Awards Dad 1.15 Million in Contracts

There’s always such a special bond between a father and son. In this case, that bond comes with 1.15 million in awarded contracts.

Now fired Dallas Texas HOA Holly Oaks Townhomes Association Inc. property manager Jackson Potter funneled work to family members. Handing any work to family members is questionable in any business, but where it involves over a million in contracts it would be prudent to investigative if Mr. Potter acted in the best interest of his client – the HOA – or in the interest of his family, father, and brother.

The conflict of interest includes two really big issues:

One, Mr. Potter and the HOA hired David Potter (Mr. Potter’s father) to represent them in a civil case against an owner. David Potter billed $150,000 in legal work and fees. If I have my cases correct, the amount the HOA sued for was $24,324. That certainly seems like milking a case – brining bills for 6x the amount being sued. It’s also a bad risk – if the HOA loses the case or if the owner being sued cannot cover the judgement, the HOA would be on the hook for those costs.

One method to see if the owner could pay such a legal bill is to review if foreclosing on the owner’s property would cover the legal expenses. The median house cost in Holly Oaks Townhomes (as of 03 July 2010) was $44,450. Nope. The total assessed value of home in the HOA is generally less than one third the legal billings.

Two, when 10 of the units of the HOA in 2010 suffered fire damage – Mr. Potter and HOA hired a company run by (again) his father and his brother. The reconstruction cost – from a photo it looks like a full rebuild on at least some of the units – was 1 million dollars. Remember, the median value of 10 units in the HOA that year was $444,500. That means the value of the units being fixed after the fire was less than one half the reconstruction bill.

Related to this, especially given the size of the contracts, in Las Vegas it appears 16 people so far have entered into plea agreements on charges relating to stacking homeowners association boards with friendly members who would hand out legal work and construction defect contracts at the expense of the associations and their homeowners.

“Hand out legal work and construction defect contracts” – seems an apt or similar description of what Mr. Potter did for his dad.

Using Conflict of Interest to Generate Money and Prison Time

When I teach the 101 Board Education course for the Canadian Condominium Institute of South Alberta, I comment several times that board members should always avoid conflict of interest.

Conflict of interest for those who may not be clear on the term:

A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other (Wikipedia).

Note that a conflict of interest doesn’t even need to a realized corruption, but just the possibility. For boards, common conflicts of interest include voting on contracts with bidders that include family, friends, and business partners. It also includes board members doing services for the condominium and receiving remuneration.

For a group in Las Vegas – they saw being in a conflict of interest as a process to profit. They hatched a scheme.

They recruited individuals who they gave money to buy units in condominiums. In return, the individuals were asked to run for the board and once on, direct legal and construction work for the condominium to companies designated by the group who fronted the cash. Just to make sure the scheme worked, board elections were rigged, and ballots were forged.

So far, one of the people fronted money – Steven Wark – will be facing a maximum sentence of 30 years for his participation in the scheme (and pay more than $94,000 in restition).  The reason: after he was elected to the Vistana homeowners board he took payments and voted “in a manner directed by and favorable to his co-conspirators.”

That would very much be a conflict of interest.