HOAs That Commit Fraud

Occasionally, a self-managed HOA's Board of Directors forgets that it has a responsibility to engage only in activities that benefit the shared common interests of the HOA's members. I have seen it happen hundreds of times which explains why I wrote an inexpensive E-Book that is available on my website that should help members overcome this problem. However, occasionally, some Boards deliberately commit Fraud, defined as a wrongful or criminal deception intended to result in financial or personal gain. A Board engaged in fraud will try to hide it until its State's Statute of Limitations prevents members from filing a lawsuit against the HOA's individuals serving on the Board of Directors who committed the fraud. Although the tolling period refers to the number of years that a complaint can be filed against a party that has committed fraud, in rare cases, the tolling period has been extended if the fraud could not be identified before the normal tolling period ended. In the latter case, the following published article may be useful. The article below refers to fraud committed against investors who owned stock; but the U.S. Supreme and Appellate Courts have also addressed this issue for HOAs.

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" Nov 18, 2020 · As American Law Reports (ALR) explains, courts have held that “in actions for relief on the ground of fraud, the bar of the applicable statute of limitations commences to run only from discovery or from when, with reasonable diligence, there ought to have been a discovery of the facts constituting the fraud.” 172 A.L.R. 265. (source: https://www.talkovlaw.com/fraud-statute-of-limitations-california)." This website also referred to https://www.ivancielaw.com/trade-law/fast-legal...that is reprinted below.

"The statute of limitations on 19 USC 1592 penalties is five years. See 19 USC 1621 (action must be commenced “five years after the time when the alleged offense was discovered”). However, even after five years some cases can still survive.

Application of the Fraud Statute of Limitations in the Context of Stock Applicability of Discovery Rule to the Fraud Statute of Limitations (shareholderoppression.com)

Applying the foregoing rule to a transaction between the corporation and a shareholder regarding the shareholder's stock adds a significant additional dimension. he Texas Supreme Court in Yeaman v. Galveston City Co. ruled that a “shareholder is entitled to rely upon [the corporation] not attempting to impair his interest. He is chargeable with no vigilance to preserve his stock or its fruits from appropriation by the corporation, but may confide in its protection for their security.” Therefore, “statutes of limitation have no application until there is a clear and unequivocal disavowal of the trust, and notice of it brought to the cestui que trust.” The shareholder must have notice of overt conduct by the corporation denying or repudiating his interests. One court noted: “Given that repudiation triggered accrual, it was conceivable that situations could arise, when dealing with dividends or preemptive rights, where the corporation did nothing to repudiate them and the shareholder did nothing to secure them. Should that circumstance have occurred, then limitations would never have begun. . . . Had that occurred, limitations would never have begun, and the corporation would have been perpetually liable.”

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Although the article reprinted above focused on fraud related to stock, rather than real estate; the same extension of the tolling period has been granted for issues related to HOAs. For example, the U.S. SCOTUS extended the tolling period for a lawsuit filed against an HOA that violated its a contract with a nonresident after the tolling period ended.