Is Your HOA Management Company Accepting Earnings Credits?

There should always be a matter of trust between a homeowners’ association and the management company they choose to work with. After all, the management company oversees nearly all aspects of the community, from security to vendors to banking. 

While the board officially votes to hire vendors, it relies on the management company to put together the requests for proposals and to vet the vendors to ensure they have the experience and competence to perform the work to the highest standards.

No one expects your management company be paid cold hard cash to push companies as a vendor. Under Florida law, a manager of an association commits a felony if they accept kickbacks, but in one particular type of kickback, it’s an institutional issue – banking.

Across the country, homeowners’ associations are finding out that some management companies are accepting payments to pool all of their various association funds in exchange for large cash payments to the management company.

Of course, the associations who have their funds with these banks are not receiving any of the payouts. Instead, they are actually punished with lower interest rates on their deposits so the banks can pay the management company.

The attorneys at The Orlando Law Group are focused on weeding out these unscrupulous management companies, representing associations to ensure they receive any funds that were mismanaged and were not utilized with the fiduciary responsibility entrusted to them.

How Did This Begin? 

In the late ‘90s and early 2000s, banks started to realize that HOAs were good business with large deposits without a lot of risk. When management companies combine the funds from multiple associations, it becomes a substantial amount of money.

Think about this. A small association may have $100,000 in funds in reserve or its operating account. While a bank may like those funds, it’s not a game-changing piece of business for any bank. 

But when that small association hires a national management company, they are part of a group with 100, 500 or 1,000 other similar-sized HOAs, all with $100,000 in funds. The management company is now depositing $100,000. They are depositing $10 million, $50 million or $100 million. 

Those types of deposits are highly sought after.

At first, the banks looked at the management company’s banking software. Remember, this was the late 1990s, and most companies – including association management companies – were trying to figure out how the internet and new types of software could be utilized.

As an incentive to choose their bank, they would offer free software to management companies to help make them more efficient. 

However, as this type of software became more prevalent and interest rates fell, the banks turned to another form of luring association management companies: cash payouts. They called them earnings credits, but they are kickbacks.

Read more