Leon Benzer is worried about his family’s future, perhaps he might have given some thought to those prospects before launching his “sprawling conspiracy” in Nevada? Another bunch of chickens comes home to roost:
“His sprawling conspiracy left a trail of ruin in its wake, including HOAs with substandard repair work, defrauded mortgage companies, defeated HOA homeowners with diminished property values and dozens of Benzer’s family members, friends and employees ensnared in his web of criminality,” prosecutors wrote. “Indeed Benzer by himself caused a (more than) 40-person crime wave in the Las Vegas Valley between 2005 and 2009, perpetrating crimes including mortgage fraud, election fraud, threats of violence and intimidation, abuse of the judicial process, tax fraud and obstruction of justice.” [LVRJ]
The conspiracy was a tangle with a simple objective: “The goal was to gain control of HOA boards through election rigging, obtain construction-defect litigation contracts for Quon and, ultimately, construction repair work to Benzer’s company, Silver Lining Construction.” [LVRJ]
The result for Benzer was a 15 1/2 year sentence from a Federal District judge, plus 5 years supervised release, and $13.4 million in restitution. [LVRJ] Mr. Benzer also played fast and loose with NRS 116.31105-7. In Nevada, HOAs must have executive boards of at least three members, and the board members must be owners of units within the HOA. So, from August 2003 until February 2009 Benzer and his associates:
- Identified HOAs which could bring construction defect cases
- Engaged real estate agents who would identify units available for purchase in the targeted HOAs
- Enlisted straw purchasers for the identified units who would carry out Benzer’s scheme to get construction defect litigation contracts
- Secured financing for the straw purchasers
- Insured the straw purchase members were elected to executive boards of the HOAs (fraudulently)
- Worked with the fraudulently elected straw purchase executive board members to manipulate property management, claims of construction defects, and to secure contracts for Mr. Benzer’s company. [DOJ Benzer]
What would make HOAs such an inviting target for this kind of felonious manipulation? First and perhaps foremost, the HOAs have an advantage in that multiple buildings or units can be conveniently lumped together, unlike having to deal with multiple individual owners. The very nature of community interests can be twisted into an advantage for the unscrupulous. So, if the sidewalks are 4.5 ft wide instead of the required 5 ft. then it’s obviously easier to get a large contract to improve pedestrian walkway easements on private property, or to encroach on landscaping, or whatever needs to be done to meet the local building codes and standards.
Secondly, we might want to consider the owners’ interests. One of the HOA/COA advantages is that one can have some lawn or exterior landscaping without having to do the maintenance. Just the thing for older residents who don’t have an interest in shoving the lawn mower around every weekend. Or, perhaps, just the thing for younger residents who aren’t ready to invest in the lawn mower, week whacker, and other appliances of landscape management. Or, can’t afford to hire landscapers themselves? The same applies to maintaining communal items – roofing (in connected buildings/units) or parking areas, walkways and other communal areas. The advantage is that the individual owner isn’t responsible for the roof, or the parking, or the sidewalks – the disadvantage is that the HOA, being responsible is also a prime target for the likes of Mr. Benzer and his merry gang.
Third, and nearly always the case in relatively small operations, is the problem of finding people to participate in the management of an HOA/COA. This would seem a small issue if only three people are required for Board membership, but this doesn’t mean the problem goes away. There are those who own HOA/COA properties who are not residents – they may be those who once resided in the community but have moved on, while still maintaining ownership of the unit. They may have never resided in the community, but maintain the property as a rental. It would seem that an HOA or COA with a high percentage of absentee owners could be an inviting prospect for the Benzer style take-over scam.
From the psychological speculation side of the issue, those people who moved into an area managed by an Executive Board and the property management firm because they didn’t want to bother with ‘community issues,’ may not be the type to get actively involved in the management and executive decisions related to the property or properties. The “Let George Do It” perspective is a powerful force in modern life.
Therefore, we might be left holding the banner for the old saw: 10% of the people will do 100% of the work. How often the executive board work gets done is specified in the by-laws – by law the Board must meet “least once every quarter, and not less than once every 100 days and must be held at a time other than during standard business hours at least twice annually.” [NRS] Let’s speculate that the more often a board meets the more oversight it does of property management, and that the board which meets only four times per year (two of which must be in the evening) has pretty much let the managers take over the subject. Here, too, is an opening for the unscrupulous.
Given the extensive nature of Mr. Benzer’s highly questionable operations, it would seem the Board Scam would have drawn some legislative attention. It didn’t in the early days, the 2003 session of the State Legislature didn’t pass any legislation regarding Chapter 116. In the 2005 session, the legislature enacted SB 325 which address management and fiscal issues. In 2007, AB 396 required: “a member of an executive board who stands to profit personally from a matter before the board to disclose and abstain from voting on the matter.” Governor Jim Gibbons vetoed the measure. His objections were, (1) the act might increase assessments; (2) there could be “dramatic changes to common areas,” and (3) it was a late bill and the legislature should have given it more consideration. [DB 5/2009] It would be November 2007 before Scott Canepa, a construction defect lawyer, brought information to the federal investigation into Benzer’s scheme. [LVRJ]
The next session in 2009 , did give the entire Chapter (116) much more consideration: SB 68; SB 182; SB 183; SB 253; SB 261; SB 351; AB 129; AB 350; and AB 361 were enacted. [NVleg] The provisions in AB 350 helped fill a void in management ethics, boards were admonished as follows: “and shall act on an informed basis, in good faith and in the honest belief that their actions are in the best interest of the association.” To its credit, when the details of the Benzer Scam-A-Rama unfolded the Nevada Legislature did act to curtail this kind of behavior. And, perhaps had former Governor Jim Gibbons not been so allergic to the expression “solar energy,” AB 396 might have helped alleviate some of the damage back in 2007.
Oversight and Information
The Nevada Legislature did what legislatures generally do best – enact legislation to criminalize crimes already committed. The prevention of any replication of Mr. Benzer’s operations is laudable. However, before castigating the Legislature it should be noted that it’s impossible to legislate away problems before the information is available.
Members of HOAs and COAs, and member of the general public, might want to know the status of an HOA or COA with particular attention to those factors which might render it a potential target for disreputable and downright criminal elements. What oversight is in place for examining the activities of Executive Boards? For examples, are there HOAs or COAs which have a relatively high percentage of absentee owners? Let’s speculate that the higher the number of absentee owners the greater the chance for illicit behavior such as those straw buyers. What kinds and to what extent is financial and management information available to owners and prospective buyers, and can we make improvements in the amount of information and access to it?
There are some things owners and potential buyers can do to protect themselves. The first might be to read the provisions on NRS 116. It’s long; it’s wonky, and it’s in legal-ese, but it does define terms and set forth the fundamentals of HOA/COA operations. If there’s no appetite to read the entire thing, then a person would be well advised to read sections NRS 116.3075 through NRS 116.31107 on “meetings and voting.”
The second would be to ask questions such as: How many owners are absentee? What’s the percentage of proxy ballots? Again, the assumption is that the further removed the direct oversight, the greater the potential for problems. Or, when and where are ballots counted in Executive Board elections? What are the provisions for “spoiled” ballots or other ballots which might be rejected? And, what are the grounds for rejections?
What are the terms and term limits of executive board members? Too long and there may be problems with “old boy” connections; too short and there’s the loss of “institutional memory.” What percentage of the board members are residents? What is the process by which property management firms are hired? What is the process by which contracts are let for maintenance, construction, and rehabilitation?
NRS 116.31175 requires the availability of “books, records, and other papers of the association” for review “at the business office of the association or a designated business location not to exceed 60 miles from the physical location of the common interest community…”
As the map indicates, that’s a fair portion of Clark County, and an owner or potential buyer might well want to know where, and how accessible, is that location with those “books, records, and other papers.”
Mr. Benzer will be a guest of the Federal government for the next 15 and one half years, with supervision for an additional five, however that doesn’t mean that there won’t be others who will apply their intelligence to those endeavors which will enhance their wealth without worrying about pesky ethics issues. In the mean time it seems advisable to have some Legislative attention paid to:
- How well protected are current HOA and COA owners in Nevada from potential scam artists similar to the Benzer group?
- How well informed are potential HOA and COA buyers in Nevada, and are there steps we can take to better protect their interests as consumers?
- Are there further steps which might be taken to insure that banks and other mortgage lenders don’t become involved in straw buyer, and similar schemes?
In order to prevent future Scam-A-Ramas of this ilk may require a combination of Caveat Emptor and Quis Custodiet Ipsos Custodes?