Defrauded HOA Trying to Unravel the Mess

MIAMI – At the Hammocks in West Kendall, 6,500 homeowners are anxious for a return to self-rule after seven years under the thumb of a tyrannical, secretive board of directors that is accused of stealing millions in monthly fees from their neighbors.

Although the former president is in jail on theft and fraud charges, and a new board is running the largest homeowners association in Florida, the process of restoring community peace and fiscal health has been a struggle.

Some residents complain that the receiver appointed by a judge to clean up the legal and financial mess left by the old board is spending too much of the association’s money on too many lawyers, putting the HOA in danger of going broke again.

Receiver David M. Gersten has billed $2.03 million in expenses in seven months on the job. Gersten, the retired chief judge in Florida’s Third District Court of Appeal, was chosen by Miami-Dade Circuit Court Judge Beatrice Butchko to oversee the Hammocks and the new board that was elected March 30.

Gersten is investigating some 55 bank accounts the old board is accused of using in a scheme to shuttle money into their own pockets. He is examining hundreds of documents previous board members had hidden. He is trying to recover missing funds paid for no-show maintenance work and legal fees paid to lawyers defending the previous board members – all from the HOA’s coffers.

It’s expensive, warned Butchko and Gersten, but probably the only way to fix the city-sized subdivision of 20,000 people.

Homeowners paying for lots of lawyers

The Hammocks is a case study in what can go wrong when HOA leaders go rogue, and what little recourse homeowners in Florida have to banish them and regain control.

“It’s like we exchanged one dictator for another,” said Carlos Villalobos, a longtime Hammocks resident who is serving on the new board. “The Hammocks is a big cow to milk. Our concern is that the receiver is eating up the money he hopes to win back. He’s been given a blank check with no deadline.

“We’d like to see a reduction in some exorbitant expenditures and a release of more power to the board.”

Marcoantonio Real, elected to the new board as treasurer, said if Gersten’s bills continue to average $288,000 per month they could add up to $3.4 million over a year. The Hammocks’ budget for 2023 is $6 million. Gersten originally budgeted $750,000 for his team’s 2023 expenses.

“If the receivership continues at this pace, we’re worried about the sustainability of the HOA and the future of our property values in this working-class community,” Real said. “According to the invoices, we’re paying for 14-15 lawyers, plus paralegals, and lots of lawsuits. We paid $300 for one lawyer to take a Google photograph of the clubhouse. Mr. Gersten told me he’s magnanimously reduced his hourly fee from $800 to $671, and we appreciate him taking on this complicated situation.

“But if he is the Rolls-Royce of legal fees, maybe it would make more sense for us to get to our destination in a Ford Explorer.”

Real and Villalobos also questioned if forensic work by Gersten’s team is being duplicated by the Miami-Dade State Attorney’s office, which expects to file more charges against former board members.

Patience, please, say receiver’s supporters

Other residents support Gersten as the costly medicine necessary to cure the Hammocks of its corruption scandal.

Don Kearns is a 28-year resident, current and former board president, and a leader of the Justice for the Hammocks group that fought the old board, which stopped holding public meetings, refused to release financial information, conducted elections homeowners believe were rigged, invalidated a recall election in which they were defeated, neglected maintenance of facilities and landscaping, raised fees 300-400% last year, and harassed residents with foreclosure warnings, liens and code violation fines. Kearns advocates patience.

“You’re not going to erase seven years of a criminal enterprise in seven months,” Kearns said. “Judge Butchko pulled the Hammocks out of despair, removed a board that was terrorizing residents and installed a receiver, without whom this would be really ugly.

“Nobody is happy with big legal fees, but David Gersten deserves a chance to recover our money. I’m the most experienced member of the board and there’s not a chance I could have figured out this fiasco by myself. A dime-store lawyer couldn’t do it, either. There’s another rabbit hole every time you turn around.”

Gersten told homeowners the highest expenses would be incurred in the first few months, including costs for running a clean and monitored election. At court hearings and HOA meetings, he has expressed empathy for homeowners and stressed the transparency of his receivership.

“To project through third-grade math that he’s going to spend $3.4 million in the first year is inflaming, misinforming and gaslighting the people who have been wronged,” Kearns said. “It’s a slap to Judge Butchko, who has to approve each invoice from the receiver. You have two respected jurists who are not going to risk their reputations over this case or allow the Hammocks to go bankrupt.”

Kearns estimates the Hammocks has nearly $800,000 in operating funds, not ideal but “on much better footing than we were,” he said.

Criminal investigation of former board

Miami-Dade State Attorney Katherine Fernandez Rundle is continuing her investigation of former president Marglli Gallego, Gallego’s husband Juan Antonio Gonzalez, former president Monica Ghilardi, who succeeded Gallego, and two former board members, Myriam Rogers and Yoleidis Lopez.

The group, known as “Gallego’s Mafia” around the Hammocks, was accused in November of siphoning $2 million from the Hammocks Community Association by writing checks to shell companies, which included Gonzalez’s “purported business,” Excellent Work & Services.

Prosecutors described that sum as “the tip of the iceberg.” Gersten has since uncovered upwards of $3.4 million in misappropriated money, some charged on association credit cards.

Gallego, charged with racketeering, money laundering and grand theft, was first arrested in 2021 on allegations she stole $60,000, spending part of it to hire a private investigator to spy on her neighborhood rivals. Her case is pending.

Most galling to homeowners was how Gallego used association funds to pay for her defense attorneys, who, among numerous filings, sued Fernandez Rundle’s office to block enforcement of subpoenas. Prosecutors, who deem her a flight risk, also accused her of using HOA money to build a house in Colombia.

Butchko appointed Gersten soon after the arrests. Receivership was considered the “last-resort, nuclear option for liberating the Hammocks and returning it to the people,” Kearns said. But the Justice for the Hammocks coalition found it impossible to oust board members, and the crisis deepened as those board members demanded payment of hiked fees from homeowners who couldn’t afford to pay.

The coalition tried filing complaints with Florida’s Department of Business and Professional Regulation, which oversees HOAs, but the process was slow and unproductive, as the board’s lawyers appealed or ignored every decision handed down by the state agency. The coalition hired its own lawyer, which required collecting donations from residents. The coalition managed to schedule a recall election in June 2022, only to have the results thrown out by an election supervisor hired by the board.

“We knew a receivership would be Plan D, but in our other attacks we kept running into lawyers being paid a lot of our money to stall us and defeat us and keep that board in power,” Kearns said. “The average homeowner doesn’t have the time or wealth to keep fighting. Nor can they risk retaliation. Our state regulations lack teeth. So in places like the Hammocks, homeowners are stuck with boards spitting on them and stealing from them.”

More than 50% of Florida’s 22.5 million residents live in HOA communities or condo units. Kearns and coalition members hoped what befell the Hammocks would serve as an incentive for reforming Florida Statute 720 and reining in what he called the “Wild West free-for-all” of unscrupulous HOA board governance.

New law ‘watered down’ by HOA interests, Hammocks residents say

State Rep. Juan Carlos Porras, the Republican who represents West Kendall, said tightening oversight of HOA boards was his top priority during the spring legislative session. Hammocks residents Villalobos and Real worked with Porras to draft House Bill 919, which Porras touted as the “HOA Bill of Rights.”

But the amended law, as passed, remains weak, say homeowners and Fernandez Rundle.

“Nothing substantive was accomplished to prevent what happened at the Hammocks from happening again,” Kearns said. “The DBPR needs the authority to give citizens an avenue to fight for themselves against big-money associations and big-money lawyers they’ve hired to bleed you dry.”

Real said the new law is “a huge disappointment that leaves homeowners all over Florida on their own.”

“It was watered down,” Villalobos said. “The lobbyists for the big management companies and law firms argued that criminal penalties would have a chilling effect on volunteers who want to serve on boards.”

Four times since 2016, Fernandez Rundle has attempted to strengthen laws protecting HOA members and condo owners by making boards more accountable and subjecting dishonest ones to criminal charges. Four times, her proposals died in the Florida Legislature. She tried again during the spring session to add “criminal bite” to the law and open access to HOA financial records to “allow owners to expose wrongdoing long before money can disappear or be stolen.”

“While the amended law does not include all the protections I proposed, it does criminalize kickbacks and various forms of election fraud, making it a positive step forward,” she said.

At the Hammocks, spread over 4,000 acres bordered by Southwest 88th and 120th streets, between 147th and 162nd avenues, homeowners feel both relief at the progress Gersten is making and trepidation over what he’ll find next – and what it could cost them.

“We are in a conundrum,” Real said. “A receiver can free you from a bad board, and Mr. Gersten says, ‘This is my community now, and I love these people.’ But in the end, he is spending our money and we have many questions.”

Kearns is optimistic the Hammocks has exited its suburban nightmare and will be fully returned to those who call it home. But he urges other HOAs to view the Hammocks’ scandal as a cautionary tale:

“Wake up, pay close attention to your board and don’t be victimized by scam artists.

“Landmines remain,” he said. “But we are finally on the right path.”

© 2023 Miami Herald. Distributed by Tribune Content Agency, LLC.