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Managers should have legal counsel before reporting HOA to NRED

Q: Under what circumstances and conditions can a management company lodge a complaint with Nevada Real Estate Division against a homeowners association they’re managing?

A: This is a delicate subject, and unfortunately, too many management companies just walk away as they terminate their management contract with the association.

Nevada Administrative Code 116.405 pertains to the board of directors, where the Commission for Common-Interest Communities and Condominium Hotels reviews whether an association has properly performed its duties per NRS 116.3103 (association powers). Here are some of the areas reviewed by the commission:

Did the board act outside of its authority granted in the governing documents?

Did the board or director(s) act for reasons of self-interest, gain, prejudice or revenge?

Did the board commit an act or omission, which amounts to incompetence, negligence or gross negligence?

Is the board holding meetings as required by law and by their governing documents?

Is the board obtaining, when practicable, at least three bids?

Is the board concealing facts or documents relating to the business of the association?

Most of this regulation pertains to money and financial record-keeping and the lack of cooperation with NRED’s investigation of the association. The association is expected to maintain current, accurate and properly documented financial records, to provide policies and procedures designed to provide reasonable assurances in the reliability of the financial reporting to prepare interim and annual financial statements.

Other laws include failure to properly execute the election process, conflict of interest, bribery and not complying with NRS 116 laws or covenants of their association. NRS 116.3103 pertains to the board to act on behalf of the association as fiduciaries, to act with duty of care and to apply business-judgement rule.

In any event, legal counsel should be involved prior to reporting an association to the division.

Barbara Holland, CPM, CMCA, AMS, is an author, educator and expert witness on real estate issues pertaining to management and brokerage. Questions may be sent to holland744o@gmail.com.

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