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HOA Embezzlement: Real HOA Theft Cases in California

by | HOAs, Real Estate

HOA EMBEZZLEMENT AND THEFT CASES IN CALIFORNIA

OVERVIEW

Financial theft by HOAs is more common than most homeowners realize and far harder to detect than it should be. When reserve funds disappear or assessments rise without explanation, the problem often isn’t inflation or emergency repairs. In more cases than we like to acknowledge, the problem stems from embezzlement.

This article explains how HOA financial theft actually works, what warning signs to look for, and what legal tools you have under California’s Davis-Stirling Act to expose and stop it. Drawing from real-life cases in Santa Monica and Chula Vista, author Michael Kushner also breaks down the specific tactics HOA insiders and management companies most often use to siphon money from associations, and how homeowners can hold them accountable.

If something feels off in your HOA’s finances, this article will show you where to look and what to demand.

WHAT THE LAW REQUIRES AND HOW DISHONEST BOARD MEMBERS OR MANAGEMENT COMPANIES TRY TO GET AROUND IT

California law imposes a fiduciary duty on HOA boards to act in the best interests of the homeowners that they serve, and part of that duty includes managing the association’s finances prudently and transparently. That duty includes conducting reasonable oversight of vendors, safeguarding reserve funds, ensuring competitive bidding for major contracts, reviewing invoices and reimbursements, and keeping accurate books. Those duties are not aspirational. They are enforceable obligations, and boards that violate them can be held liable.

In practical terms, those fiduciary duties require boards to do more than simply approve budgets or sign checks. Boards must review and understand financial reports, ensure that reserve transfers are documented and justified, demand competitive bids for significant contracts, and verify that all reimbursements are properly documented. They must also supervise the management company, and not just delegate blindly. When boards fail to do these things, they’re not just being careless—they’re failing their legal obligation to act as responsible stewards of community funds.

And yet, embezzlement persists. Why? Because overly powerful board members sometimes abuse their positions, and inattentive or intimidated directors often let them. In other cases, bad management companies resist transparency and pressure the board into deferring to them. When that happens, even honest directors find themselves sidelined, silenced, or stonewalled.

The result is a breakdown of oversight and a financial system that effectively polices itself. That’s when fraud takes root. These failures usually don’t involve a single dramatic act. Instead, they take the form of subtle, repeated lapses—e.g., rubber-stamping invoices, ignoring line-item anomalies, or allowing management to block access to financial data. And once that pattern is in place, theft becomes not only possible, but relatively easy.

REAL CASES: EMBEZZLEMENT IN SANTA MONICA AND CHULA VISTA, CALIFORNIA

Ocean Towers: Director-Led Theft in Santa Monica

At Ocean Towers, a luxury condominium high-rise in Santa Monica, the president of the HOA board—who owned multiple units and effectively controlled board elections through voting power—allegedly spent years orchestrating a multi-million dollar theft from the association. He and his family members reportedly installed loyalists, pressured dissenters off the board, and exercised unilateral control over which vendors got hired and which invoices the board approved.

He and several family members were also accused of embezzling more than $5.7 million from the HOA through a system of fake maintenance contracts, padded invoices, and vendor kickbacks funneled through companies they owned or controlled. Some projects were billed but never started. Others were priced three to four times above market rate. To cover the budget shortfalls, the board allegedly imposed a series of special assessments, claiming that the charges were necessary to address “unforeseen repairs.”

For years, the board reportedly signed off on nearly every transaction. According to the allegations, directors outside the family either looked the other way, failed to scrutinize the finances, or allowed themselves to be intimidated into silence. Eventually, the story goes, a group of homeowners began demanding financial records and reviewing past payments. Their investigation apparently led to a criminal referral, media exposure, and a full collapse of the board’s control. Prosecutors indicted the board president. The rest of the directors either resigned or were removed by membership vote. What remained was a gutted reserve fund, a damaged community reputation, and a board that had failed at every level of governance.

If the allegations prove true, Ocean Towers will stand as a textbook example of theft from the top—dominant board members exploiting structural weaknesses to shield illegal activity from view.

East Lake Shores: Management-Led Theft in Chula Vista

According to the authorities, the East Lake Shores case in Chula Vista followed a very different pattern. There, the purported theft appears not to have come from a board member, but rather from the association’s property manager.

According to homeowners who reside in that HOA, the manager wrote reimbursement checks to himself on a monthly basis, describing them as repayments for “maintenance supplies.” But when homeowners began asking questions, the manager was reportedly unable to produce a single receipt. According to sources closer to the story, there was no documentation; no evidence of what he had purchased; and no audit trail. The theft continued for months until vigilant owners intervened.

The board claimed they had no knowledge of the manager’s conduct. But if the allegations prove true, their failure to review reimbursements, ask for documentation, or implement internal controls wouldn’t affect their potential liability because they created the conditions for the theft to occur. If the allegations prove true, and the manager drained the reserve account to cover his false expenses, and the board responded by approving new special assessments to fill the gap, then the board may be held liable for a variety of failures. While the dollar amount of the theft may have been lower than in Santa Monica, the board’s apparent negligence wasn’t any less serious. If they handed financial control to a third party and never took it back, they can be held accountable.

Unlike Santa Monica, where the fraud was driven by board leadership, the Chula Vista scheme appears to have thrived because the board relinquished control to a third party and failed to monitor the results. The financial damage may have been smaller, but the structural negligence was just as serious.

COMMON EMBEZZLEMENT SCHEMES IN CALIFORNIA HOAS

Most HOA theft cases in California follow recognizable patterns once you know what to look for. These aren’t sophisticated financial crimes. They’re basic schemes that rely on silence, deference, and the assumption that no one is paying attention. What makes them effective isn’t complexity, but rather repetition and concealment. When boards (or, ultimately, members) fail to demand documentation, skip basic oversight, or turn a blind eye to internal conflicts of interest, these tactics flourish.

In the Ocean Towers case, the scheme relied on padded invoices, shell vendors, and unchecked board control. In East Lake Shores, the property manager exploited a reimbursement process that lacked even the most basic documentation safeguards. Both examples fit neatly into one or more of the recurring patterns we’ve seen across California HOAs, which include the following:

  • Fake or padded invoices. Vendors bill for work that was never done, or grossly overcharge for basic services. Often, the vendor is linked to a board member or manager.
  • Fake reimbursements. Checks are issued to insiders for vague “expenses” with no receipts or backup. In some cases, these checks are written monthly, disguised as routine operations.
  • Improper reserve fund transfers. Money is quietly moved from reserves to general accounts, then spent without board approval. Justifications often cite “cash flow needs” or unverified emergency repairs.
  • No-bid contracts to insiders. Emergency conditions are used to justify skipping competitive bids, with contracts awarded to relatives or shell companies.
  • Manager–board collusion. Long-standing management companies continue receiving contracts without review, while also issuing checks to board members with no documented oversight.

Each of those schemes thrives in the same conditions: weak documentation, no independent oversight, and a board that either doesn’t know the rules or doesn’t care. That’s why they keep happening. Because in many HOAs, the structure makes them easy to pull off and difficult to detect until it’s too late.

RED FLAGS: HOW TO SPOT POSSIBLE THEFT IN YOUR HOA

Embezzlement inside an HOA rarely announces itself. There’s no neon sign that says “funds are being stolen.” What you’ll find instead are patterns—e.g., unexplained decisions, vague paperwork, inflated charges, and resistance to scrutiny. These red flags don’t prove theft on their own, but when more than one appears, they paint a picture. And if you know what to look for, that picture becomes very clear. Here are some of the most common warning signs drawn directly from cases we’ve handled, read about, or seen in other cases:

  • Sudden, unexplained special assessments, especially when they don’t match the reserve study or seem to occur every few years. For example, homeowners are hit with a $15,000 charge for “emergency waterproofing,” but the reserve study listed no such need—and no contractor was ever seen on site.
  • Refusals or resistance to provide (providing) financial records under Civil Code section 5200, especially invoices, reimbursement logs, or bank transfer summaries. For example, an owner requests the check register after hearing rumors of missing funds. The board says the records are “not available,” then ignores multiple follow-ups.
  • Recurring vendor names with vague labels like “maintenance consulting” or “facility improvement,” with no explanation of what work was done. For example, a fictional vendor called “Acme Property Solutions” appears on every monthly ledger for $4,000, but no one can (or will) say (with any detail) who they are or what they actually did.
  • Board members refusing to answer financial questions. For example, an owner asks, “Why did we spend $80,000 more this year on landscaping?” and the board responds, “We’re not going to get into line-item discussions with individual members.”
  • Lack of transparency in reimbursements or transfers. If no one can produce a receipt, invoice, or check register upon request, the board is not in compliance. If the board can’t provide you with complete, rational, and straight answers to questions about such reimbursements or transfers, then that’s a red flag.
  • Contracts awarded without bids, or to people tied to the board or management. For example, a director’s brother-in-law is paid $12,000 to “evaluate security systems,” but no RFP was issued, no vote was recorded, and no report was ever produced.
  • Management companies with unchecked control of the books. For example, the manager writes all checks, holds the bank accounts, and prepares the reports—while the treasurer admits, “they handle that part,” and reviews nothing. [Several board duties are not delegable, meaning that they can’t be delegated to non-board members without direct oversight.]

Any one of these might have a legitimate explanation. But if you’re seeing two or three? It’s time to dig. These aren’t minor bookkeeping errors. They’re symptoms of a system that doesn’t want to be questioned.

THE DAVIS-STIRLING ACT PROVIDES HOMEOWNERS WITH TOOLS TO DEMAND ANSWERS

Most HOA theft goes unchecked not because the law is weak, but because homeowners don’t know how strong it is. California’s Civil Code section 5200 gives homeowners powerful legal rights to inspect financial records. The law also imposes real consequences on HOAs that fail to comply.

If you haven’t already listened to my podcast episode, “Your HOA’s Paper Trail: How to Use Civil Code § 5200 to Get Every Document You Need,” I recommend it. I also wrote a detailed companion article titled “Forcing HOA Transparency: The Power of Civil Code § 5200 to Demand Records.” What follows is a condensed version of the rights discussed in both.

Under Civil Code section 5200 and its related sections, you’re legally entitled to inspect—and receive copies of—the following categories of records:

  • Bank statements, canceled checks, check registers, and credit card statements (Civ. Code §§ 5200(a)(10), 5200(a)(13)).
  • Invoices and purchase orders for services rendered to the HOA (Civ. Code § 5200(a)(13)).
  • Reimbursement requests submitted by board members or management (Civ. Code § 5200(a)(13)).
  • Executed contracts not covered by legal privilege. (Civ. Code § 5200(a)(4)).
  • Reserve fund records, including balances and expenditures (Civ. Code § 5200(a)(7)).
  • Insurance policies, certificates, and declarations (Civ. Code § 5200(a)(4))
  • General ledgers, balance sheets, income/expense statements, and budget comparisons (Civ. Code § 5200(a)(3)).

You also have the right to request these documents in writing, to receive copies (not just view them), and to obtain a written explanation if any item is withheld or redacted. The HOA must respond within 10 or 30 days, depending on the category requested.

And if they don’t comply? You can sue—and win. Civil Code section 5235 allows you to seek a court order compelling disclosure, recovery of all attorney’s fees and costs, and penalties of up to $500 for each record category wrongfully withheld.

That means if you request seven categories and the board ignores five, they could be on the hook for $2,500 in penalties, plus your attorneys’ fees.

FIXING THE CULTURE THAT ENABLES EMBEZZLEMENT

Embezzlement doesn’t just happen because someone decides to steal. It happens because the environment allows it. Too many HOA boards treat financial oversight as a nuisance—or worse, as a threat or challenge to their authority or honesty. When transparency is viewed as disloyalty and questions are treated like insubordination, oversight disappears. That’s the cultural problem at the heart of much of HOA financial abuse cases, and it has to change. Here’s how you start fixing it:

  • Push for open-book policies. Every homeowner should have secure, digital access to bank statements, ledgers, and check registers, and that access should be affirmative (meaning the information should be published without the need for a formal request). When financial data is instantly accessible, manipulation becomes far more difficult.
  • Demand third-party audits of reserves and reimbursements. Boards should not be allowed to monitor themselves. Annual audits—performed by outside professionals—create accountability and reduce the opportunity for insiders to conceal misappropriated funds.
  • Limit board authority to sign large contracts without membership approval. When directors know they can award $25,000 contracts without a vote, that power is easily abused. Require member ratification for all major expenditures outside the reserve study.
  • Rebid management contracts regularly. Management companies that go years without competitive review are more likely to get comfortable, and less likely to be questioned. Requiring a formal RFP process every few years keeps everyone honest.
  • Elect directors who welcome questions. Transparency shouldn’t be viewed as antagonism. Boards that treat oversight as a personal attack usually have something to hide. Either that, or they don’t understand their obligations. Find candidates who aren’t afraid to be accountable.

Culture change doesn’t start with legal action. It starts with homeowner engagement. And when that fails, the law is there to back you up.

CONCLUDING THOUGHT

Embezzlement in HOAs isn’t frequent, but it’s not rare either. It’s just rarely caught. Dishonest boards and managers count on homeowners staying quiet. And too often, they’re right.

But California law gives homeowners the power to break that silence. Civil Code section 5200 is more than a records statute, it’s a bright flashlight. Use it.