Neighborhood regaining its self-respect

Harris County DA investigating homeowners’ claim that their former management firm mishandled thing


Article Courtesy of The Houston Chronicle

Published August 10, 2009

Night after night, while his wife and daughters sleep, Sam Campbell fires up his laptop and dumps papers out of his briefcase. He pores over documents until his eyes burn, with nothing but the hum of his computer to keep him company. His obsession trumps his fatigue.

He's looking for his neighbors' money.

Campbell lives in Sterling Green South, a working-class, 800-home Channelview subdivision struggling with foreclosures and petty crime.

He and other homeowners question whether the neighborhood's former management company used their annual assessments to maintain their neighborhood.

“I never saw much in the way of repairs,” said Jesus Ledezma, a construction contractor who has been a Sterling Green South homeowner for 12 years. “I really think that whatever they were doing was very minimal.”

Campbell, 37, a Houston law firm administrator, isn't the only person interested in the neighborhood's finances. In response to his inquiries, the Harris County district attorney's office has issued subpoenas demanding records of four of the homeowners association's bank accounts.

The issues at play in Sterling Green South focus attention on the practices of management companies that collect assessments for associations representing millions of American families.

In many neighborhoods, particularly those in unincorporated areas such as Sterling Green South, power and knowledge are limited to the management company, attorneys who focus on collections and perhaps the association president, said Evan McKenzie, a University of Illinois-Chicago political science professor whose research specializes in private governance.

“It's the most massive privatization of local government that has ever happened,” McKenzie said. “There's no transparency at all.”

3 million homeowners

Campbell sees his effort to account for his neighborhood's funds as a battle. His weapons are e-mails, spreadsheets and bank reconciliation reports. His adversary, at least in his view, is a man he has never met: State Sen. John Carona, a Dallas-based Republican, whose community management companies represent almost 3 million homeowners in 28 states.

Campbell's inquiries focus on one of Carona's companies, Principal Management Group, or PMG, which had a contract with Sterling Green South for 10 years. The agreement terminated April 15.

A lawyer for the company said in a letter to another board member that it canceled the contract because the association had failed to abide by unspecified provisions in its bylaws; Campbell believes PMG wanted out because it realized it could no longer control the board.

PMG's contract with the association called for the company to prepare annual budgets, arrange contracts for maintenance and repairs of commonly held property, conduct inspections at least weekly, provide monthly financial statements to board members and perform other duties.

In return, PMG was to receive a flat monthly fee set at $1,926.20. It also received a collection fee of $15 monthly for each delinquent account, $45 for each credit bureau report filing, $95 for each lien filing, $125 for filing a claim in small claims court and $25 for a title search.

Since he became president of the association in January, Campbell has been trying to get records detailing how money was used under PMG's management. The incomplete records he has, Campbell said, raise more questions than answers: Debits shown as credits on reports; payments to vendors without supporting invoices; a handwritten, unsigned note that someone was keeping more than $500 in cash payments for pool passes and applying the money to a previous debt.

In April, Campbell began sending information to the district attorney's office, which issued subpoenas for four Sterling Green South bank accounts. Assistant District Attorney Kelli Johnson said it will take months to analyze the records.

Johnson declined to say whether the subpoenas were issued to PMG or to the banks. Carona said no one at his companies had received subpoenas related to Sterling Green South.

Campbell also has sent numerous e-mail and written correspondence to PMG employees and attorneys detailing accusations that the company used Sterling Green South funds improperly.

On July 31, PMG fired back. Benjamin D. Wood, a Washington, D.C., attorney representing the company, threatened to sue Campbell for defamation and business disparagement if he continues his campaign.

In a letter to Campbell and other board members, Wood called Campbell's accusations an “attempt to shift blame for your own managerial ineptitude and inability to comprehend the explanations and documents provided to you.” The letter is similar to one written by Wood in 2007 to a homeowner in Rockwall, east of Dallas, who had publicly criticized PMG.

Wood's letter to Campbell included a point-by-point denial of Campbell's assertions regarding insurance policies, tax returns, audits and other financial issues during the time PMG was under contract with the association.

Wood acknowledged, however, that the company had erroneously paid about $7,300 from a Sterling Green South account to a lawn care company for services to another association managed by PMG. Most of that money has been refunded, he wrote. In an interview, Wood said his review of relevant documents had identified only $665 still owed to Sterling Green South. That money will be refunded soon, Wood said, and the company will correct any additional discrepancies that may be found as the neighborhood disentangles its finances from PMG.

Wood said he knew nothing about the subpoenas issued by the district attorney's office.

Campbell joined the homeowners association board in 2006. He soon observed that delinquency rates for assessment payments were high, generating additional income for PMG through monthly collection fees and the filing of credit bureau reports and liens. Some homeowners told him stories about remaining on delinquency lists after they had paid. PMG appeared to be making most decisions while Campbell's fellow board members seemed passive.

Campbell joined the homeowners association board in 2006. He soon observed that delinquency rates for assessment payments were high, generating additional income for PMG through monthly collection fees and the filing of credit bureau reports and liens. Some homeowners told him stories about remaining on delinquency lists after they had paid. PMG appeared to be making most decisions while Campbell's fellow board members seemed passive.

Last December, Campbell circulated petitions that led to an election and new board members. Since then, Ledezma said, he and his neighbors have begun to regain confidence that their money is being used responsibly.

“It's like we are closer to them,” Ledezma said of the new board. “They are very accessible.”

Previous boards met just once a year and often included only one to three board members, current board members said. The board now meets monthly and includes five members, as the association's bylaws require.

Efforts to contact former board members were unsuccessful.

An inactive board left responsibility for most decisions to PMG, Campbell said. PMG is a subsidiary of Associations Inc., a privately held company commonly known as Associa. It is the nation's largest community association management company.

Sees no conflict

Carona, a five-term senator who chairs the Homeland Security and Transportation Committee, is Associa's founder, president and chief executive officer. He serves on the boards of dozens of other companies that provide banking, insurance, Web sites and other services to homeowners associations, according to his latest personal financial disclosure statements filed with the Texas Ethics Commission.

Carona authored legislation in 2001 that preserved and modified homeowners associations' controversial authority to foreclose on homes based on delinquent assessments. He said he sees no conflict of interest in his involvement with legislation affecting the industry that provides much of his livelihood.

“The ethics laws are very clear on that,” Carona said. “Any of us can vote on issues even related to the industry as long as it's not specifically written for our particular business interest.” The lawmaker said he hasn't carried any industry-related legislation in recent sessions, however, to avoid a perceived conflict.

While referring specific questions about Sterling Green South and PMG to subordinates, Carona said all Associa companies were “highly ethical and professional.”

Campbell said he learned only recently that First Associations Bank, which held the association's bank account, and Associations Insurance Agency Inc., which provided its insurance policy, had ties to Carona. The senator's financial disclosure shows he serves on the boards of both companies and owns stock valued at more than $10,000 in First Associations Bank.

Carona said Associa companies always seek bids for banking, insurance or other services, and associations are under no obligation to use businesses with which he is associated.

Carona said Associations Insurance Agency Inc., a brokerage firm, often provides the best value for associations and may be the only way to obtain coverage in coastal areas where insurers are leery of writing new policies because of hurricane risks.

Timeline of key events:

1999: Principal Management Group, one of several community management companies led by state Sen. John Carona of Dallas, contracts with the Sterling Green South homeowners association to provide management services.

2006: Sam Campbell, a Houston law firm administrator and Sterling Green South homeowners, joins the association's board.

December 2008: Campbell circulates petitions leading to new board elections.

January 2009: A new board takes office, with Campbell as president, and begins trying to account for money spent under PMG's management.

April 2009: PMG terminates its contract with Sterling Green South.

May or June 2009: District attorney's office issues subpoenas for records of four of the association's bank accounts.

Source: Chronicle research

Campbell, however, said he found a policy at about the same premium within a few days after the association's policy with Associations Insurance Agency lapsed. And he disputed Carona's statement that Associa companies always sought bids, particularly with regard to banking services.

Campbell, however, said any bids PMG may have sought for banking services were not shared with board members.

“They opened and closed accounts whenever they pleased,” he said. “I did not know who we were banking with because my name was never on any account while we were with PMG.”