When five people were arrested in November 2022 on charges they ran a massive fraud at the Hammocks homeowners association, it marked the end of residents’ yearslong battle to take down allegedly corrupt board members.
The arrests also marked the beginning of efforts to put the HOA’s affairs in order, from property management to financials. Prosecutors, residents and court filings have alleged that four former board members misappropriated HOA funds by hiring fake contractors that did no work on the property, meddled in elections, and bullied anyone who spoke out by filing bogus code violations and sending threatening letters.
The Hammocks, a 3,800-acre community with roughly 18,000 residents in 5,500 single-family homes, townhouses and condos in West Kendall, is one of Florida’s biggest HOAs.
Court-appointed receiver David Gersten and a team of attorneys and forensic accountants have overseen Hammocks affairs since the arrests and have worked to recoup funds for the HOA, hire a management firm and maintenance contractors, and untangle the ex-board’s web of financial transfers that allegedly spanned at least 50 bank accounts and credit cards.
Now, Gersten has outlined a power transition plan that would still grant him oversight over some HOA affairs, including after the board election set for next week. His proposal touched off a firestorm, as some homeowners want Gersten and his team out of Hammocks dealings altogether, and others prefer he continue to guide the HOA.
So what exactly has the receivership accomplished? What is left to do and what are the obstacles? (Hint: The Hammocks’ criminal case history isn’t helping the HOA get a reprieve from already skyrocketing insurance premiums.) And what are the gripes of the receiver’s opponents? (Another hint: Think attorney fees.)
The Real Deal put together this guide from court filings and other records.
Money, money, money
A major focus for Gersten has been to claw back funds for the HOA and track down others who may have had a role in the alleged scheme.
Although prosecutors originally claimed the fraud totaled roughly $2 million, Gersten’s investigation has shown at least $4 million was misappropriated by criminally charged ex-board members. So far, the receivership has recovered nearly $3.9 million in payments for the HOA from lawsuits and insurers.
Philadelphia Indemnity Insurance Company, the Hammocks’ former crime insurer, tendered its full policy limit of $1 million. The tender came after Gersten filed in September a civil remedy notice of insurer violations against Philadelphia Indemnity to the Florida Department of Financial Services. Although Gersten had filed a claim to the insurer days after the arrests, Philadelphia Indemnity hadn’t made a determination of coverage for nearly a year and kept asking the receiver for records already provided, according to Gersten’s court filings.
The Hammocks also became the first known HOA fraud case where association attorneys and vendors –– and not just board members –– were accused of wrongdoing.
Gersten filed four suits against ex-HOA attorneys and criminal defense attorneys for former board President Marglli Gallego. (Gallego, one of those arrested in 2022, was first charged with theft of HOA funds in 2021.) In November, Gersten sued a security guard, an accounting firm and a tech/computer services provider for playing an “insider” role in the alleged scheme by working on behalf of Gallego and Ghilardi, yet receiving $2 million, combined, in HOA payments, according to the complaint. Gersten also sued four former board members who weren’t criminally charged, claiming they did nothing to stop the alleged fraud.
The suits against the non-criminally charged ex-board members settled through the full $2 million tender of the directors and officers insurance policy limit. Also, two of the suits against ex-HOA attorneys settled with the full tender of the lawyer’s malpractice insurance policies, resulting in a combined $800,000 in collections for the Hammocks. The more recently filed case against the security, accounting and tech vendors is pending.
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Settlements remain elusive in two of Gersten’s suits against ex-HOA attorneys and Gallego’s criminal defense counsel.
Hermida Law Firm, Quintero Broche and Jose M. Quiñon, all based in Coral Gables and named in one of the suits, received a combined $350,000 from the HOA to represent Gallego in the 2021 criminal case against her, according to the complaint. In response, the firms have argued the Hammocks’ own regulatory documents allow the HOA to indemnify its board members, saying it’s actually common for associations to advance legal fees for their board members.
“If associations didn’t indemnify, then nobody would be [serving] on boards,” Ricardo Hermida said. “We did our job. I didn’t do anything wrong.”
Rasco Klock Perez & Nieto and Hilton Napoleon II, named in another Gersten suit, were hired by the ex-board to help fight Miami-Dade County police officers who were poking into Gallego and the HOA, as well as prosecutors’ records subpoenas. The association paid them $1.5 million, combined, according to the complaint.
Todd Boyd, Rasco Klock’s attorney in the case, said Gersten has provided no evidence to support his allegations against the law firm.
“Simply filing a lawsuit … does not create liability. It requires much more than that,” he said. “I have asked the receiver to short-circuit this and [to] ‘show me what you have. If you have that evidence, show me.’ Despite the fact that I have asked for this evidence, I haven’t received anything.”
Napoleon II said he will keep fighting to prove that his work for the Hammocks was well-justified. The suit he filed against the police officers came after they had “slandered, harassed and threatened” Gallego, including telling Hammocks residents and vendors that she was “stealing money” from the HOA, Napoleon wrote in the complaint. Investigators’ requests were illegally burdensome, leading the HOA to hire outside help to compile the documents, and diverting employees from their daily work, he said. The HOA provided a batch of 12,500 records, but when investigators didn’t pay for these documents, the Hammocks board –– and not Napoleon –– decided to decline to provide another request for 11,000 records, Napoleon said.
“I never made any decision in the association. The board made every decision. So I don’t have the documents, and I don’t have the authority to walk into an organization and tell them to give up all of those records,” Napoleon said. “If my lawsuits were so frivolous, how come a judge never sanctioned me?”
A trial is set for July 8 in the Rasco Klock and Napoleon case.
Insurance woes
The Hammocks is in a tough spot when it comes to insurance.
After its general liability policy expired last month, the carrier refused to renew it, and only three insurers offered coverage at “exorbitantly high” premiums, according to Gersten’s court filings. The receiver selected the carrier that quoted a $735,525 annual premium, which is less than the others that quoted up to $1.5 million.
This may be a temporary solution, as attorneys are looking into the HOA self-insuring for general liability until it has a record free from claims for five years. If the HOA opts to self-insure, it can cancel its general liability policy within three months for a 65 percent refund of the annual premium it pre-paid, Gersten said in his January status report.
Gersten also is looking for a new umbrella insurance policy, which provides protection above the general liability insurance. The umbrella policy also expired last month and the carrier refused to renew. So far, insurers have quoted annual premiums of $193,858 for a $1 million limit, as well as $410,681 and $562,980 for a $5 million limit, according to Gersten’s filings.
Back to business
Gersten and his team have finalized this year’s budget for the HOA, which has roughly $4.7 million in City National Bank and Truist Bank accounts, according to the report.
Using funds collected from the lawsuit settlements, Gersten decreased homeowners’ assessments by more than 10 percent and the dues 18 sub-communities pay to the master association from 50 percent to 70 percent, he wrote in his report.
The receiver also is working with residents who dispute their account balances with the HOA, and he has rolled out a payment plan for homeowners with overdue assessments. Over 500 residents owe roughly $1.5 million in dues, according to Gersten’s report.
Under the payment plan, homeowners with balances of less than $1,000 can put down half and pay the rest over four months. Homeowners with balances from $1,000 to $2,500 can put down 40 percent and pay the rest over six months. Homeowners with balances of over $2,500 can put down 30 percent and pay the rest over a year, according to his report. At least 21 residents have signed up for a payment plan. Also, Gersten did away with fees charged to homeowners for overdue assessment reminder letters.
Under state law, HOAs have to prepare annual audited financial statements, which the former board failed to do from 2019 to 2022, according to Gersten’s report. By next month, forensic accounting firm Kapila Mukamal and certified public accountant HOA Books are expected to finish the unaudited financial statements and Hammocks tax filings for these years.
Another CPA, hired to prepare audited financial statements, said the work would be costly and overlap with Kapila and HOA Books’ work, according to the report. Gersten has asked Miami-Dade Circuit Judge Beatrice Butchko, who is presiding over the receivership, to waive the requirement for audited financial statements for these years.
In other affairs, Gersten has directed the property manager, FirstService Residential, to obtain at least three competitive bids for capital improvements of roofs, fences, pools, potholes and landscaping at the Hammocks.
Passing the baton
The Hammocks will hold its next board of directors election on Feb. 29.
A Zoom town hall is scheduled for 7 p.m. on Thursday. Early voting will be on Feb. 24 and Feb. 26-28.
In total, 12 candidates are running for seven seats, including all homeowners currently serving on the advisory board. For more information, visit https://www.hammockscommunityassociation.info/.
Because prosecutors and residents had accused the criminally charged board members of election fraud, including closing the polls early in 2022 over a supposed bomb threat, Gersten has outlined what he calls a “Fort Knox”-type election process. The ballot box will be bolted to the clubhouse floor and guarded by security during working hours. It will also be streamed live on the HOA’s website 24/7, according to a status report he submitted to the court last month.
In his transition plan, Gersten proposes that after the June meeting of the new advisory board, he remains receiver only for litigation and insurance claims he has filed, but will step back as court-appointed monitor for all other HOA affairs at least through year-end. Gersten also will remain as election monitor until the court “is satisfied that the association’s elections are fully protected and do not require outside oversight,” he wrote in the filings. His continued oversight is needed to prevent the Hammocks from falling “back down into a maelstrom of impropriety,” he said in his filings.
Opponents to the plan have taken issue with Gersten’s fees and his narratives in his court filings. Gersten points out fund collections he has obtained for the Hammocks, but omits to say he and his team have charged the HOA nearly $3.2 million for their work, homeowner Edward Uribe wrote in the objection. In other gripes, Uribe questions Gersten’s management, claiming the property is in disrepair, yet the receiver decreased assessments, and says the HOA has a zero balance in its reserve account. Gersten has managed the HOA in an “autocratic, heavy-handed approach,” Uribe said in his filing.
On Monday, Uribe filed a second objection, claiming that Gersten’s team has interviewed board election candidates, with questions such as “How do you feel about the association’s overall expenses in general and its legal expenses in particular?” and “How do you feel about the receiver?” These types of questions give the impression that candidates who don’t “answer questions to the receiver’s liking” will be removed from the process, Uribe says in his court filing.
Also, Gersten hired “his old-line contacts within the legal community” as attorneys to help him in the receivership instead of going through competitive solicitations, Uribe wrote.
“We thought the receiver would be an independent ‘manager who would objectively’ make decisions on behalf of the members without the cloud of a conflict of interest,” Uribe wrote. “Instead, we were sent an autocratic, retired judge (who still thinks he is on the bench). … The association has become his captive client.”
Uribe calls for Gersten to step down from all HOA affairs after the election, because a board, unlike the receiver, can still be held accountable if it does a bad job at leading the Hammocks.
Butchko already approved Gersten’s request to remain election monitor. On Thursday, she will consider the rest of his transition plan.
Gersten and his attorneys declined to comment on Uribe’s objections, saying the receivership team will respond to the opposition at Thursday’s court hearing.
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The criminal cases
Aside from Gallego, the ex-board members charged in the fraud scheme are Monica Ghilardi, Myriam Rodgers and Yoleidis Lopez Garcia. Prosecutors also charged Gallego’s husband, Jose Antonio Gonzalez, who is accused of managing many of the allegedly bogus HOA vendors.
All five have pleaded not guilty.
Attorneys for Gallego and Ghilardi didn’t return a request for comment. Rodgers’ attorney declined to comment, and a representative from the office of Garcia’s attorney said the lawyer declined to comment.
Gonzalez’s attorney, Jude Faccidomo, provided this statement: “While the outrage of the homeowners is certainly understandable, we believe it is misplaced as related to Mr. Gonzalez. We look forward to thoroughly vetting any evidence provided by the state, especially as it pertains to our client.”