Police are investigating whether a management company has stolen hundreds of thousands of dollars from 29 homeowners’ associations across the Triangle.
The Garner-based management company, Kornerstone Community Management, suddenly closed without notice this month, leaving some HOAs without access to their bank accounts. Others who had already decided to leave Kornerstone for various reasons claim their financial records show money missing from their accounts.
Garner Police Capt. Joe Binns said investigators are still trying to determine how much money is missing.
“This is particularly complex because of the number of victims,” Binns said.
Jeff Swain, president of the homeowners’ association at The Village at Aversboro in Garner, said nearly $150,000 is missing from two of its bank accounts.
Swain said the Village at Aversboro HOA was in the process of switching management companies because it hadn’t been pleased with Kornerstone after nine years. He said it followed the contract, giving the company 60 days notice, and that at the end of the notice period, Kornerstone was to turn records over to a new management company.
Swain said after HOA officers started going through the materials after the contract ended, they discovered that Kornerstone’s agent, Diana Ellis Kelly, had written two checks from The Village at Aversboro’s checking account. One check, which was written to Kornerstone, was for $11,000 after their contract had ended.
Another check, meant to transfer funds to their new bank account, was for $55,000.
But when their new management company tried to cash a check for their services in the new bank account, the check bounced. That means the $55,000 never made it to their new bank.
He said HOA members checked another account they thought they had with PNC Bank, which was supposed to be used as a reserve fund. But a banker told them the HOA did not have that account with PNC.
Swain said the HOA was supposed to have $82,000 in the fund.
“This is the most unbelievable situation that I’ve seen in 40 years working with nonprofits and state governments,” Swain said.
Swain said the neighborhood had insurance of up to $100,000 and has enough money to continue to pay its bills.
Bernardo Gelabert, president of the HOA at Arbor Greene in Garner, said he isn’t sure what has become of the money that Kornerstone managed for his subdivision. He said the agent, Kelly, contacted them last Tuesday to say the company would be closing and that someone would contact Arbor Greene to return its financial records.
But after a week of phone calls and emails went unanswered, Gelabert said he began to worry. The office is now dark.
“Unless we get our paperwork and go to our bank, we cannot tell if money was stolen,” Gelabert said. “We cannot get in touch with (Kelly).”
Gelabert said Kornerstone did everything for its HOA, which represents about 160 homes, from collecting dues and managing bank accounts to issuing violation notices to residents who didn’t abide by the rules. He said the HOA’s bank accounts were in the company’s name, so association members don’t have access to them. Gelabert declined to say how much money is unaccounted for.
“Obviously she closed the doors for a reason,” he said.
Wade Corbett, a member of the board of directors for the Weston Woods subdivision in Johnston County, said he, too, is unsure what Kornerstone has done with the homeowners’ association money, but he has questions.
Weston Woods, comprising 143 townhomes, switched management companies last month. When association members tried to ask for their financial records, Kelly didn’t provide them. Corbett said board members tried calling, emailing and going to the office, but Kelly would lock the doors. Then she left.
“She could have been taking money without anybody knowing about it,” Corbett said.
He said the bank account was in Kornerstone’s name and that Weston Woods does not have access to it.
“She’s not required to release that information,” Corbett said. “So without seeing the financial (information), we can’t prove whether she’s stolen anything from us.”
Efforts to reach Kelly at the office, at her home, on the phone and by email were unsuccessful. Emails to Kelly come back with an automated message saying the company is currently closed.
Police have searched Kelly’s home in Clayton. Authorities say they are working with the Wake County District Attorney’s office and the State Bureau of Investigations to go through what was collected.
Kelly has a history of writing bad checks. She was convicted of writing worthless checks in Wake County in 2002 and Johnston County in 2005, both misdemeanors. In both cases she was ordered to pay a fine.
Subdivisions tend to hire management companies to manage their funds, collect dues and enforce their HOA rules and regulations. It is not a requirement to have a real estate license to manage money for a homeowners’ association, and many management company owners around the state don’t, said Corbett.
Corbett a licensed real estate agent, said the N.C. Association of Realtors has been discussing how to regulate unlicensed owners of management companies.
Records show Kelly, who ran Kornerstone, was not licensed.
“That’s how simple it is,” Corbett said. “This is more than just Kornerstone.”
Tom Miller, who served as the legal counsel for the N.C. Real Estate Commission in the attorney general’s office, agreed.
“There is no state agency with the authority to go in and handle a complaint or to make sure that standards are being maintained,” Miller said. “No public accountability.”
Miller said it makes homeowners’ associations vulnerable.
It’s a cash flow issue, he said. Each month residents pay into a reserve fund to pay bills and recurring expenses. Eventually that fund builds up.
“You can steal all that money, and as long as the day-to-day business is being handled, there’s nobody around to spot cooked books,” Miller said. “I mean, eventually it’s all going to come tumbling down, but it might be a year or more.”
He said when he was working in the attorney general’s office he saw that many people couldn’t resist the temptation to steal money.
“Some of them were crooks,” Miller said. “Many of them were just not up to the business and mismanaged it. I guess the people had gotten into the business, it’s like the wild west, because there are minimal standards to get into the business.”
He said for years a core group of HOA managers, the N.C. Real Estate Commission and other homeowners across the state have urged the General Assembly to adopt laws to regulate unlicensed people who manage homeowners’ associations. However, no legislation didn’t get far.
Samantha Cole, a spokesperson for the attorney general’s office, said the Consumer Protection Division has received six complaints about Kornerstone from HOAs across the state. One was in Wilmington, where there was also a Kornerstone office.
Cole encouraged anyone with complaints about Kornerstone to contact the Consumer Protection Division and the Garner Police Department.
Garner Police are planning an informational meeting on Sept. 8 at 6:30 p.m. at the Garner Police Department, 912 7th Ave. Investigators are asking for no more that two representatives from the HOA’s affected by this crime to represent them at this meeting. Police plan to give residents an update in their investigation as well as answer any questions they can.
Anyone who believes they are a victim in this incident and have not reported it yet to the police, please contact Lt. Lorie Smith at 919-772-8810.