There should always be a matter of trust between a homeowners’ association and the management company they choose to work with. After all, the management company oversees nearly all aspects of the community, from security to vendors to banking.
While the board officially votes to hire vendors, it relies on the management company to put together the requests for proposals and to vet the vendors to ensure they have the experience and competence to perform the work to the highest standards.
No one expects your management company be paid cold hard cash to push companies as a vendor. Under Florida law, a manager of an association commits a felony if they accept kickbacks, but in one particular type of kickback, it’s an institutional issue – banking.
Across the country, homeowners’ associations are finding out that some management companies are accepting payments to pool all of their various association funds in exchange for large cash payments to the management company.
Of course, the associations who have their funds with these banks are not receiving any of the payouts. Instead, they are actually punished with lower interest rates on their deposits so the banks can pay the management company.
The attorneys at The Orlando Law Group are focused on weeding out these unscrupulous management companies, representing associations to ensure they receive any funds that were mismanaged and were not utilized with the fiduciary responsibility entrusted to them.
How Did This Begin?
In the late ‘90s and early 2000s, banks started to realize that HOAs were good business with large deposits without a lot of risk. When management companies combine the funds from multiple associations, it becomes a substantial amount of money.
Think about this. A small association may have $100,000 in funds in reserve or its operating account. While a bank may like those funds, it’s not a game-changing piece of business for any bank.
But when that small association hires a national management company, they are part of a group with 100, 500 or 1,000 other similar-sized HOAs, all with $100,000 in funds. The management company is now depositing $100,000. They are depositing $10 million, $50 million or $100 million.
Those types of deposits are highly sought after.
At first, the banks looked at the management company’s banking software. Remember, this was the late 1990s, and most companies – including association management companies – were trying to figure out how the internet and new types of software could be utilized.
As an incentive to choose their bank, they would offer free software to management companies to help make them more efficient.
However, as this type of software became more prevalent and interest rates fell, the banks turned to another form of luring association management companies: cash payouts. They called them earnings credits, but they are kickbacks.
What is an Earnings Credit?
It’s fairly simple.
In exchange for depositing funds in Acme Bank, Acme Management Company gets a percentage of those funds back in a cash payment every year.
Typically, the rate of cash payments ranges between three percent to five percent annually. On that isolated association funds of $100,000, it’s not a huge amount – only a few thousand dollars.
However, on the combined funds of $100 million, that’s a $5 million payday every year for the HOA management company.
Many association management companies are dependent on these payments for profits. It is written into the management company’s budgets as a source of income.
Since it is a corporate decision and payment to the larger corporation, the individual association often does not know its management company is getting a payment for the association to bank with Acme Bank.
It Is Worse Than It Seems
Of course, that money is not prorated and sent back to the association. It is kept by the management company.
However, one of the primary ways a bank pays for the earnings credit is to offer lower interest rates on deposited funds, costing the association money.
For instance, a three percent interest rate on a $100,000 savings account will net an association more than $22,000 over a five-year period. If the bank lowers its interest rate just one point, that will cost the association nearly $7,000.
Meanwhile, the management company may have been paid between $9,000 and $15,000 in cash from the earnings credit.
In a nutshell, the bank gets the business, the management company gets the cash and the association actually loses money.
Isn’t This Illegal?
In some states, it is strictly forbidden without a disclosure.
For instance, in California, the law says management companies must disclose “any business or company in which the common interest development manager or common interest development management firm has any ownership interests, profit-sharing arrangements, or other monetary incentives provided to the management firm or managing agent.”
In Florida, kickbacks are a felony.
“An officer, a director, or a manager may not solicit, offer to accept, or accept a kickback. As used in this subsection, the term “kickback” means any thing or service of value for which consideration has not been provided for an officer’s, a director’s, or a manager’s benefit or for the benefit of a member of his or her immediate family from any person providing or proposing to provide goods or services to the association. An officer, a director, or a manager who knowingly solicits, offers to accept, or accepts a kickback commits a felony of the third degree…and is subject to monetary damages.”
Recently, an association in California filed a class action lawsuit against one association management company, The Management Trust, for breach of contract, breach of fiduciary duty, unjust enrichment, violation of the Unfair Competition Law and other California statutes. The case seeks the return of all kickbacks paid to the defendant for a 10-year period, along with interest, attorney fees and costs.
The Management Trust does not operate in Florida, but we expect other such suits to start being filed across the country.
What You Can Do
Frankly, the first thing to do is to find out if your management company takes earnings credits from the bank you use if they have not disclosed the practice at some point.
For instance, you’ll want your attorney to review the contract with your management company to be sure they did not disclose the practice in the fine print of the contract.
If not, have your attorney write a letter to your management company asking them if they have accepted earnings credits from your bank and, if so, how much they have accepted from banks.
Thankfully, most management companies understand that accepting any sort of kickback is not ethical and does not provide the best service to its clients. They work for associations to ensure their funds are deposited in the bank that best services the associations’ interests, not the management company.
But if they are accepting earning credits, The Orlando Law Group will work to recoup any damages, like lost interest on deposited funds, for the association.
The attorneys at The Orlando Law Group can help your association determine if your management company has accepted earnings credits, as we represent more than 100 communities in Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and throughout Central Florida.
If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation to discuss your case. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.
Last Updated on June 4, 2025 by The Orlando Law Group
