How Florida’s HOAs Became Ripe for Fraud

0:05Lilah Burke: Welcome to Deconstruct, a podcast from The Real Deal. I'm Lila Burke.

0:10Hannah Kramer: And I'm Hannah Kramer. Today we have stories for you about the final fate of the Elizabeth Street Garden, a fraud scandal around a hundred-year-old tree in South Florida, and the real estate supporters in California's governor's race.

0:24Lilah Burke: Plus, we'll talk to Florida reporter Lidia Dinkova about HOA fraud. Let's get started.

0:33Hannah Kramer: Over the last almost four years, we have covered some extensive fraud schemes throughout South Florida's homeowners associations. We have with us here today Lydia Dinkova, our South Florida commercial reporter, who has covered a huge fraud, a really big deal in South Florida at the Hammocks HOA, one of the biggest in the state. Lydia, thanks for joining us.

0:57Lilah Burke: Hey, Hannah.

0:58Hannah Kramer: Hey, Laila. Thanks for having me. Can you tell us a little bit of background about this HOA, the hammocks, and the fraud that you've uncovered there? So basically, this came to our attention in the fall of 2022 when the Miami-Dade County State Attorney's Office filed massive charges against five people at the Hammocks Homeowners Associations. The Hammocks is a huge community in southwest Miami-Dade County. It has condos, apartments, single-family homes, townhomes. And prosecutors basically said that these people ran a massive scheme. At the time, they charged about$2 million was diverted from the association, or essentially from the assessments that people paid to the associations.

1:48What's been described to me by attorneys and experts as like a very simple, not complicated scheme. What they did was they hired vendors or LLCs to perform various work on the huge, huge property. It spans, I think, thousands of acres to landscape maintenance, other type of maintenance, pool maintenance. But essentially, these companies were bogus. They were fake, as prosecutors alleged. A lot of them were led by relatives or acquaintances of the board members, and they performed little to no work on the property. When the association paid them for this work, some of these payments were diverted back to some of the board members.

2:32Lilah Burke: And how were they able to cover up this level of fraud for so long? I think people who live in the hammocks, it has 18 ,000 plus residents. I think they got wind of this and figured it out pretty quickly from what I understand. And I want to say that they reached out to police and authorities sometime five years before charges were even filed, essentially like sometime about 2017. And the prosecutors and authorities and residents kind of knew what was going on. They kind of had had it figured out what really took so long. In this particular case is that as prosecutors were requesting financial records from the HOA and the board, the board really fought that hard.

3:22And they turned over, for example, thousands of paper records, and then they asked for thousands of dollars in payment for turning over these records. Some of these fights over submitting records to prosecutors and investigators, they made their ways to courts. In some cases, former HOA board members defied court orders that told them to turn over records. And really what took so long, people kind of knew about this, but it took a while for investigators to unravel it, to figure it out and have enough to file charges. I think in some cases in the beginning, they just had to subpoena banks instead of getting the records from the HOA itself.

4:01Hannah Kramer: There is sort of a central figure in this fraud scheme, this woman, Margley Gallego. Tell us about her and how she sort of got this incredible power all amassed into this HOA board so that she could pull off such an obvious fraud for such a long time and make it so hard to dig into. Sure. So from what the state attorney's office and prosecutors with the state attorney's office have described, they've said that and alleged that Gallego in a way targeted the HOA. They said before that she wasn't even a homeowner there, but she bought a 1 % share in a condo unit there. And this qualified her to run for the board.

4:44Based on interviews I've done with residents there over the years, there was some unhappiness with the previous board. And they kind of, at the time, even some of them saw Gallego as a savior, as somebody who's going to come in and make things better and run things better at the HOA. But obviously that turned out to not be the case. She's been painted as the wing leader of this fraud by prosecutors. She pleaded guilty earlier this year, sentenced to seven years in prison. But she held on to power. I think residents have described situations that they've depicted as bullying or threats. So, for example, if they start taking issue with assessments or unfair assessments, or they would say, I paid this assessment, I paid my dues for this month or this quarter, and they would argue back or they would try to run a recall against her.

5:37They describe a situation of retaliation. Some people have even said there were things like a big truck with tinted windows parked outside their homes, and it was a bit threatening. Some people said that if they raise the issue with the board and the way it's running things, then their privileges of living in association would be revoked. They would tell them, oh, you're privileges of using the amenities. And some of the gyms, for example, are revoked.

6:02Lilah Burke: And it seems like HOAs are pretty ripe for fraud. I mean, how do you feel about that? Do you think that there is a fraud problem in HOAs? I think yes. I think especially in Florida, the law for years was created to let them govern themselves. And that's been just the thinking by legislators that these are going to be these communities. And over the years, they were imagined as kind of like these utopias where people get together and they get to decide on what kind of landscaping they want, what kind of color scheme they want of the houses. and they would work on this together, pay their dues and so on.

6:44But it's really not turned out to be the case. Usually board members are unpaid positions, but just the fact that the law doesn't have or hasn't had much oversight has allowed for bad actors to come in and just seize on that. Divert assessments, stay on the board for years and years, despite recalls and pushbacks against that. But in the hammocks, it was particularly prone, I guess experts have said, it was particularly prone to this type of frog because it's so big. It's the biggest statue in South Florida. I think it's the second biggest in the state itself. I think the villages is the biggest.

7:25But a lot of attorneys said, look, this is the size of a municipality, of a city that has its own commission and mayor. And in those cases, the state has oversight over them. If a commissioner does something wrong, the governor can come in and suspend them. If the commissioner is under investigation, even if charges are not filed, this is basically the size of a city and it's run like a city, but there's not the same oversight by the state.

7:51Hannah Kramer: And it seems like there's just very little that sort of holds people in the HOAs accountable to the state government, right? So is there a push in the government in Florida to regulate these HOAs any better to try to root out some of this especially sort of obvious fraud? So, yes, immediately after the hammocks charges were filed, I think in 2024, the state legislature finally approved a sweeping reform of the both Homeowners Association Act and the Condo Association Act. And a lot of it was very closely modeled to address exactly the type of fraud that took place at the hammocks. They imposed criminal penalties, which both laws generally lacked.

8:40Before that, criminal penalties for kickbacks, which was a big thing in the hammocks. They imposed more oversight and prohibition over just these related party transactions where the vendor you hire or the company you hire to renovate or repair a building has some sort of relationship to a board member or to the property manager. So there was a big push by the state legislature to impose more oversight right after the hammocks, and they did, imposing the criminal penalties. And in subsequent years, they did try to make the law even stronger. I think this year, one of the state representatives put forth legislation that would allow people to disband their homeowners associations.

9:25That didn't go through. And much of the laws that were proposed and put forth after the initial flurry of new legislation right after the hammocks hasn't really moved forward. And also after the sweeping 2024 reforms of the Homeowners Association Act and the Condo Association Act, I think that has helped. I think it's given the Miami-Dade State Attorney's Office and state attorney's offices throughout the state more teeth to go after bad actors. We have seen criminal charges filed at some of the smaller HOAs and condo associations here in Miami-Dade, and they're pegged to the new legislation, the new laws.

10:06However, in speaking with residents and experts and people who investigate HOAs, they say that there's still other types of crime going on. They say that they're seeing people find other ways to find loopholes. And that also there's the fact that Miami-Dade State Attorney's Office did, I think they did beef up their investigators who specifically look into HOAs and condo associations. But there's generally a feeling that there's not enough people working for either the state attorney's office or the state's Department of Business and Professional Regulations to investigate these cases. There's just so many complaints filed all the time.

10:44And there's just a general sense that state authorities are having a hard time to cope with this volume.

10:51Lilah Burke: And Lydia, do you think this is going to have a ripple effect on homebuyers in Florida who are hearing about this case? So it's difficult to say, mostly because in Florida, and especially in South Florida, where housing costs are so expensive, in a lot of cases, people just don't have a way around from buying in an HOA or a condo association. Homeowners associations and condo associations generally offer units and homes that are more attainably priced than a single family home that's not in an association. and that's just a path that people are forced to take considering housing costs here. And also, I mean, Florida is one of the biggest states in the country in terms of people living in HOAs.

11:38I think more than half of the population here lives in some sort of community governed by an association.

11:44Hannah Kramer: So, I mean, we're hearing about this lack of oversight, the incredible prevalence of these HOAs, like there's no way to avoid them. So my real question is, you know, is the state doing enough or is there something that the private industry could do to help solve this fraud problem? That's a good question. I think the state staff and investigators at the Department of Business and Professional Regulation and with the state attorney's offices are trying to investigate as much as they can. But it's obviously difficult given the volume of complaints. There is an organization run by a former Miami-Dade County detective who focuses exclusively on this issue, Tamara Reyes, and people reach out to her and they say, this is what we suspect is happening.

12:37And in turn, she and her staff do just these comprehensive, in-depth financial analysis after they obtain records from homeowners associations. And they produce these reports back to the associations. And they're like, this is what we found. This is what we think is happening. This is the proof we found in financial and other records. I think as for the private industry and developers, if you're building a condo, the condo has to have an association. There have been some interesting examples of developers I've met and spoken with who are building townhouse communities, but they're smaller. And when they create the association for that townhouse, they kind of set it as the maximum for the assessments that they can charge.

13:20So, for example, when I say townhouse community, sometimes it's a duplex or a fourplex or quadruplex. And they kind of say, well, the association fee is here is something like a dollar a year or something like that, which is possible because they're just so small. It's four units. That's been really the only example I've seen of developers who are able to deal with this or being able to make a dent in this issue.

13:45Hannah Kramer: So it sounds like there's some forward progress being made. But for our South Florida homeowners and developers, folks in the industry, this is going to remain a pretty serious problem to look out for. And certainly one, Lydia, that I know you'll continue to cover. So thank you for your work so far. And thanks for talking to us today. For sure. Thank you.

14:12Hannah Kramer: This week, the story I am obsessed with, but that I hope we can all stop obsessing over, is about the Elizabeth Street Garden.

14:21Lilah Burke: I think too many people are obsessed with this one.

14:23Hannah Kramer: Too many people, too much ink has been spilled about this one-acre green space park in Lower Manhattan over the last more than a decade. There has been this dispute. And to me, it is really emblematic of kind of everything that's wrong with our political process and why so much housing fails to be built here in New York. OK, so I've followed this casually. Catch me up. So the Elizabeth Street Garden, as I said, is in the Nolita neighborhood in downtown Manhattan. It is a really lovely space, but it has not always been a garden. It has not always been something that is this public nicety that it is today.

15:04Hannah Kramer: Right. Until the 1970s, it was a school. The school was demolished. Until the early 1990s, it was kind of just an abandoned lot. Right. Chain link around it. In 1991, a local gallerist, Alan Reaver, who had his gallery in the building right next door, started leasing the garden space from the city. At the time, it was run by the Department of Education because there had been a school there. He started storing overflow statues and artwork from the gallery in this green space right next door, which no one was using, so it made a lot of sense. It started to fill up with these beautiful sculptures, and people could walk by on the outside and sort of see them through the fence.

15:42Hannah Kramer: But for more than 20 years, the only way to actually access this was to go into the gallery, befriend Alan Reaver, and get him to take you into the space. The housing project was proposed in 2012. The RFP wasn't even put out until 2016. And the first vote on the project didn't happen until 2019. So here you have a seven-year period during which Reaver, who later passed away and then his son, and local supporters, people who had been able to access the garden through friendship with Reaver and then who had entered it once it started having these, again, sort of infrequent and consistent open hours for public access, it became really popular with locals and started to get support for folks who were saying, we don't want this to be housing.

16:28Hannah Kramer: We want it to stay public access. We want it to be a garden. The Elizabeth Street Garden is a very nice space. I used to live a couple blocks away on Mulberry Street. And when I did, I certainly valued the open public space at the DeSalvio Playground, which is two blocks west of the garden, and on the Bowery, which is two blocks to the east, and the garden itself. But for more than 14 years, we have been having a debate over whether or not you can build housing on this site that the city owns that we desperately need. It does not make sense to preserve something that is a nice to have, even if it's very nice to have, when we need so much more housing than even can be encompassed in this site.

17:14Lilah Burke: Okay, but what happened this week that is the reason we're talking about this.

17:20Hannah Kramer: So this week, we kind of have given in, right? This plan is dead. At this point, I don't think that there's ever going to be housing on the Elizabeth Street Garden site. And so to the fans of the garden, you know, congratulations. But also in the amount of time that we've spent fighting in lawsuits, in the press, in the court of public opinion over this, this is all time and money that has been wasted that could have gone towards developing either housing on the Elizabeth Street Garden site or on any of these several other proposed sites, pretty much all of which do not have new housing on them today, right?

17:56Hannah Kramer: And over the course of this debate, there have been several times where supporters of the Garden say, well, don't build here, build in this other spot. Don't build here, build in those other spots, right? And that's how a lot of this back and forth has happened. You have in 2024, lawsuits went up to the Court of Appeal is sort of the highest court in New York that deals with these things. And they said, you know, the city's right is to build the housing on this spot. But the Adams administration, which was otherwise really quite pro-real estate, did an about-face on this and ended up doing this deal with Christopher Marte, who is the local council member, to say, well, Christopher Marte will support housing at these three other sites if you leave the Elizabeth Street Garden alone.

18:39Hannah Kramer: There's still no housing on the three other sites. One of them is now the subject of this settlement between the city and developers. So they will hopefully, finally, start building housing at 22 Suffolk Street. But again, that's a meaningfully different site than the Elizabeth Street Garden site. It's a good bit further east. It's just not as nice of a block, right? And so, you know, they should build the housing there too. But they also just they should have built it on the Elizabeth Street Garden in 2014 when this project was initially being proposed and when the developers Penrose, Ryesboro and Habitat for Humanity.

19:17Hannah Kramer: Habitat for Humanity initially had their plans for what they wanted to build here.

19:23Lilah Burke: Yeah, so it seems like it really shows how a long and arduous real estate process can make it impossible to build. And also the influence of very important people and how that can change what the city looks like. I mean, there are a lot of celebrities and, you know, very influential people speaking on behalf of the garden.

19:42Hannah Kramer: Right. You have people like Martin Scorsese who are big fans of the garden. I think Martin Scorsese is an amazing filmmaker, but I'm really not sure we should be letting him determine our urban development policy. And I have to say that, you know, every administration I think has come out of this looking really bad. Like the Adams administration did this ridiculous about face on the deal, which they just didn't have to do. Right. They could have built it. It was their right to build it, to evict the Elizabeth Street Gallery folks from the site. And they just didn't. During the Mom Donnie campaign, he promised that he would build housing on this site.

20:17Hannah Kramer: Not going to happen now either. So, I mean, look, I'm happy for the people who get to continue to enjoy the garden. That's nice. I'm not saying that it's not a nice space or that having green space in the city isn't important. Of course it is. But there is so much need for affordable housing, for supportive housing for seniors. I mean, this was a project that was supposed to have 50 apartments for homeless seniors. These are people who desperately need homes. And I have to think that, you know, this nice little block on Elizabeth Street doesn't really want those homeless seniors. That's how it feels to me.

20:55Hannah Kramer: And I think that's what makes this sort of so upsetting. It can be so easy for public opinion to influence good urban development policy.

21:04Lilah Burke: Well, hopefully this is the end of hearing about the garden for you and for our listeners. A lot of ink has been spilled. Maybe we can leave this behind us and, you know, move on to build housing at these sites.

21:19Hannah Kramer: Yeah, I do think that at this point, you know, for anybody in the real estate industry, the developers who are still pursuing this, to keep pursuing the Elizabeth Street Gardens site is kind of just throwing good money after bad. I think that the highest and best use for the site is as this supportive housing is not as garden space, nice though the garden may be. But I don't make the rules. Apparently, Martin Scorsese does.

21:46Hannah Kramer: Let's get into our headlines for this week. Lila, what have you got for us?

21:50Lilah Burke: Well, we kind of have to talk about the New York City pied -à-terre tax. As tired as we might be of talking about it, there have been some developments. The first is that there is a lawsuit now about specifically the implementation of the tax. So as we went over last week, homeowners were pretty concerned that, you know, they got these letters saying they might have to pay the tax. They're saying this is their primary residence. They feel like they have to prove something. Well, they found a lawyer or a lawyer found them. It's a little unclear. But there is a lawsuit now in Staten Island Supreme Court aimed at, you know, giving folks more time, making the Department of Finance do things a little differently around the rollout of the tax.

22:32Lilah Burke: There was a temporary restraining order that was issued. The city filed an appeal. There's now an argument about whether the temporary restraining order is in effect. That situation might all change by the time you're listening to this episode. But now the situation there is sort of in flux. Also in New York news this week, we have the updated rent numbers and New York City median rents are now at an all-time high. And if you've heard that before, it's because I am saying that every month, maybe not on this podcast, but I'm writing about it every month. Since February of 2025, we have been hitting new records in median Manhattan rents just over and over and over again.

23:14Lilah Burke: If you're a landlord, a market rate landlord, I mean, this is kind of good news for you. If you're not, then not so much. I think there's an interesting conversation that's happening here about how market rate rents are affecting politics. There's sort of this, like, backlash effect where market rate tenants are really mad about how much they're paying. They're voting for progressive politicians like Mamdani. His policies aren't really aimed at market rate tenants. They're really more aimed at rent-stabilized tenants. But people feel, you know, this anger, this frustration that he really speaks to.

23:48Lilah Burke: So sort of a cyclical effect there. And we'll have to see how that plays out once we start seeing more elections.

23:56Hannah Kramer: And then I think you have a quick update for us about the summer camps that we spoke about last week, right?

24:01Lilah Burke: Yes. For anyone who is following the summer camp special, the summer camps that are part of the Shabzil's summer camp empire all sold and at really good prices. There were 22 camps. They sold for$368 million. So it seems like they will be open for oncoming seasons for kids and parents. And while we're a little unclear about, you know, what exactly happened there, why the Shab Sells missed their loan payments, bondholders will be paid back in full. And so maybe a little bit of a happy ending here to end out the summer.

24:40Hannah Kramer: Yeah, at least for now. Certainly, we'll still be following along to figure out, as you said, how this all kind of devolved so quickly.

24:50Hannah Kramer: All right, let's jump across to the other coast and talk a little bit about politics. As we get into the fall election season, we'll really start heating up. And one of the races that we're watching really closely is the California governor's race. Here at The Real Deal, we can track what folks in the industry are planning, supporting, worried about by tallying up political donations. So in California, we have two prominent candidates. One is Steve Hilton, former Fox News host. The other is Xavier Becerra, former California attorney general and a member of the Biden administration. Now, California is a very traditionally blue state, right?

25:31Hannah Kramer: So it can seem like, you know, the Democratic candidate could be sort of a shoe in. But there are political shifts going on all over the country all the time. So we don't want to think that anything is a sure thing. And we do have a couple of real estate folks throwing their weight behind Hilton. We have developer Jeff Palmer, who's someone we cover on California quite a good bit, as well as the CEO of Lion Living, Frank Surian. Those are just two of the real estate folks we've tracked in the GOP column. When we look over at the Democratic side of things, we have a little bit of a longer list of folks supporting that candidate.

26:07Hannah Kramer: We have seen donations from mega developer Rick Caruso, Angela Amman's Kilroy Realty, Jeff Wirth of Wirth Real Estate, a much bigger basket of real estate people. Now, I don't want to assume that just because somebody is donating to one candidate or the other, they necessarily support all of their policies. A lot of the times folks in this industry are using those political donations as ways to kind of curry favor. So sometimes we do see people in real estate donating to both candidates, right? But one really notable one here, Don Bren, who is one of the most famous sort of classic real estate developers in Southern California in particular, He is kind of a tried and true Republican and this year has donated to the Democrat Becerra's campaign.

26:52Hannah Kramer: We don't know exactly why that might be. Of course, we're not in his head. We don't know whether he's looking to curry favor or whether he just thinks that Becerra is the better candidate. But it certainly tells us that, you know, he has a pretty strong wave of support, even from the pro-business community, although he was not the sort of pro-business candidate in the primary. That went to Matt Mahan, the mayor of San Jose. But Mahan didn't win the primary. So now we're looking at, you know, who's saying this is probably a state that's still going to go blue and looking to kind of shore up their relationships there.

27:27Hannah Kramer: We will continue tracking political donations until the governor's race happens in November. Let's head down to South Florida for our last story of the day.

27:38Lilah Burke: okay so we have a really interesting story out of miami that is about a classic real estate dispute trees okay so let me paint a picture for you we have this couple they're living in miami in their home which they bought for eight hundred and fifty five thousand dollars and one afternoon they're at home and they hear something and their 100 year old oak tree that is on the fence line of their property is being cut down. They are very angry about this, and they go to talk to the folks next door who are building a two-story cube home, and they're told they have permission to cut down the tree. The couple is very upset about this.

28:21Lilah Burke: They go to look at these documents that, you know, are supposedly giving permission to cut down this tree, and they see what is purported to be their own signatures. Now, they're saying that these signatures were forged. They're saying that the notary signature was also forged. And so now they're suing for one and a half million dollars. They're talking to the police. They're trying to do all this stuff. They're very upset about their tree being cut down. I guess it provided a lot of shade. I mean, I can sort of understand this. And they're also talking to other people who are telling the real deal that they had their signatures forged or their family signatures forged on documents to cut down their trees.

29:07Lilah Burke: I mean, that's sort of like the small story. The bigger story here is about preservation in Miami, this ongoing conflict between preservationists and developers. You know, Miami is having a big real estate boom right now. It's also this lush, you know, subtropical climate. That's what people like about it. You know, where do you sort of find the balance between the building and the preserving of the natural landscape?

29:36Hannah Kramer: Yeah. And one of the things that I thought was interesting in this story, our reporter was able to find really quite a lot of properties tied to this particular spec home builder, not a company that we have covered much previously, not a ton available about them, JF Property Online. But, But, you know, you do have to sort of question how often are folks coming in and doing some kind of fly by night thing like this to their neighbors, asking forgiveness instead of permission. And when it comes down to it in a real estate dispute, sometimes that forgiveness can be very expensive.

30:12Lilah Burke: And I will say that the lawyers here for JF Properties have said that the claims are bogus. They say this is all made up and, you know, they're looking forward to their day in court. So, you know, we can't say for sure what really happened here, but hopefully we'll find out. Yeah, definitely an interesting one for us to track. And I would say to any real estate developers out there, ask for very real and sure permission before you cut down anybody else's trees. And that's our show this week. Thanks for listening. Take care.

30:42Hannah Kramer: Our script today was written by Lila Burke and Hannah Kramer, edited by Kara Eisenpress. And our in-room producers were Mary Deduc and Usha Sukai. Our sound engineer and post producer is Mila Miller.