To:        David Braley

From:    Brent Golemon

CC:       John Creamer, Bob Parmalee Victor Gonzalez and Brandon Hamrick

Date:     8/17/2010

Re:        Tahitian Land Inc.

Some residents have raised concerns to the Board about our involvement in the Tahitian Land, Inc.(TLI).  The concerns brought forth dealt with TLI’s operations and its financial transactions. The Board has tasked me with addressing the initial concerns as some in our community are calling upon the POA to spend additional funds to vet our involvement.  It was my proposal that we review all of the financial records and the transactional account associated with our involvement before we expend the limited funds that we have at our disposal.

The first step in my process was to get a clear understanding of the history of TLI and the POA’s involvement.   TLI was formed to assist property owners who desired to deed their lots to any entity that would take them and absolve them of any liability.  None of the taxing or feeing entities in the County were prepared to take back the land.  It was determined that a single entity would be the best vehicle to receive the land and market the land so as to recoup the taxes and fees owed to not only the County but to the Bastrop County WCID #2 (WCID) and POA.

Since its inception, TLI has sold more than 222 lots having recouped more than $150,000 for the WCID and more than $125,000for the POA and ACC.  TLI’s records indicate that TLI collected and dispensed approximately $150,000 over the course of 15 years. The remainder of the funds collected from the sale of lots were administered by title companies.

The research indicates that Tahitian Land, Inc. was formed in October of 1995 with three principle entities taking equal shares in the company[1].  The founding entities were the Tahitian Village Property Owners Association (POA), the Tahitian Village Architectural Control Committee (ACC) and the Bastrop County WCID #2.  The first organizational meeting was held November 6^th and was attended by a representative from each of the entities comprising TLI.[2]

The Bylaws were adopted at the first meeting and have remained in effect since its inception with no changes having been formerly adopted or filed with the Secretary of State.  The bylaws innumerate the powers and duties of TLI and establish a governance shared between the three Shareholders. In the summer of 2008, the Bastrop County WCID #2 recused itself from the Board after it was determined that the WCID as a public entity was not able to possess an ownership stake in TLI.  This left the company managed by a representative from the ACC and POA.  I have reviewed the Bylaws and there would appear to be potential problems created by the loss of the WCID as a shareholder.

Recommendation: It is my recommendation that the Board of the POA revisit the Bylaws of the TLI in an effort to reconcile them with a membership that is comprised of two entities if it is determined that TLI should continue to operate.

The bylaws are very specific with respect to the governance of this entity and I do not feel as though adequate attention has been paid by our Board to communicating the purpose and progress of TLI.  Our POA Board meetings do reflect oversight of TLI as we are abreast of when properties have been sold and other issues of concern with respect to the disposition of these lots.  However, I would put before the Board that we must do a better job of communicating the happenings of TLI to the residents and insuring that its purposes are better defined.

Recommendation:  I recommend that we delineate in our report all TLI transactions in the same manner that we summarize the ACC actions for the preceding month.  I recommend that we set up an email alert that keeps anyone informed as to new properties listed and that we proactively contact all adjacent landowners to listed property.

The Bylaws were also very specific about the auditing of TLI’s books.  They read “annual [financial] statements may be audited or unaudited; however, should any member of the Board require that the annual statements and reports be audited, then the financial statements will be audited.”[3]

The representation that the Board has been operating illegally by not conducting an annual audit is baseless.  A review of the POA minutes from the last two years shows no request being made by the Board of the POA or the ACC.  The question of whether and audit should be conducted is pertinent but any accusation as to the legality of one not having been performed is unfounded.

I have also taken the time to review the financial records of TLI.  The records are all in a digital format and they document the following from its inception in 1995 through April, 2010[4]:

 

·         Collected $150,609 in revenues

·         Dispensed $58,855 to WCID

·         Dispensed $16,355 to ACC

·         Dispensed $27,066 to POA

·         Expensed $10,034 for legal fees (most paid to the law firm of Owen, Bogart & Rodgers)

·         Expensed $ 1,515 for end of year tax preparation

·         Expensed $ 4,692 to WCID for rent from 2004 through 2007

·         Expensed $20,222 in taxes to County entities

·         Expensed $ 7,851 in filing fees with the County

·         Expensed $   270 in supplies

I see no evidence in the current books that warrants an expensive audit.  I feel confident that an audit of the books will not reveal any pilfering or corruption.  It should be noted that we have TLI has annually paid a third party to assist with the payment of taxes owned by the corporation and at no time has this vendor indicated any impropriety.  While there have been several hundred land transactions, the random sampling that I have tied out to their origins have all resulted in the taxing entities being paid and the appropriate fees being collected.  Payments have been made to the POA and ACC annually since 2001 and the Profit/Loss and Balance Sheets from all of the years reflect that on average TLI keeps a low fund balance at the beginning of each year.[5]

Recommendation: The POA Board not seek a professional audit of these books but instead make available to any resident a copy of any financial  report.  It would be my suggestion that there be some indication of impropriety before we start spending the POA’s funds. 

The future of TLI is in jeopardy and it is important that everyone understand how recent events will shape the ability of TLI to function moving forward.  Last year the WCID, under the direction of the previous Board members, took the action of handing all lots that were in TLI over to the Delinquent Tax Attorneys (DTA) employed by Bastrop County.  The POA attended several meetings of the WCID and requested that this action not be undertaken carte blanche as it would effectively reduce the amount of monies that the ACC, POA and WCID would be able to collect in delinquent taxes and fees.

Understanding the process of how delinquent taxes are collected is important to understanding why TLI was the most advantageous adjudicator of delinquent lots.  When a property is handed over to the DTA they go through the process of making sure that there is clear title to the lot.  Having secured clear title, the lot is auctioned on the Court House steps with the asking price typically set at the appraised value of the lot.  If the lot is not sold (which is most often the case), the DTA then acts as the agent for sale of the lot and will entertain any offer made by a third party.  The DTA must seek permission from the County taxing entities before they can close the sale.  Typically the sale of the lots is significantly less than the appraised value and the WCID receives little of what is owed and the POA and ACC nothing.

The POA submitted to the WCID that it would be prudent to review all of the lots in TLI and turn over only those which were “upside down” to the DTA.  This would leave with TLI the lots that had a reasonable chance of being sold and therefore allowing the WCID, POA and ACC to collect on past due taxes and fees.  To illustrate how a lot is “upside down” take into account the following scenario: 

With all of the TLI lots being turned over to the DTA it would not appear that TLI has little chance to sell anymore lots in the future unless we see a rush of property owners looking to deed over their land.  In a time when property values are rising I suggest this scenario is less likely to occur and when it does the property owner will more than likely be upside down.

Recommendation:  I would urge the POA to work with the new WCID Board and see what if any measures can be taken at the current time to pull lots back into TLI from the DTA.  Pending our ability to do this we are left with an ethical dilemma.  TLI could operate and try to sell lots without letting the buyer know that they could go to the DTA and secure a better purchase price.  In my opinion, this is not a viable choice as we do not want to be in the business of collecting fees at the unawareness of the purchaser.  Pending any ability to sell the lots that are not processed by the DTA I would urge that we consider a process whereby TLI is shut down.

In conclusion, I do not see any indication of impropriety with how the land transactions were handled through TLI.  I believe that both the POA and ACC were remiss in not amending the Bylaws when the WCID removed itself from the corporation.  While there was reporting of TLI’s lots on the POA website and reports of sales at each POA Board meeting there should have been more transparency with respect to the actual balance sheets, profit and loss statements as well as a document process for handling the transactions of the lots[6]. 

It would appear that the action taken by the WCID has undercut our ability to collect on the fees and it would be in our interest to ascertain what amount of the $393,000 owed the POA in back fees has been transferred to the delinquent tax attorney and what realistic chance we have through TLI of collecting any more fees owed the POA.  If the chance of collecting has been significantly diminished then we might want to consider dissolution of the corporation. If it is determined that we could still be deeded land and that the WCID would actually work with us in the sale of the land then we need to put in place more transparent processes and accounting.