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May 8, 2007
Does Anyone Care About the Homeowner Who Has No Resource?... I mean Recourse .....
From a visitor of the condoguru site:
"I am beginning to feel the anger that the anti-HOA folks feel. I'm beginning to understand their position about HOA's. There is always a song and dance why we can't or shouldn't have
* Term limits for Board members. We currently have the same people on the board that we had 10 years ago and it is being run like a dictatorship of the worst kind.
* 100% funding. Even if we have problems coming up with a solution as to what is 100% funding is it is a disaster unless we have adequate funds. Our board of directors will NOT levy any special assessments nor will they increase our dues. That's how they get re-elected every year; homeowners love that. So maintenance is deferred year after year after year.
* Management Companies giving legal advice to board members and not being held legally liable for a thing they do. The board members are usually ignorant and rely on the management companies and believe anything they are told.
* Ombudsman... too costly? What is it costing us homeowners to not have one?
Does ANYBODY care about the homeowner who has no recourse?"
To this reader: Yes. Many do care about the owners, and everyone else involved. To comment:
TERM LIMITS: On the question of term limits, the reason in most cases that board members remain on the board for many years is that they cannot find replacements to serve. And as often happens, once a board member has served more than 5 or 10 years, they begin to feel resentful when owners who are not willing to serve start to criticize what they are doing or have been doing. Some do get dictatorial. It's not a pretty picture. And taking a nonpaying job that makes a person a target of disdain for trying to run a business while minimizing the "cost" to owners is less than fun; it is extremely challenging and a pain in the ___s. Establishing term limits could backfire as it limits the pool of willing volunteers, which is already shrinking as the laws continue to get tougher and more complicated, and the costs continue to rise without any viable means of conrolling them. And it could confuse the people serving who are not up to speed on association issues if it destroys continuity. The answer to this dilemma is getting more people to run for the Board, so there is reasonable turnover.
RESERVES ISSUES: It is nothing short of a small disaster that so many HOAs in California are seriously underfunded in reserves. Likewise, it is very sad that most buyers are not informed well enough to understand the reserves disclosures. However, some people care enough to write books on the subject - watch for the book "Condominium Answers" a national answer book which will be released this fall by Sourcebooks (author: yours truly) - the first three chapters are on what a person can do to avoid getting into a bad deal when buying a condo. The next three are about finances in HOAs. The next three are about how things work, basically, and the last two chapters are what to do if one does not like what they have gotten into, including how to get out of a bad situation.
The unfortunate fact with regard to finances and reserves is that the issue of how hard to hit current owners for past as well as future expenses is always a subject of debate. Should current owners have to bear the burden of years of underfunding? They already in many cases have to bear the cost of seriously deferred maintenance. And one has to consider the flipside which is that many California HOA owners would be forced out of their homes if immediately charged with assessments sufficient to pay up and fund reserves to 100%. And as to those that are forced out because they are unable to pay the special assessment needed to fund the reserves, the other owners will have to make up the difference, thereby presenting an extra burden for those who can afford to pay their own fair share. It's a difficult problem. The only realistic answer is addressing those things that require fixing right now, and using diligence in planning to bring up the reserves levels in the coming years at a reasonable pace with the goal to reach 100%. And the other critical thing is to be honest in disclosures. California law requires quite a graphic explanation, now, of the plans for the future, which was not the case in past years. So .... pay attention to them if you are thinking about buying a condo or townhome. And if your association has not given a Civil Code Section 1365.2.5 disclosure worksheet to you, ask for the equivalent information. It is this sort of accountability that will engender better planning, not strapping current owners with the burden of the past and future.
MANAGEMENT ISSUES: Truly, management companies should not give legal advice - and yet I often see communications (ugh, the emails) and management reports that flat out give [bad] legal advice. But on the flipside, boards often expect that managers should advise them on actions that have legal ramifications (after all - they are required to get some training about the laws, right?) and the boards do not want to spend money on legal fees, so this puts managers in a very difficult position.
I think we will very likely see more managers being held responsible though, for their own negligence or bad acts, or possibly even for giving legal advice without a license, in the coming years. (There was a seminar about this at a recent national law conference - guess what - some lawyers on the East Coast are really up in arms about this!) The truth is that most management contracts have indemnification provisions intended to protect the managers and the market place in many areas does not allow for much negotiation by Boards to make these provisions mutual, however, the question is whether these provisions will really fully protect managers who do make serious mistakes. In some other states, boards have sued the managers challenging the indemnification clauses. And I am told by some experts at recent national law and management conferences (although you must not take this as legal advice, only as information) that in some states, managers are losing these cases.
OMBUDSMAN IN CALIFORNIA: On the subject of a state ombudsman - it sounds pretty good to imagine that one can call the state ombudsman and get resolution to all the frustration. But there are no guarantees that such an agency will be a success. Staffing it with knowledgeable people and getting it up and running will be very expensive. Many forms of state agency have been discussed. The truth seems to be that no department of the state wants it unless it is self-sustaining (meaning paid for through sources outside the state coffers).
Ultimately, the cost could be very high to HOA owners, who are already feeling the effects of increased costs each year due to many things. And everyone in the industry from the managers, board members and down to the owners are paying a price due to the addition each year of expensive statutory compliance obligations in California. Who is winning the war? Condos that are supposed to be "affordable" often turn out not to be. One could say it is the attorneys who are winning the war, but that would be unfair too. It is not the HOA attorneys in this state pushing for complicated legislation, believe it or not. In most cases, it is constituent pressure on a legislator for more laws regulating boards. Not to say we are problem-free in this industry; however, California law has gotten so complicated that the average person (and many attorneys) cannot even fully understand the ultimate obligations for various actions or the number of statutes involved in answering one simple question. For example, if a board is having trouble with owners leaving out garbage cans for days on end after pickup, and wants to adopt a deterrent fine, it cannot consider even the most minimal fine until it has: (1) reviewed its governing documents to see if fining authority is apparent, reviewed the laws on fining, and tried to reconcile the two to determine what controls, (2) proposed a fines policy for proper circulation to owners and the legally required comment period (subject to a complicated set of statutes), (3) circulated the adopted legal fines policy (subject to complicated laws), (4) given proper legal notice of a hearing (and again, reconciling complicated laws on process with what is in the governing documents), (5) holding a hearing, (6) giving proper written legal notice of the board's decision (subject to statutory mandate about timing and contents), and then (7) collecting the fine if the conduct continues, via a small claims court process that requires board participation or hiring an attorney. What seems the most simple task is extremely complicated.
Let's say that the state approves an ombudsman program - one has to determine what is the better use of the money collected from the owners (as that is the group that will pay for this state agency), and all of the following have been considered:
Gathering and Dissemination of Educational Materials
Provision and Arranging of Low Cost Mediation Services
Enforcement of Laws through Fines and Other Punishments Against Board Members
Due Process Hearings for Accused
$5 per year per door (what has been suggested as a reasonable contribution by the state officials) will not begin to cover sll of the above processes, so look for higher costs than that or selective services (my bet is the focus will be on punishing uneducated board members). Take into consideration the buffer of costs (or should I say "waste") inherent with a state-run bureacracy and understand that the price for a state agency will be high - with no guarantee of happiness or justice.
All that said, maybe a state ombudsman is the answer to many homeowners' "prayers". If homeowner complaints engender more widespread education and accountability, that is a good thing. It is important to understand, however, that the flip side is that an ombudsman or state agency may just be an added cost of living in an HOA. Time will tell, because it is clear that the subject will keep coming up, again and again...
People do care! And I think it a favorable-odds bet that for each and every homeowner that is upset, there is probably also a board member and/or a manager that is just as frustrated within their role in this industry. My mantra: for every problem there is a solution, but before you decide which one to choose, sit at the other side of the table for a minute, and check out the view.
Posted by Beth Grimm at May 8, 2007 7:33 PM