Management Articles

The Rule Game
The issue of rules in homeowner associations is one that can trigger a wide range of responses. While most HOAs require little rule enforcement, there are some that seem rule driven or inhabited by I-eat-rules-for-lunch residents. This combination is a formula for trouble. That said, there are some recommended approaches to effective rules compliance that every HOA should consider. Jim Comin of CDC Management in Seattle has come up with some examples of Good vs. Bad when it comes to rules enforcement and compliance:

Good: Please contact me to discuss this matter and find a way to reconcile this. I realize the potential of this being a very difficult situation and hope to work with you to find a reasonable answer.
Bad: Please contact me immediately to avoid a $100 fine.

Good: I realize that you are a new homeowner and that you may not be aware of the rules. For your convenience, I have enclosed a copy.
Bad: I recognize that you are a new homeowner, but you received a copy of the rules when you closed the sale of your unit so you should have known that this is against the rules.

And here are some indicators that your HOA rules are too strict:

1. It’s easier to list all of the things that aren’t against the rules, rather than to list those things that are.
2. Your rules do allow for garage sales but only on the "Community Garage Sale Day" which is the 5^th Saturday in every Leap Year.
3. Everyone at Acme Towing knows your first name.
4. The fine schedule is as follows: First Offense = $10 fine, Second Offense = $25 fine, Third Offense = 30 days in jail.
5. The HOA’s speed limit is exactly the same as your limit on number of dogs per household.
6. A unit sale fails because the potential buyer has a goldfish.
7. Page 243 of your rules states that…well, you get the picture.
8. You have 43 rules related to boat moorage and your HOA is not on the water.
9. Instead of a "due process", the HOA has a "don’t process".

Okay, you get the gist. The rules in a homeowner associations should be few and absolutely necessary. Tread respectfully when engaged in enforcement to gain cooperation and respect. A brutal approach results only begets a brutal response. BACK

Manager Balancing Act
Homeowner association (HOA) management companies retained by developers often must balance the competing interests of the developer and the homeowners. They just as often find the developer pulls one way while the homeowners pulls the other way with the manager in the middle.

It is common for an HOA developer to hire a manager to assist with the transition to homeowner control. It is often assumed that the manager will manage the new HOA. However, after transition takes place, the manager must consider the interests of the homeowners and, if the manager was originally hired by the developer, he may find it difficult to ignore the developer’s interests. This dual master relationship creates a difficult challenge. What follows are real life scenarios that point to the conflict issue:

Post-Transition Construction Defects. It is always in the best interest of an HOA developer to minimize warranty and construction defect repairs since they diminish profitability. However, after transition, an HOA may become aware of potential construction defect problems. The HOA manager is placed squarely between the competing interests. If the manager sides with the developer, he is compromising the interests of the homeowners. If the manager recommends that an independent investigation be conducted, he will likely aggravate the developer.

Pre-Transition Construction Defects. Sometimes, construction defects are discovered before transition. In one such case, the homeowners hired an attorney to work with the developer’s attorney to resolve the problems short of litigation. The developer met with the manager and tried to arrange a meeting with the homeowners so he could pitch a repair plan "without the need to get the attorneys involved." If the manager cooperated in this scheme, both the developer and homeowner would lose the benefit of legal counsel in a long term negotiated settlement.

Turnover Accounting. Frequently at transition, there are accounting questions. While state laws vary on audit requirements, questions arise like:

1. Did the developer pay all HOA fees owed?
2. Were expenses paid by the HOA that should have been paid by the developer?
3. Were expenses reimbursed by the HOA to the developer that should not have been?

These and other financial questions need to be answered. The manager is the logical one to obtain these answer, however, the answers may implicate both the developer and manager in wrongdoing. Can the manager really remain neutral?

How to Avoid the Conflict Conundrum. Currently, there are no conflict of interest laws or guidelines in the HOA management industry. Therefore, HOA management companies should self-regulate until formal rules or policies are enacted. The cleanest way to avoid the conflict-of-interest quagmire is simply to avoid acting as manager for both the developer and homeowners. An HOA management company could either specialize in pre-transition properties on behalf of the developer or post-transition on behalf of the HOA, but not both.

The next best alternative is for the HOA management company to disclose up front when hired by the developer that the manager will work for the developer up through time of transition, but once the control of the HOA shifted to the homeowners, the manager will act solely on behalf of the interests of the homeowners. This arrangement should be clearly defined and articulated in the management agreement with the developer.

The least recommended option would be for the HOA management company to try to balance the interests of both clients simultaneously throughout the period of management. It is imperative for the manager to inform both parties in writing of such dual representation and the potential for conflict of interest.

The HOA manager should rely on independent consultants rather than try to resolve a conflict internally. This custom would minimize the likelihood of perceived or actual wrong doing or unintentionally favoring one client over the other. Examples include recommending independent legal advice, an independent inspection or using a CPA for financial questions.

HOA management companies are placed in difficult situations every time they serve two clients with conflicting interests. When faced with this dilemma, they should minimize the potential for conflict through written disclosure to the parties and to refer controversial issues to independent, qualified consultants.

By Daniel Zimberoff of Barker Martin, P.S BACK

Manager Balancing Act II
The article Manager Balancing Act seemed to suggest that if a management company was involved in a homeowner association’s management both before and after transition that there was an inevitable conflict of interest. It also begged the question "Can the manager really remain neutral?" The answer is "yes" when the following is included:

The Management Contract should clearly define the relationship of the parties. The management company should always be engaged to perform services for the homeowner association (HOA), not the developer.

Before Transition. The management company is often involved in the developer controlled HOA before the first sale closing takes place. Duties include working with the title company at sale closings, setting up the HOA bank accounts, arranging utility and contract services, coordinating new owner occupancy, hiring and training staff, securing insurance, and a myriad of other services essential to the HOA’s welfare.

Warranty Issues. Savvy developers realize that once turnover takes place, the new board of directors will make decisions relative to warranty issues. Those developers know the importance of being pro-active in working with the new board to establish inspection procedures to reinforce warranties and long term good maintenance practices. The HOA manager’s job is to assist that process to the client’s benefit.

Consultants. Advice from independent consultants is invaluable to HOA management companies when dealing with matters that are outside their expertise like matters of law, engineering and construction defects.

Turnover Accounting. The Covenants, Conditions and Restrictions (CC&Rs) describe when HOA assessments (fees, dues) begin. The escrow company collects HOA assessments from both the buyer and developer at closing. If fees are being collected from new owners, the developer normally must pay fees as well on unsold units. The HOA financial records belong to the HOA and must contain a list of all expenditures. These records are subject to audit and open to inspection by every member.

Code of Ethics. While most state statutes may not address HOA management company ethics, there are a number of trade organizations that do. For example, manager members of Community Associations Institute (CAI) www.caionline.org, Oregon Washington Community Association Managers (OWCAM) www.OWCAM.org and California Association of Community Managers (CACM) www.cacm.org must adhere to a strict Code of Ethics that addresses conflict of interest. Further, state statutes and the HOA governing documents provide guidance to HOA managers.

Board Control. The homeowner association is controlled by the board of directors. It is the board’s responsibility to determine if and when legal counsel, an auditor or an independent building inspection firm is needed. It is the board’s responsibility to review and approve all contracts. Management companies should encourage the board to seek advice from consultants even when the Board may be reluctant to spend the money.

24/7 Job. HOA management companies are on call 24 hours a day. Managers work full days and attend many night board meetings. They handle the difficult and the unpleasant. They offer advice and listen to criticism. They respond to midnight emergencies and mediate neighbor disputes. They wear many hats and sometimes they are expected to be all things to all people, but throughout the process they are professionals.

In the End. Who is the client? The HOA manager’s client is always the homeowner association. Sometimes the HOA is controlled by the developer and sometimes by the homeowners but the manager always serves the interests of the HOA. Successful HOA management companies are made up of service oriented people who take their job seriously because they know their good reputation hangs in the balance. I am proud to know some of the best in the business and I am proud to call them colleagues. BACK