Proposed Housing Laws for California |
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Homeowner Opposition to AB 555
A BACKGROUND STUDY June 14, 2000 |
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and John Campbell (R-70) e-mail are deceiving California Legislators Color PLEASE VOTE "NO" ON AB 555 |
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INTRODUCTION In order to understand what is really happening in AB 555, the key players need to be identified. CAI – Community Associations Institute – is an industry lobby group that was founded in 1973. Comprised of lawyers, managers, and other service personnel, it lobbies nationwide for laws that benefit its members. In California, it allied itself with then assemblyman, Gray Davis, to pass the Davis Stirling Act – an act that stripped the California homeowner of fundamental property rights. Subsequently, CAI lobbied for many anti-homeowner bills including one that allowed homeowner association reserves to be used to pay for the legal fees of its lawyer members. The title PCAM (Professional Community Association Manager) is a "certification" granted by CAI to those who pay for and enroll in their courses. There is no independent verification that these courses meet even the minimum requirements to educate people to become suitable managers in homeowner associations. AB 555 grandfathers the PCAM certification without any empirical justification. CACM – California Association of Community Managers – was started with the backing of prominent CAI lawyers in California – in order to further to cement industry hold on homeowner associations. There were 3 principal founders. a) Melinda Masson, owner of Merit Property Management, the key mover behind this bill, created the CCAM (Certified Community Association Manger) designation, and started her own fee-based training program for that. She has lobbied members of the legislature incessantly for the last 10 years to anoint her program so that she can monopolize the revenue stream from her training program. AB 555 does just that. b) Diane Fullerton, the former owner of the notorious, and now defunct Marquis Management Company. At one stage, AHRC discovered at least 68 lawsuits against Marquis in Orange and Riverside counties alone, alleging fraud and various other scams. c) Jan Higginbotham is the owner of a management company. Until her ouster recently, she was able to masquerade as a newspaper columnist, whereas her true focus was to beat the CAI drum. The American Homeowners Resource Center (AHRC), a nationwide grassroots organization of homeowners on housing issues, opposes AB 555 (Dutra) on the following grounds. 1. For over 10 years, homeowners living in homeowner associations have asked the legislature to provide government oversight of homeowner associations so that the rights of homeowners would be protected against organized vendor groups such as CAI and CACM. The legislature has not acted on any of these requests. Instead, homeowners now find that the legislature is considering a bill sponsored by CACM and CAI that further cements the hold of CAI and CACM on homeowner associations by granting complete control of the licensing of managers to these vendor groups with absolutely no input from the 9 million Californians who live in homeowner associations. California homeowners strongly oppose this bill. Managers play a key role in the operation of homeowner associations and homeowners are legitimately concerned about the quality, expertise and integrity of these individuals. Managers interact with homeowners sometimes on a daily basis. Landscaping concerns, repairs, assessment billings – to name a few – are all routed through the managers. AHRC over the last 12 years has received mountains of reports from all across California on how managers mistreat homeowners – and many of these managers are "CCAM and PCAM certified". One CACM manager told a homeowner that "hell will freeze over before we provide you service". A CACM management company operated the notorious scam of foreclosing on homes by posting false late charges to the homeowner’s account. In one case, it was as low as a false $5 late charge, and it took the homeowner several years and thousands of dollars to fight it. Management companies secure their contracts with homeowner associations through the boards of directors. Management companies can bribe board members in a variety of covert ways – from providing extra landscaping services, paying for lunches, giving awards – and in one case, making a condo available in Hawaii for board member use. After the management company takes over, additional abuses occur. Homeowners who challenge board policies and practices become the target of harassment, selective enforcement and lawsuits. Managers are generally the ones who spearhead the implementation of these attacks. This ingratiates them with the errant board members. Now, homeowners are the ones who are paying the salaries and fees of these managers. Yet AB 555 does not allow even one homeowner to serve on the California Common Interest Development Manager Registration Council (CCIDMRC). 6 of the members are managers and one is an "industry" lawyer. Furthermore, the bill allows only registered managers to vote for the 6 members of CCIDMRC. This is fundamentally unfair, unwise and certain to lead to even more lawsuits in homeowner associations. Of course, CAI lawyers welcome the additional lawsuit business. This bill in effect is creating a gigantic bill of a different kind – one that the homeowner has to pay in the form of legal fees and costs. California has certain groups such as tax preparers and interior designers that are self-governing. But these groups are radically different in nature and function from homeowner associations. In the former, a consumer can choose whether to hire a particular tax preparer or interior designer. In the latter, the homeowner is paying the salary of managers whom they did not choose. In the former, tax preparers and interior designers interact with the consumer in a far more distant way. In the latter, the managers palpably affect the daily lives of homeowners on a constant basis. Furthermore, the backdrop against which AB 555 is being promoted is not an academic, sanitized one. The history of the role of managers in associations in California is littered with many injustices against homeowners. The letter from CACM lobbyist, Heim, Noack, Kelly and Spahnn(see # 6 below) admits this. Certainly, the role and qualifications of managers in California need radical reform, but the very ones who caused these problems are not the ones to effect this reform. California homeowners find it shocking that their representatives in the legislature would completely ignore the California experience on the composition of public bodies. In the days when such bodies as the PUC were composed of industry or ex-industry members, Californians suffered the effects of such pro-industry groups. It was only when Californians revolted against such stacking of public commissions, that non-industry people gained access to such commissions. As Police Commissions are not staffed by police officers, so management councils should not be staffed by managers. In AB 555, the legislature once again embarks on a road that the people of California have so strongly rejected. Hence, the legislature should radically revise Sections 11509 and 11510 of the proposed legislation. If there is to be a CCIDMRC (see # 3 below), a majority of the 7 member commission should be homeowners with no industry connection. Furthermore, it is neither desirable nor necessary to have a lawyer on the Council. Most public commissions do not require that one of the members be a lawyer. Homeowners oppose in the strongest possible way the mandatory inclusion of a so-called "industry lawyer". In practice, this is a CAI lawyer. It is CAI lawyers who have turned homeowner associations into cash registers for themselves by manufacturing lawsuits against homeowners, and creating draconian environments that violate fundamental freedoms of California citizens. If there is to be a lawyer on the Council, then it should be a staff attorney from the Department of Consumer Affairs. 2. The educational provisions of the proposed bill, specifically Section 11511, are deeply flawed. The legislature should ask itself one simple question. Why is CACM the originator and leading advocate of this bill? Why is an industry group of managers of homeowner associations pushing for the licensing of managers? Private industry groups normally do not want government interference. Is CACM pushing this bill because of a genuine concern for homeowners? The answer is a resounding "No" for at least 2 reasons. a. In 1993, the Federal Trade Commission obtained a consent decree against CAI (which in reality is the parent organization of CACM), wherein CAI promised to cease a number of monopolistic, restraint of trade practices. In pertinent part, CAI agreed not to require its members to refrain from soliciting business from a homeowner association, if that association was being managed by another CAI member. AB 555 would substantially create an end run around that consent decree. First, Section 11513 grandfathers in recipients of certifications already given by CACM and CAI. This would confer a dramatic and instant economic benefit on members of CACM and CAI. All those who are currently managing homeowner associations and who not possess these certifications would be forced to relinquish their jobs, and members of CACM and CAI would march in for the lucrative pickings. In practice, AB 555 creates a de facto restraint of trade, and with restraint of trade comes higher prices. Higher prices mean that 9 million Californians will be paying more for the association dues that are needed to finance these higher prices. In effect, AB 555 is a tax hike for 9 million Californians – approximately 25% of the population. Clearly, the voters of California will not kindly receive such a tax increase, especially when everything else around them is going up – such as electricity, natural gas and gasoline. In fact, there is a swelling anger at the constant and alarming rise in homeowner association dues, and that this is approaching critical mass. Of particular concern is the serious impact such tax increases have on senior citizens – many of whom are on fixed incomes. AARP has informed AHRC that it is strongly opposed to this bill. b. Of course, the response by CACM and CAI is that non-licensed managers can go out, take the appropriate educational courses, and become licensed. This, of course, is where the beauty of AB 555 comes in. CACM and CAI already have their own schools. Members of CACM and CAI would sit on the Council and under 11511 (a) would develop "an official roster of approved providers". In effect, the members of the council would be self-validating their own institutions, and reaping the financial benefits from these also. For example, as discussed above, Melinda Masson, a founder and leading member of CACM, has had her own program for many years, and she has been constantly lobbying for a bill to certify managers. In effect, AB 555 is a classic example of private lobby groups creating wealth-producing statutes for themselves. The legislature should summarily dismiss this Section of the bill. All educational requirements should be undertaken through recognized public institutions such as community colleges. In addition, there should be a rigorous testing program, similar to the contractor’s licensing examination. 3. There is also a serious question about the advisability of introducing this legislation at this time. The California Law Revision Commission(CLRC) is conducting a comprehensive study of all legislation affecting homeowner associations. One of the concerns expressed at the CLRC hearings is that piecemeal legislation has made a regulatory scheme that is already over-complex and forbidding, even more difficult to understand. AB 555 proposes to amend the Business and Professions Code, not the Davis-Stirling Act of the Civil Code. The CLRC is considering the consolidation of all statutes dealing with common interest developments into one code. In light of this, all pending legislation should be suspended until the CLRC completes its comprehensive revision. As there is no emergency necessity for the licensing of managers, this issue should be placed on hold. Virtually everybody holds that the Davis Stirling Act is deeply flawed. It intentionally creates loopholes for lawyers to charge staggering lawyer’s fees and facilitate neighborhood "cleansing". AB 555 would exacerbate those flaws. 4. Certain key rules in the legislative process on this bill have been seriously violated. For example, documentation exists that legislative aides knowingly lied that there was no opposition to this bill. These charges will be detailed in a separate letter to the Rules Committee. 5. In addition, "numerous community associations" are listed as being supporters of the bill. In the past, members of associations that are listed as "supporters" of bill never voted to either support or oppose a particular piece of legislation – in fact, they did not even know of the legislation. Generally, a board member at the behest of the management company, without either studying the bill or obtaining the permission of the homeowner, puts his or her name on a letter typed by the management company. As a stunning example of this in the present case, this legislative body should look at the "support" letters from the following homeowner associations – Samlarc (3 letters), Westpark, Marbella, Victoria (2 letters), Monarch Hills (2 letters), Stonecliffe, Sundance Corona (2 letters), and Mallorca. See copies attached. a) All the letters are identical. b) All letters are prepared by Merit Property Management Company – the management company for these associations. c) No letter makes any claim that the membership of the association voted on AB 555. d) Merit Property Management is owned by Melinda Masson – the leading lobbyist behind this bill – the person who founded CACM. e) A former employee of Merit Property Management has stated that Merit would require its employees to write letters to legislators, and try to make it appear that they were writing as individual homeowners. There are no less than 20 such letters in the list of alleged supporting documents. They seem to use home addresses, but they are all written by Merit employees, and use the same canned letters as above. There are an additional 12 letters written by PCM (Professional Community Management – they manage Leisure World) employees – all using the SAME canned letter as Merit Property Management. Another 4 letters from other management companies bear a distinct resemblance to the canned Merit letter. At least three conclusions can be drawn from the above. First, not one homeowner association has voted to support AB 555, and hence, that Jay Greenwood, the analyst for the bill, should delete from it any reference of support for the bill from "numerous community associations". Hence, to list "numerous community associations" as supporting the bill is both false and deceitful Second, there is not even one independent letter of support from any of the 9 million Californians living in homeowner associations. Third, the canned letters of support from Merit Property Management are without merit. In fact, it should be blazingly clear to this legislative body that AB 555 is the Melinda Masson Bill, pure and simple. 9 million Californians should not have the State of California passing a bill to line the pockets of Melinda Masson. 6. The support letter by lobbyists Heim, Noack, Kelly and Spahnn for the their clients, CACM, ironically makes the most powerful case against AB 555. They point out the extensive role that association managers play in the lives of homeowners from the collection of dues, the investment of funds, hiring of contractors, preparing of budgets, enforcement of CCR’s. BUT THEY FAIL TO POINT OUT THAT THE VERY PEOPLE WHO ARE MOST AFFECTED BY THESE ACTIVITIES – THE HOMEOWNERS – ARE COMPLETELY LEFT OUT OF THE SUPERVISION AND REGULATION OF THESE MANAGERS IN AB 555. They point out that managers "have harmed homeowners", "mishandled association funds", "disregarded the repair of deteriorated property", "improperly enforce CCR’s , which frustrate homeowners and disturb their peace and enjoyment of the homes", BUT THEY FAIL TO POINT OUT THAT AB 555 COMPLETELY EXCLUDES HOMEOWNERS FROM ANY ROLE IN OVERSEEING MANAGERS. They further ignore the fact that some of the biggest culprits in the abuses listed above were CACM and PCAM managers. Diane Fullerton, former owner of the now defunct Marquis Management, was a founder member of CACM. She operated a sophisticated scam that forced homeowners to either pay outrageous sums to eliminate bogus fines, or face foreclosure of their homes. She operated in-house collection and foreclosure companies – and took home approximately $50,000 a month! There is a report from a homeowner alleging that Merit Property Management falsely altered the amount on a check. There is a letter from Merit in public records advising its managers to apply homeowner checks first to fines, and then to assessments, so that the homeowner will contintue to be delinquent on his or her assessment, and consequently exposed to having their home being taken away in foreclosure. If the payment was applied to the assessment first, the home could not be foreclosed on for fines. Merit was a leader in the campaign to force the passage of AB 1793 – a bill that would allow associations to fine homeowners. It was only stopped when an AHRC coalition appeared at a hearing in Sacramento, and had television stations cover the hearing. The Heim solution is to allow these very same managers to govern themselves and to cure their shortcomings by educating themselves. This is the blind, deaf and dumb leading themselves – at the expense of homeowners. Furthermore, there is no testing, and as the manager in one association said, "I pay my money, sit in until the first break, then split". The final point that the Heim letter trumpets is that managers will be required to have fidelity insurance. Heim fails to disclose that AB 555 allows the homeowners to foot the bill for the manager’s fidelity insurance. This is a very strange arrangement. Homeowners are paying the premiums for insurance to cover the perpetrators of bad acts against themselves. In many management contracts, the association is required to do this. Currently, Chubb Insurance, which has a monopoly on homeowner association insurance nationwide, offers to cover managers under the homeowner association’s policy for a nominal amount. This, in effect, is a bribe to managers to promote Chubb Insurance to the board of directors. Homeowners once again foot the bill for insurance to protect managers against lawsuits from homeowners who have been damaged by those very same managers. Managers thus have no incentive not to harm homeowners – because the homeowners are paying for the manager’s defense! CONCLUSION: In light of the above, AB 555 should scrapped altogether. It is quite clear that AB 555 should be called the Melinda Masson, CACM-CAI bill. It gives unprecedented power and control over the homes of 9 million Californians to a handful of vendor lobbyists, provides no assurance that homeowners will receive quality management, ensures higher association fees for these homeowners, and basically makes homeowner associations into another cash register for another vendor. Prior legislation that was lobbied into existence by CAI lawyers made homeowner associations cash registers for lawyers. AB 555 is now doing the same for managers of homeowner associations. As champagne flowed freely upon the passage of prior legislation that enriched CAI lawyers, so once again the champagne is on ice for the passage of this bill. AHRC urges the legislature in the strongest possible terms to reject this bill and protect the homeowners of California. The proponents’ rationale for this bill is that it will protect homeowners. This is a Trojan horse. Once again, lobbyists have cunningly fashioned a bill that on the surface is cloaked with consumer protection. The reality is that this bill is all about monopolistic control, money, and the further incarceration of the California homeowner. As members of the legislature were elected by the people of this state to represent the people of this state, AHRC asks each legislator to protect the 9 million Californians who live in homeowner associations – not the small handful of lobbyist vendors. AB 555 is the wrong legislation at the wrong time for the wrong reasons. |
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P. O. Box 97 San Juan Capistrano, California 92693 Phone: (949) 366-2125 Email: ahrc@ahrc.com Homeowner association databank : http://www.homeownerassociations.org |
