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GOVERNMENT OVERSIGHT OF HOMEOWNER ASSOCIATIONS IN CALIFORNIA
A Position Paper Presented to Department of Real Estate Homeowner Association Task Force
March 08, 2006
By
Arnold A. McMahon
Copyright AHRC News Services
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| San Juan Capistrano, California - The following is a reprint of an AHRC position paper dated May 7, 1993 regarding government oversight and enforcement of California homeowner association laws.
GOVERNMENT OVERSIGHT OF HOMEOWNER ASSOCIATIONS IN CALIFORNIA
A POSITION PAPER
presented by
ARNOLD A. McMAHON
AMERICAN HOMEOWNERS RESOURCE CENTER
DEPARTMENT OF REAL ESTATE HOA TASK FORCE HEARING
SAN DIEGO, MAY 7th. 1993
INTRODUCTION
At the California Department of Real Estate Homeowner Association Task Force meeting in Sacramento on February 18, 1993, objections were raised by various members of the Task Force to Government oversight of homeowner associations in California. These objections fell into two broad categories. First, Government does not solve any problems. Second, existing government oversight programs in other states are not working, and in some cases, making matters worse. This paper addresses both objections.
1. GOVERNMENT DOES NOT SOLVE ANY PROBLEMS
While it is healthy to maintain an attitude of having as little government as possible, it is clearly false that government does not solve any problems. Where would abused children be without Child Protective Services? Who can deny that the lack of regulation of banks was significantly responsible for the Great Depression of the 30's? The list of effective government action is endless. Obviously, government has not been perfect, and in many instances, far from perfect, but what would many situations have been like without the intervention of government?
Prior to the formation of the Department of Real Estate, there was considerable opposition, mostly from those involved in the real estate business, that such a government entity was unnecessary and would do no good. Is there anybody today who seriously suggests that DRE should go out of business and leave the market place unregulated? I think not.
Fortunately or unfortunately, as societies become more complex, a corresponding need arises for public entities to ensure that transactions proceed smoothly, efficiently and fairly. We see this exemplified in the stock market, the insurance industry and many other arenas.
In 1960, there were approximately 4000 common interest developments in the United States. In 1990, there were over 190,000, a 4,750% increase in 30 years. It is estimated that over 25 million people live in some sort of common interest development today, 6 million of these being in California.
New times require new solutions. CID's, the marketing brain-child of developers, have grown beyond all expectations and created situations, many very troubling, which their original creators did not foresee. It is as if developers gave birth to a child, and then let the child grow up without any parents.
We are seeing the sad results today in the form of dictatorial boards, financial irregularities, voting fraud, flaunting of the law and many others. We also see the many problems from auxiliary entities such as crooked management companies, accountants who turn blind eyes to financial irregularities, and lawyers who foment trouble in order to rack up legal fees.
This vacuum invites trouble. If the only remedy of a homeowner is to file an expensive lawsuit, most lawsuits are never going to be filed, and the law breakers know that. The current crop of litigation in the courts is only a small fraction of what would be there if homeowners had the resources.
As nobody in their right mind would think of playing a major league football game without a referee, so likewise it is now incomprehensible that homeowner associations can be allowed to continue without government oversight. In the days when there were few associations, it is understandable that government oversight was not considered. However, today, when homeowner associations intimately affect extensive areas of millions of lives, it a recipe for disaster to continue without some form of government oversight. As the inherent problems of associations affect more and more people, the negatives will outweigh the positives, and major socio-economic problems with possibly incalculable results will develop.
Hence, we seem to have arrived at a critical point in the development of associations where some form of government oversight is essential for these new forms of living to function smoothly and effectively. How this is to be done will be addressed in the next section of this paper.
2. CURRENT GOVERNMENT OVERSIGHT PROGRAMS DO NOT WORK
I have examined to some extent the programs currently being operated in Maryland, New South Wales and Florida. As Florida's program seems to be the oldest and most extensive, I have examined it in most detail.
To obtain a balanced perspective of how effective these programs are without seeing them at first hand. is clearly difficult, because often it is usually a function of whom you speak to. Somebody like Wayne Hyatt, who is probably not unbiased, argues for example that Florida is not the way to go because the government there tries to "micro-manage" associations. Employees of the Bureau of Condominiums tend to think that the program is working relatively well.
However, and most importantly, all seem to think that some form of government oversight is essential. In Florida, even though the condominium owners (along with developers and management companies) fund the Bureau of Condominiums, they all seem to recognize its necessity. This is evidenced by the broad support to increase their fees recently in order to expand the role of the Bureau.
An analysis of the public hearings held throughout Florida in 1990 clearly shows that the problems they face are identical to the ones we face here in California. At the top of the list were financial irregularities, followed by voting fraud and abuse of power by boards. There were strong calls for an active educational program for board members and owners, and for alternative dispute resolution methods.
Obviously, a lot of study has to be done before a program is instituted in California, but the outline of such a program is clear.
1. Education:
Unfortunately, the existing structure of associations does not lend itself to producing informed, trained and balanced boards of directors. Looked upon as a thankless task, board positions are often filled more by default than intelligent design. Criticisms are perceived as being inherently unfair by board members because they look on themselves as doing volunteer work, which somehow by that very fact should not be subject to criticism. This is not very logical, but it is a reality. As boards possess vast powers, both financial and legal, there is clearly a desperate need to educate them both as to their responsibilities and as to how to carry out those responsibilities in a responsible way.
2. Enforcement:
The Florida experience has shown that where all parties to the process, developers, boards, owners management companies, know that there is a government oversight agency, a greater sense of order and discipline prevails. For example, in one situation where the developer had not provided the necessary financial information to the association on the turnover of the association to the members, the Bureau of Condominiums was quickly able to require that this was done, and a check for $85,000 paid to the association. Without a government oversight agency, this could have ended up in an expensive legal action where attorney fees would probably have exceeded the amount in question. Now that all parties know that there is a referee with enforcement powers, fewer are tempted to break the rules.
CONCLUSION
While any program in California will never be perfect, the lack of one will be even worse. Because of the deteriorating situation, delay will only compound the problems even more, making them even harder of resolution. When there are termites in the house, the only ones happy with delay are the termites.
As the DRE already oversees the development of common interest developments to the point where developers hand the project over to the homeowners, it would seem logical that DRE extend its oversight into this second phase. DRE's focus and expertise is real estate. This is not the case with the Department of Consumer Affairs or the Department of Corporations. I recognize the trepidation that some in DRE might feel about taking on this second phase responsibility. Daniel did not want to go into the lion's den! However, DRE's mission has always been consumer protection and I believe that members of associations would appreciate this expansion of DRE's role. Government has to be responsive to the changing needs of its citizens. The smooth functioning of an area of life so central to the lives of 6 million Californians is important if the creative energies of the citizens of this State are to be directed to tackling the monumental challenges that this State faces, instead of being consumed by the dysfunctional system currently governing associations.
Hence I strongly urge DRE to actively consider assuming responsibility for this government oversight function and urge fellow members of this Task Force to reflect on the current reality of this dysfunctional system, and realize that they will be performing a valuable public service by supporting a greater role for DRE.
RELATED LINK: • THE ROLE OF STATE ASSISTANCE AND/OR OVERSIGHT OF COMMON INTEREST DEVELOPMENTS (CID) - Guiding Principles and Suggestions for A California Homeowner Association Ombudsman March 09, 2005 By Arnold A. McMahon
NOTES: Governor Peter Wilson appointed the California Department of Real Estate Commissioner Clark Wallace. He in turn set up a Homeowner Association Task Force consisting soley of homeowner association industry vendors. Members included homeowner association lawyers and managers who actively lobbied for the industry e.g. Richard Fiore of Fiore Nordberg, Walker Woolf Willis, David Peters of Peters & Freedman and Melinda Masson of Merit Property Management.
When homeowners discovered they were being represented by foreclosure lobbyists, they attended a hearing and objected. In response, Commissioner Wallace appointed Arnold McMahon from American Homeowners Resource Center. Shortly after, Commissioner Wallace left office, and the DRE HOA Task Force ceased to exist. |
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