By Deborah Goonan, Independent American Communities
As noted in a previous blog, several HOA and Condominium bills have been introduced in Hawaii this year. One of the most notable, HB 381, a proposal for establishment of a Condominium Ombudsman to handle dispute resolution, has died in committee, following testimony at a hearing held on February 8, 2017. Although the committee received written testimony in support of HB 381, twice as many letters were received in opposition to the bill, including testimony from the Real Estate Commission, as well as trade group Community Associations Institute (CAI). For complete details, see here.
Excerpt of Testimony of Real Estate Commission opposing HB 381
This proposed legislation is also duplicative of existing government services, such as the publishing and distribution of pamphlets and circulars, production of seminars and workshops, and holding of meetings in all counties without the need to charge unit owners additional fees to fund a new special fund. In addition, the unlimited scope of the ombudsman and lack of authority and enforcement mechanism for the new commission does not comport with chapter 514B, HRS, and the self-governance model adopted by the State. Disputes involving the interpretation or enforcement of laws or a condominium’s governing documents can currently be resolved by internal resolution, filing complaints with the Regulated Industries Complaints Office, mediation, arbitration, and circuit court action. Creating another layer of regulation and bureaucracy at the expense of the consumer would not resolve any perceived issue with the existing structure. The Commission believes that overall education of unit owners and directors is the main ingredient for a healthy association of unit owners. The Commission opposes this bill for the aforesaid reasons. Thank you for the opportunity to provide testimony on House Bill No. 381.
CAI, in this excerpt of testimony opposing HB 381, conspicuously notes its emphasis on evaluative mediation as its new preferred form of ADR:
CAI supports self-governance, the bedrock principle for condominium association creation and operation. The proposed condominium dispute resolution commission merely adds more assessments of fees for all unit owners to fund another complicated government agency but will not effectively nor efficiently help resolve disputes, given the prior failure track records of the condo court program.
Rather than adding an additional layer of bureaucracy between mediation and the real court, we highly recommend the legislators keep supporting, improving and promoting the newly established subsidized evaluative mediation programs for condominium disputes prevention and resolution. Mediation has been tested in practice to be a better alternative to resolve disputes compared with litigation or administrative hearing. Per the quarterly statistics issued by Hawaii Real Estate Commission on mediation cases, the subsidized evaluative mediation program has shown great improvement compared with the prior facilitative mediation cases in terms of overall number of disputes submitted and the number of cases ultimate resolved via mediation.
In support of HB 381, condominium owner Marcia Kimura writes: (excerpt of testimony)
I am writing in support of HB381, the measure to establish a Hawaii office of the condominium ombudsman and commission. There is nothing complicated or many-faceted about the need for third party oversight of condominium management which has steadfastly resisted our basic demands for fair and just resolutions of differences between owners and management. The known transgressions of management include reinterpretation and exploitation of existing laws to benefit their interests, while ignoring or defying those that protect owners; denial of due process to owners during such actions as nonjudicial foreclosures; manipulation and circumvention of association Board election processes; causing to be instituted Draconian or unreasonable association rules and by-laws; committing with impunity, offenses such as embezzlement, larceny and other serious crimes; and initiating fraudulent accusations of violations against home owners who as a result lose their properties. The root cause of these runaway infractions? Unavailable enforcement authority by those who ought to be so empowered. Yet, management and those abetting these infractions claim that government oversight is unnecessary, since home owner associations are self governing institutions. It must be obvious to all, including those outside the realm of condo administration, that the “self” in self governance is a blanket, though never public, designation of management interests, not those of ordinary owners whom the management industry absurdly claims to represent. They do recognize though, the reality that their directives and schemes will collectively never go unchallenged. Thus, their second line of defense against oversight is that of mediation, first, then alternatively, arbitration or litigation. In view of the data on the less than 50% overall success of mediation, and on the
forbidding legal fees and risks to owners participating in litigation and arbitration, how can these methods prevail as resolution options? It is not the moral or civic obligation of owners to support the bloated demands of the legal industry, which by available reports seems to be a primary beneficiary of these dispute resolution attempts, or for that matter, many ordinary association issues, no matter the side its attorneys represent.
The industry, with CAI at the forefront, plays the same political game, state by state. In the six states that have established an Ombudsman, CAI use the political clout of its Legislative Action Committees to ensure that the scope of authority to investigate and resolve disputes is narrowly limited to specific statutory requirements involving meetings, voting and election procedures, and unit owner access to records.
It should be noted that in several other states, similar regulatory functions are housed in the Consumer Protection division of the Attorney General or within an executive level agency regulation Business or Real Estate. Hawaii also offers limited services through its Regulated Industries and Complaints office, leading critics to claim that an Ombudsman would be duplicating regulatory efforts.
To some extent, that is probably true. But such criticisms oversimplify the issue of how to hold Condominium (or Homeowners or cooperative) Association corporations accountable.
Regardless of the specific agency or commission tasked with regulation of association-governed communities, none offer support for common homeowner complaints such as failure of the Association to maintain common property, discrimination or harassment against unit owners, selective enforcement of rules and covenants, excessive or abusive fines or penalties, and unfair assessment collection practices, to name a few. Such complaints fall on deaf ears and are generally dismissed by state agencies as being outside their scope of authority.
In addition, in order to protect the reputation of its industry, CAI lobbies heavily for obstacles that delay or prevent the filing of any complaint with a public agency. Therefore, it is common for the state to require payment of administrative filing fees, to require that the owner be in good standing with the association, and/or that the owner exhaust all internal methods of dispute resolution with their association before filing a complaint or requesting impartial assistance from the state agency.
The inevitable result is that very few disputes and complaints are accepted and resolved by the (usually weak and underfunded) state agency, giving CAI the “proof” it needs to lobby for discontinuance of state intervention altogether. Indeed, a condo court pilot program enacted in 2007 in Hawaii came to an end in 2012, after fewer than two dozen cases were resolved in nearly 5 years.
In their position paper on establishment of an Ombudsman to resolve HOA disputes, CAI summarizes its stance: (See link to entire testimony file below in References)
First, disputes between a homeowner and an elected community association board are disputes of private contract. State agencies typically do not have authority to intervene in such private disputes. As such, many ombudsman offices can offer little in terms of recourse to parties complaining about their community association, and merely become the repository of negative stories about community associations. To date, no ombudsman program provides a fair and balanced process to adjudicate community association disputes. Most often it serves to create a process by which a homeowner may file a complaint against the elected board, but does not provide the ability for the board to file a complaint against a homeowner. As often as not, many association complaints result from uncooperative homeowners who choose to ignore the community rules they agreed to abide by when they moved into the community. (Emphasis added)
But, of course, CAI would oppose public scrutiny of its private disputes! This is a matter of public relations, in order to continue to dupe the uneducated consumer into thinking that association-governed communities are benign, friendly environments where people are content, and homes retain their value over time.
How arrogant it is for CAI to assert that a corporate association, designed to primarily benefit real estate developers, and granting broad, unchecked powers to its governing board, should have the equal right to file complaints against its consumers – the homeowners!
Using that logic, perhaps vehicle manufacturers and dealers, home improvement contractors, real estate sales professionals, insurance companies, and health care providers should also be able to file complaints against their consumers.
The notion is truly absurd, yet some of our Legislators apparently buy into this nonsense.
Note that CAI is now pushing a relatively new form of ADR – Evaluative Mediation.
Evaluative mediation emerged in court-mandated or court-referred mediation. Attorneys normally work with the court to choose the mediator, and are active participants in the mediation. The parties are most often present in the mediation, but the mediator may meet with the attorneys alone as well as with the parties and their attorneys. There is an assumption in evaluative mediation that the mediator has substantive expertise or legal expertise in the substantive area of the dispute. Because of the connection between evaluative mediation and the courts, and because of their comfort level with settlement conferences, most evaluative mediators are attorneys.
Critics of Evaluative Mediation say that the process, compared to traditional Facilitative Mediation, is more “top-down” and heavily influenced by attorneys, whereas Facilitative Mediation usually requires no attorneys, allowing the parties to work toward a mutually agreeable resolution. (See reference section below for more information on mediation styles.)
So, of course it makes sense that CAI, a trade group with many HOA attorney members, would support Evaluative Mediation, as it creates yet another viable income stream for community association law firms. And since CAI seeks to have each Association create its own dispute resolution process in its bylaws, consumers may have little or no opportunity to choose an impartial, private practice mediator – attorney.
Status of other Hawaii bills:
HB 382 addresses conflicts of interests in condominium associations.
Requires board members of condominium associations to disclose significant financial interests prior to taking action that affects both the association and a third-party provider. Prohibits board members from receiving gifts from those types of third party providers. Expands the powers of the real estate commission to enforce violations by board members of disclosure requirements and gift prohibitions.
HB 382 and companion bill SB 639 have been languishing in committee since January 23, 2017. No testimony has been documented and no hearings have been scheduled.
HB 1312 would require that board members take no votes in executive session, that managers be licensed, and would address the issue of either a homeowner’s or (more often) the association’s refusal to participate in mediation.
Establishes open voting and educational requirements for condominium association and board members. Requires courts to issue a judgment against a party refusing to participate in the mediation process. Requires certain employees of a managing agent to be licensed in accordance with requirements established by the real estate commission.
HB 1312 and companion bill SB 1316 are also stuck in committee since late January.
Active bills to watch:
HB 1308 would provide a preliminary process for establishing regulatory agency of homeowners associations
Requires the Auditor to conduct a study, including a cost analysis, on the necessity and feasibility of establishing an agency within the Department of Commerce and Consumer Affairs to regulate homeowners associations, and to submit a report of its progress to the Legislature prior to the 2018 Regular Session. Appropriates funds.
HB 1308 has passed the House and is currently under consideration by the Senate.
A representative from CAI mega-management company Associa has been the lone voice in opposition to this bill.
HB 1499 proposes a more explicit method for notifying a unit owner of non-payment of assessments (common expenses), and allows for an owner to demand mediation to resolve any dispute over the amount the association claims is owed. The bill would force the unit owner to accept Evaluative mediation if proposed by the Association (as opposed to Facilitative mediation), but would also allow for voluntary binding arbitration as an alternative dispute resolution option. Also, HB 1499 also proposes that late payments be applied first to assessments, and then to late fees, fines, attorney fees, and interest. The priority of payment amendment proposal is opposed by management companies and board members of associations that have amended their governing documents to allow for priority of payments to fees and fines first, assessments last.
Parts I through IV: clarifies the process, including payment obligations, mediation requirements, and triggers for further default, where a condominium unit owner and association reach a payment plan to resolve a nonjudicial foreclosure; establishes procedures that provide condominium owners with the right to submit disputed legal fees, penalties or fines, late fees, lien filing fees, or other charges, except for common expense assessments, to the mediation process prior to payment; and makes conforming amendments. Part V: expands the scope of the condominium education trust fund to cover voluntary binding arbitration between interested parties; amends the conditions that mandate mediation and exceptions to mandatory mediation.
The bill has passed the House and 3 committees in the Senate.
Types and Styles of Mediation
Feb. 8, 2017 testimony regarding establishment of Ombudsman, before Intrastate Committee, Hawaii State Legislature