Sponsor says HB 2629 would rein in HOA abuse, but management, legal professionals oppose consumer protection regulation
By Deborah Goonan, Independent American Communities
Updated March 22, 2018 8:15PM
As reported by Judy L. Thomas of Kansas City Star, homeowner Scott Wircenske had grave concerns about the management of his homeowners’ association.
In 2009, Parkhill Manor HOA decided to award a management contract to one if its newest board members.
It’s a common complaint across the U.S. — members of association-governed communities are often outraged to learn of apparent self-dealing, and seemingly blatant conflicts of interest.
In most states, awarding a contract to a board member, although ill-advised, is not illegal.
Wircenske was uncomfortable when he learned that the new manager/board member was the sole signor of Parkhill Manor HOA checks.
So Wircenske requested access to records of his HOA. According to the Kansas Uniform Common Interest Owners Bill of Rights (KUCIOBORA), every association member is entitled to examine and copy official records of the association, with few exceptions.
The homeowner requested minutes of board meetings and other financial documents, but his HOA didn’t cooperate. It took eight years and, ultimately, filing a lawsuit in 2017, to force Parkhill Manor HOA to provide some, but not all, of the documentation.
After the matter was settled out of court, Wircenske contacted his state House Representative, in an effort to strengthen Kansas laws and hold HOAs accountable.
As a result, House Speaker Pro Tem Scott Schwab, R (Olathe), is sponsoring HB 2629. The bill would give the Kansas Attorney General authority to investigate homeowner complaints that allege an HOA has not complied with the KUCIOBORA.
Should the AG find merit in the complaint, the agency could impose civil penalties upon board members or the association manager — up to $500 per violation. The AG would also have the authority to issue injunctions or court orders on behalf of homeowners and residents who file a valid complaint.
His HOA refused to open its books for him. Now he’s sharing his story to help others.
BY JUDY L. THOMAS, Kansas City Star
March 16, 2018 06:56 PM
Scott Wircenske’s eight-year battle with his HOA started with a simple request.
The Parkhill Manor Homes Association had just awarded a property management contract to one of its own board members, and the Olathe homeowner wanted to know whether the job had been put out for a bid.
“This man had been on the board in 2008 and then all of a sudden in 2009 he becomes the property manager, and he’s also a homeowner,” Wircenske said. “It smelled really bad. I wanted to know, ‘How did we arrive at this? How did we pick him?’ And basically, the response has been, ‘Go away and mind your own business.’ ”
Wircenske pressed on and last year sued his HOA, alleging that board members refused to show him the meeting minutes, financial statements and other documents that Kansas law requires homeowners associations to provide members upon request. The case was settled last fall and the HOA turned over a batch of records that Wircenske says indicate mismanagement by the property manager. Now, he’s turned the documents over to authorities to investigate.
Wircenske shared his story with Kansas lawmakers last month in testimony he submitted for a hearing on a bill that supporters say would curtail abuses taking place in some homes associations. The bill, proposed by House Speaker Pro Tem Scott Schwab, would make HOAs subject to the Kansas Consumer Protection Act.
Read more here:
The original version of HB 2629 defined a “consumer” as “An actual or prospective purchaser, lessee, assignee or recipient of a unit in a common interest community” according to state law, and conveyed the following rights and remedies to a dissatisfied HOA consumer:
Any consumer who believes that the board of directors or the property manager of a common interest community has violated the rights of the consumer as established by the Kansas uniform common interest owners bill of rights act, K.S.A. 2017 Supp. 58-4601 et seq., and amendments thereto, may file a complaint with the division. The division shall investigate each complaint. If the division determines the complaint is valid, it may utilize any remedy available under the Kansas consumer protection act, K.S.A. 50-623 et seq., and amendments thereto.
Amendments subsequently filed and approved by the House Committee removed the above reference to the Kansas Consumer Protection act, and added a new section, limiting the scope of protection to provisions of KUCIOBORA:
New Sec. 2. (a) In addition to the provisions of K.S.A. 2017 Supp. 58-4621, and amendments thereto, any member of the board of directors or any property manager who knowingly violates any of the provisions of the Kansas uniform common interest owners bill of rights act shall be liable for the payment of a civil penalty in an action brought by the attorney general, in a sum set by the court not to exceed $500 for each violation. The court shall have jurisdiction to issue injunctions or writs of mandamus to enforce the provisions of the act.(b) Civil penalties sued for and recovered by the attorney general shall be paid into the attorney general’s common interest community fund.
Note the addition of a $500 civil penalty that can be imposed against individual board members or the manager for each violation. The amended provisions would give the Attorney General the authority to issue court orders to produce records, or to compel the association to refrain from certain actions.
Furthermore, the bill explicitly prohibits conflicts of interest involving the association’s property manager, applicable to corporate law:
In the performance of their duties, officers and members of the board of directors appointed by the declarant shall exercise the degree of care and loyalty to the association required of a trustee. Officers and members of the board of directors not appointed by the declarant and the property manager appointed by the board shall exercise the degree of care and loyalty to the association required of an officer or director of a corporation organized, and are subject to the conflict of interest rules governing directors and officers, under existing law. The standards of care and loyalty described in this section apply regardless of the form in which the association is organized.
Concerned citizens of Kansas are not alone in their attempts to give “teeth” to state laws pertaining to association-governed communities.
In recent years, several states, including Arizona, Florida, and New York, have enacted (or attempted to enact) laws limiting conflicts of interest, or, at least requiring open disclosure of potential conflicts involving board members or association managers prior to voting on expenditure of association funds.
State Legislatures in Pennsylvania and Washington are currently considering legislation proposing limited Attorney General oversight of association-governed communities.
Six states currently have an Ombudsman, with varying levels of authority and jurisdiction to deal with dissatisfied members of homeowners, condominium, and cooperative associations: Colorado, Delaware, Florida, Illinois, Nevada, and Virginia.
Another nine states require association managers to be licensed. (AK, CA, CO, CT, FL, GA, IL, NV, VA)
State efforts have resulted in varying levels of success in improving accountability of HOAs and management companies. Critics say that, with limited funding and authority, their state regulatory agencies are little more than window dressing.
It doesn’t have to be that way.
Half-hearted support for regulation of HOAs
The primary reason for lukewarm public support of consumer protection for owners and residents of association-governed communities: strong opposition and organized lobbying by members and attorneys working for trade group Community Associations Institute (CAI).
Opposition to HB 2629 is very typical, and it is carefully orchestrated in other states, using the same talking points and political doublespeak.
Here are some examples, from written testimony to the Kansas Legislature.
Of 23 letters, there are 3 proponents in favor of HB 2629: Wircenske, Rep. Schwab, and Nila Ridings, who was instrumental in enacting KUCIOBORA.
The Attorney General and Kansas Association of Realtors have taken a neutral stance on the bill.
Perhaps Kansas real estate agents are hearing from buyers unhappy with their recent purchase of association-governed homes, or housing consumers who specifically request “no HOA.”
The remaining letters in opposition to the bill are divided as follows: 3 community association attorneys, one manager of a community association, and 14 form letters submitted by board members of associations, most of whom have contracts with the attorneys or management company offering testimony.
One of those letters of “opposition” comes from a board member that is in favor of consumer protection, but merely opposed to the proposed $500 annual fee.
In the Kansas City Star, Attorney Ronald Nelson, who represents older HOAs with minimal common areas and restrictions, and very low annual assessments, claims that the $500 annual cost of establishing a consumer protection division would be an onerous cost burden on one of his 1,700 home HOA communities.
But…do the math: $500 / 1,700 homes = $ 0.29 (Twenty-nine CENTS) per parcel. Hardly a devastating financial burden for homeowners.
Unregulated associations face truly devastating losses, should they become victims of a rogue board or unscrupulous association manager, with no state agency to assist with early detection of problems through investigation, civil enforcement, and, if necessary, criminal prosecution.
Nevertheless, in response to constituent concerns about the cost of registration, the House Committee amended the bill to reduce the fee from $500 to $50.
HOA board members motivated by fear?
Here’s an example of the form letter used to submit more than a dozen nearly identical letters in opposition to HB 2629. Was this form letter written by one of the attorneys or the property manager offering testimony to the Legislature?
Check out the following public record of an email from Attorney Rod Hoffman, forwarding an email from a homeowner board member to his House Representative.
It contains notoriously familiar talking points from industry (CAI) attorneys.
HOA problems are isolated incidents, therefore who needs regulation?
We don’t want ANY government “interference.”
Expecting volunteer board members to be held accountable will scare away new volunteers willing to serve the communities.
Fear tactics unwarranted?
Of course, you can read the amended House Committee version HB 2629 for yourself.
Nothing in the bill gives consumers the right to go on a witch hunt against their HOA board or manager. In fact, the entire point of the AG is to act as an intermediary, with authority to dismiss frivolous or meritless complaints. The AG would only investigate complaints directly related to violations of KUCIOBORA, and would only seek enforcement if warranted.
The AG would be authorized to enforce the law, but not mandated to do so, offering the necessary discretion to sort out deliberate acts of misconduct as opposed to unintentional acts or errors in judgment.
Board members and association managers that lead with integrity and transparency need not worry about being investigated over petty or non-statutory complaints.
(Even though, ironically, HOAs commonly engage in petty enforcement tactics against their members.)
Community Association attorney talking points
Rod J. Hoffman, Esq., at large board member of CAI Heartland, testified in person as well as submitting additional written testimony in opposition to HB 2629. He submitted two lengthy statements.
In committee testimony, Hoffman conveniently omits important facts about early J. C. Nichols HOAs, most notably, that every community was based upon racial and ethnic restrictive covenants that were deemed unenforceable in a 1948 Supreme Court ruling.
Although these historic neighborhoods still survive, their historic HOAs bear little resemblance to “modern” HOAs established since the 1990s. J.C. Nichols never envisioned an HOA CC&Rs with pages of onerous aesthetic restrictions and boards with vast police powers that exceed those of most local government councils.
As for Hoffman’s list of “unanswered questions,” HB 2629 seeks to answer many of those questions by requiring all associations to register annually with the state of Kansas.
Hoffman’s written talking points bear a striking similarity to form letters submitted by HOA board members, don’t they?
Is there any doubt that testimony in opposition to HB 2629 is organized by CAI Heartland LAC?
Hoffman is of the opinion that the AG would receive scores of complaints from owners accusing their HOA board and manager of failing to enforce the covenants.
Hoffman assumes that the AG would lack objective judgment, and would adopt a broad legal interpretation of “duty of good faith” for HOA board members.
But proponents of HB 2629 think that’s unlikely.
More likely, Kansas would receive the following types of serious complaints we commonly hear from homeowners:
failure of the association to provide open access to records,
unfair or improper election procedures,
neglecting maintenance to the point of causing harm to health, safety, or property
allegations of conflict of interest, and
allegations of theft, fraud, or embezzlement.
Of course, to allay fears of inappropriate or frivolous allegations, the Legislature could amend HB 2629 with thoughtfully-written clarifying language.
After Hoffman provided his written testimony, the House Committee amended HB 2629 to remove cross references to the Kansas Consumer Protection Act, thereby limiting the scope of enforcement to KUCIOBORA, rather than more broad deceptive and unfair trade practices prohibited under the Kansas Consumer Protection Act.
It’s not necessary to delay enactment of HB 2629 for another year, in order to “study” the obvious need for protection for housing consumers residing in association-governed communities.
The call for a study is a typical delay tactic, designed to provide CAI another year to draft its own version of legislation, to lobby state Legislators, and to rally their members, providing them with their standard political talking points, designed to avoid consumer protection, or water it down to the point of being meaningless.
You can view all letters of testimony here.
Track the progress of HB 2629 here:
The Mixed Legacy Of J.C. Nichols (KCUR podcast)