Why “baby steps” & weak HOA regulation are not “better than nothing”

PA Governor signs HB 595, creating limited AG oversight of association governed communities, subject to conditions

By Deborah Goonan, Independent American Communities

 

Today’s post is a response to reader comments I have received regarding recently enacted Pennsylvania House Bill 595. As explained in several previous posts, the legislation provides weak Attorney General oversight of HOAs, including planned communities, condominiums, and housing cooperatives.

A few homeowners have written to me, hopeful that the new law will finally offer some consumer protection for owners and residents of HOAs.

I agree that this bill in it’s current wording is weak (the wording in original HB1774 was much better), but it is still an improvement over what we homeowners in HOAs have, which is no protection at all. I’m hopeful that the wording will continue to evolve now that the governor has signed it. Thanks for writing this article. — by M.J.S.

 

And, here’s the usual optimistic sentiment —

Baby steps?? Isn’t this better than nothing, for now? —by Lydia A.

 

The short answer to Lydia’s question: no, not really.

At the risk of bursting bubbles of hope for frustrated Pennsylvanians dealing with unresponsive, overspending, or abusive HOAs, allow me to explain why weak regulation is not necessarily “better than nothing.”

I certainly understand the rationalization that “baby steps” should be celebrated, but it’s a misguided emotional response. All of us want to believe that our Legislators have our best interests at heart, and that regulatory agencies really do exist to help consumers and protect rights of residents of their state.

But good intentions alone — to the extent that they exist — are not sufficient to rein in abuse and protect homeowners.

 

Justice delayed is justice denied

HB 595 is now a law that creates barriers to justice.

The new law will force the homeowner to spend hundreds, if not thousands of dollars going through an ADR (alternative dispute resolution) process before that owner can even file a complaint with the AG.

By comparison, filing a complaint with the AG costs nothing out of pocket, because the AG is funded by tax dollars. The intended purpose of the AG is to evaluate each consumer or constituent complaint on its own merits, and to document complaints in order to identify patterns of abusive, deceptive, or criminal behavior.

What HB595 does is put the burden on consumers (homeowners/shareholders) to convince the AG to investigate their allegations that their HOA is running an unfair election or denying access to records.

But the law goes even further than that, by preventing or delaying valid complaints to the AG, subject to two conditions. More on that in a moment.

Although exisiting HOAs are not required to establish an ADR process, HOA attorneys are already warning boards that, if they don’t adopt ADR, homeowners can go straight to the AG with their complaints. In other words, HOAs have a self-protection incentive to establish ADR.

So from CAI-PADELVAL’s (Community Associations Institute, Pennsylvania-Delaware Valley Chapter) point of view, the new law is only a first step toward protecting their trade group members and their industry, by way of shielding HOA boards from liability. The goal is to make it difficult to file a complaint in the first place, and to prevent complaints from becoming part of the public record.

Besides, many HOA legal and management professionals are already marketing their ADR services to association-governed communities, creating an additional revenue stream. (Check out this link from New Jersey CAI.)

 

Homeowners should demand repeal of the conditions for filing a complaint with the PA AG

A good first “baby step” in favor of homeowners would be to repeal the two conditions for filing a complaint with the Pennsylvania Attorney General, Bureau of Consumer Protection. Those conditions are:

1) the association member must be in “good standing,” and

2) a mandate that the owner exhaust the association’s ADR, if available, and wait 100 days, before filing the complaint.

Just think — a dishonest or abusive board can destroy a lot of records, ballots, and proxies in 100 days, while the homeowner is engaged in ADR or waiting for the HOA to respond to their request for ADR.

And, given that HOAs often have the authority to impose fines and collect assessments, the “good standing” requirement is also troublesome.

I hear from owners almost daily that their HOA insists their account is delinquent, even though they can prove payment was made in full and on time. Owners often tell me that the HOA has fined them in apparent retaliation for disagreeing with a board member. Disputes over nonpayment of assessments or fines should not prevent members from filing a complaint. After all, the HOA does not have to prove it is “in good standing” and abiding by its own duties, before filing its complaints (such as a fine or a lien against the home) against one of its members.

The “good standing” condition is nothing more than a double standard, designed to discredit the homeowner.

 

Board meeting cartoon transparency

New law is too narrow

Remember the new law only allows the AG, Bureau of Consumer Protection (BCP),to take complaints on 5 narrow issues, according to Rep. Rosemary Brown, the bill’s primary sponsor: “voting, proxies, quorums, meetings, and association records.”

The BCP will not take complaints if the HOA fails to maintain the common areas. Nor will it investigate allegations that the board engages in self-dealing, or that the management company/vendor or community manager/HOA attorney relationships create conflicts of interest. BCP won’t investigate complaints that the HOA has failed to file insurance claims to repair the common areas, even if the HOA’s failure to act is causing ongoing damage to your property.

These are all consumer protection issues, yet the AG plays no role here, and will continue to take a “hands off” stance in these disputes. You’ll be told, “it’s a civil matter, so consult an attorney.”

 

Investigation of complaints not required

In fact, the AG is not obligated to investigate any complaint. It MAY choose to do so, but it may not.

Take a look at the official consumer complaint form, and be sure to read the fine print on the last page.

 

Without compelling documentation of the HOA’s wrongdoing, the AG is likely to do nothing once it receives your complaint. It’s next to impossible to document a complaint if the homeowner is denied access to records. It’s a vicious cycle.

If the homeowner can manage to get on the board, and gain access to records, then there is a chance that the board member can be the whistleblower against a fellow board member, developer, manager or other agent of the association, and go directly to the AG/BCP or, if there’s evidence of theft or fraud, the Criminal Division, with their complaint.

But electing honest and ethical members to the association board is not necessarily an easy task, especially if your association has a history of skipping annual meetings, cancelling elections, or mishandling ballots and proxies. If the developer still holds a significant number of voting interests, it’s impossible for homeowners to gain majority control of the board.

You must remember that the sole case of an arrest and conviction on HOA election fraud in Pennsylvania happened only because the manager reported irregularities to the police, who then arrested two board members with briefcases full of forged proxies. The two were ultimately convicted.

But remember — as a homeowner at large, you are NOT an insider. You don’t have easy access to information. That puts you at a distinct disadvantage. If the AG won’t investigate, and the police won’t investigate, you are, quite frankly, screwed.

RULE blackboard authority
Pixabay.com free image

And another thing…

The AG won’t get involved in disputes over CC&Rs or rules violations over pets, nuisances, aesthetics, etc. — and on this point I agree with the industry, the AG shouldn’t get involved in neighbor to neighbor disputes and petty nonsense.

While ADR might be useful to members in resolving these kinds of disputes — if the parties participate in good faith — ADR serves only the interests of the HOA board in matters related to voting, proxies, quorums, meetings, and association records.

 

Still doubtful? Look at how the AG’s hands are tied in other states

For example, take a look at California’s Office of Attorney General (OAG). Their web page contains a long list of complaints they OAG does not handle.

Wow, it looks quite familiar!

Source: oag.ca.gov/consumers/general/homeowner_assn

 

California is arguably the most heavily regulated state, in terms of the sheer volume of legislation written specifically for association-governed common interest developments. Yet abuse and corruption persist in HOA-ville, partly because of lack of meaningful consumer protection at the state level.

Even in California, most complaints against homeowners, condominium, and cooperative associations must still be resolved through civil litigation. That means owners’ and shareholders’ only recourse, in most cases, is to lawyer up in the fight against their HOA, essentially paying to assert or defend their own rights against the collectively-funded association corporation.

 

If homeowners in Pennsylvania and other states in the U.S. are serious about making their HOAs accountable, they must educate themselves, organize, and start working on enacting or amending laws to serve their interests as opposed to the interests of the HOA industry.

Homeowners and residents should not settle for “baby steps” or regulations that amount to pure window dressing.

Likewise, concerned advocates must anticipate the next moves of trade groups and their lobbyists, who will, no doubt, propose additional legislation in the future, in order to expand their power, influence, and profit potential.

 

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