February 2023 IAC HOA News Digest: Condo, HOA living is getting a lot more expensive
By Deborah Goonan, Independent American Communities firstname.lastname@example.org
Over the past few years, I have reported on some small movements toward consumer protections for owners of HOA-governed property. Unfortunately, given the chaotic state of the condo/HOA industry at this point, with widespread deterioration of aging buildings and community infrastructure, I fear living conditions and dysfunctional community governance are likely to get much worse.
Today’s post features recent news from Colorado, a state that has moved backward in terms of protecting housing consumers from HOA managers and management companies that engage in negligent, incompetent, or criminal behavior.
A recent report by Propublica, in conjunction with Rocky Mountain PBS, sheds light on a problem that has long plagued an entire nation of owners of homes and condos governed by HOAs: a near total lack of regulation of the HOA management industry.
Brittany Freeman of Colorado’s Rocky Mountain PBS produced an eye-opening article on this pervasive problem, in conjuction with ProPublica.
The article begins by citing the example of the board President of London House HOA, who discovered $30,000 had been drained from the association’s bank account, and many of it bills had been left unpaid. Trying to do the responsible thing, this homeowner/board member took action, by presenting documented evidence to the state’s Department of Regulatory Agencies (DORA). But the HOA President soon discovered that DORA has absolutely no authority to investigate complaints against the management company or its agent.
A second egregious example follows in the ProPublica report: The Traditions Filings 1-7 Master Association is now suing its former management company for diverting “$757,885.40 of Association funds” into the management company’s own account. DORA couldn’t help that HOA either. For a while, Aurora police opened up a criminal investigation, but then reportedly closed their files on the HOA’s complaint. The District Attorney claimed that police investigators just didn’t have enough evidence to prove theft beyond a reasonable doubt.
Perhaps that’s because the current board members couldn’t get their former management company to produce the records necessary to galvanize their case.
The ProPublica article cites a third example. The Villas at Meridian Village HOA also sued their former management company, claiming $80,000 of misappropriated funds. That case was settled out of court, with a confidentiality agreement. As an unfortunate result, homeowners and other housing consumers will never know the facts of that case, nor the financial terms of the settlement agreement.
Curiously, each of these HOA complaints has one thing in common. They all involve same HOA manager, the Mastino Management company. In their defense, the owners of Mastino Management have claimed that computer software errors, a “spoof” email invoice, and HOA boards’ overspending habits were to blame for the depletion of their respective HOA accounts.
At this point, it’s not entirely clear to anyone whether or not Mastino is guilty of theft or an unacceptable level of accounting malpractice.
But, with no state level regulatory investigation, and not enough evidence available to pursue criminal charges, owners of property in all of these HOA-governed communities —and future home buyers — may never know exactly what happened to all the money that vanished.
Most distressing of all, it’s nearly impossible for HOAs or individual property owners to hold HOA management companies and their agents accountable for their unprofessional conduct, negligence, incompetence, or even intentional, criminal fraud and theft.
How the HOA Office of DORA became nothing more than Regulatory Window Dressing
DORA’s HOA office is, in my opinion, a sham agency, designed to provide regulatory window dressing, a description I’ve used in several previous IAC posts. The phrase refers to similarly weak legislative efforts to rein in corruption and exploitation of home and property owners subject to various types of HOA regimes.
For a brief time — about 4 years — the HOA office of DORA did have investigative authority over HOA management companies. Incredibly, that’s no longer the case.
IAC has followed legislative updates in Colorado, publishing several posts regarding a bill that eventually created licensure requirements for community association managers. Licensure of HOA managers required completion of certification courses, intended to help ensure a baseline level of necessary skills.
Between 2015 and 2019, Colorado statute not only required HOA management agents to be licensed. State lawmakers also created an HOA office in DORA to investigate complaints, and granted that agency the authority to sanction or revoke the license of managers who mismanaged HOA funds. DORA also had the statutory authority to impose fines against rogue managers, as appropriate.
But, to the shock and surprise of many legal experts and homeowner advocates alike, in 2019, Governor Jared Polis vetoed legislation that would have extended licensing requirements for HOA managers.
Now, the only thing the HOA office of DORA can do is take complaints, summarize them in writing, and present the list to the Governor’s office and the Legislature for their review and legislative action — if lawmakers so choose.
That’s why state House Rep. Brianna Titone refers to the DORA’s HOA Information and Resource Center as ‘office of shoulder to cry on,’ as quoted in the ProPublica report.
Unfortunately, this would be an apt description for the vast majority of regulatory agencies, Ombudsman offices, and consumer protection divisions across the U.S. When it comes to homeowner and resident complaints about their HOA boards, management companies, or HOA attorneys, weak or nonexistent regulation is not a problem that is limited to Colorado.
But, how did U.S. home and property owners in HOA communities become such easy targets for exploitation?
HOA industry trade groups like CAI are mainly apologists for HOA management companies
Prominent representatives of the HOA management industry trade group, Community Associations Institute (CAI), claim that, during the four years that Colorado required licensure for HOA managers, only a small percentage of complaints resulted in discipline by the regulatory agency. No doubt, that weak argument is based upon the following facts, as reported by ProPublica:
The state said it received 1,319 complaints about the 1,638 community association managers who were licensed during the duration of the program. Regulators disciplined 98 managers in that time. Eight managers either had their licenses revoked or voluntarily surrendered them.Nearly $30K Vanished From the HOA’s Account. The State Can’t Investigate the Management Company. (ProPublica) by Brittany Freeman, Rocky Mountain PBS Aug. 30, 4:30 p.m. ED
Let’s do the math: 98 managers out of 1,638 managers were disciplined by regulators between 2015 and 2019. That’s nearly 6% of complaints filed, though less than one percent of managers actually lost their licenses.
But, here’s a serious question for CAI: what level of negligence, incompetence, or outright fraud do you find acceptable in your industry?
I can assure you that housing consumers have a very low tolerance for seeing their money wasted or stolen!
For the sake of comparison, consider this. The automobile industry is regulated by Lemon Laws, even though ”only” about one percent (1%) of vehicles in the U.S. are determined to be true “lemons.” Should we do away with Lemon Laws that allow vehicle owners to hold sellers and manufacturers accountable? Should we revoke state laws that help make defective vehicle owners ”whole” on their losses?
Here’s another example, to help put things into perspective. According to a white paper by the Civil Justice Resource Group, only 4.8% of U.S. physicians are “responsible for half of the malpractice claims filed in the U.S. Just 1.7% of physicians were responsible for 27.5% of all malpractice awards.” Should we not hold these licensed professionals accountable for lives lost and health irreparably damaged? Should we allow such physicians to continue to treat other patients, exposing them to similar harm?
The people of the U.S. certainly don’t favor doing away with these limited consumer protections, even though the numbers of irresponsible or incompetent people in the auto and healthcare industry are “small” by CAI’s standards.
Lawmakers would be heartless and foolish to buy into CAI’s weak argument that there isn’t enough incompetence, negligence, or fraud committed by HOA management companies to warrant state licensure and meaningful state regulation.
While we’re at it, let’s be honest. Most regulatory agencies simply lack sufficient numbers of trained staff — due to inadequate funding — to thoroughly investigate every complaint. But at least a state regulator ought to be able to investigate the most heinous and egregious abuses.
CAI exposes its double standards — one for regulation of its managers, one for strict enforcement of HOA payments, even if that leads to foreclosure
My second question for CAI is this: what percentage of owners do not pay their assessments on time? One reliable source shows that HOA fee collection delinquency rates have varied between 2% to 6% since 2008. By comparison to its evaluation of HOA management regulation statistics in Colorado, that’s only a ‘small percentage,’ right?
We know that, as one of the most politically active HOA industry trade groups, leading CAI attorneys and management company CEOs are infamous for insisting we should make an example out of non-payers (“deadbeats” in their words) by severely punishing them with late fees, interest, and out-of-propotion collection costs.
Dozens of investigative reports across the nation have exposed abusive HOA management practices. In short, a common HOA management recommended policy is to impose liens after 60 days, and, in as little as 90 days, seek foreclosure of their homes for a few thousand dollars in delinquent HOA fees.
Because CAI advocates for no mercy upon delinquent HOA assessment payers, the trade group recently opposed 2022 state legislation enacted to end abusive, exploitative HOA foreclosures. The trade group will only admit that HOAs have a duty to provide advance notice of their intent to aggressively penalize owners who fall behind on HOA payments, including those who find themselves unable to pay huge special assessments. Beyond that, CAI legislative lobbies consistently oppose limits on late fees, detailed statement of account document fees, and, most of all, attorney fees and collection costs.
The double standard is painfully obvious. CAI and other HOA industry stakeholders set one for the HOA management industry — strict enforcement against property owners — but a very different standard for HOA consumers — a “hands-off” approach to government enforcement of exploitation and abuse of home and property owners in community association.
Ironic? Yes. Unexpected? Not really. This imbalance of power needs to be corrected.
CAI wants to limit their talking points about HOA management licensure requirements to the relatively rare issue of HOA fraud.
Frankly, I think that the purpose of licensing HOA managers should not be limited merely to preventing criminal fraud. HOA management licensees should also be subject to disciplinary sanctions, or suspension or revocation of licenses, due to a manager’s gross negligence or professional incompetence. The point of licensing a profession is to raise quality standards. HOA licensure is one tool to help hold professionals accountable for the billions of dollars they manage on behalf of HOA boards and the homeowners who pay a fortune in HOA fees, including costs for management services.
Of course, the essential first step toward this goal is for each state to require HOA managers and their HOA management companies to be licensed.
Not that licensing HOA managers will solve all of the prevasive problems in community associations, but it would certainly be a start.
Nearly $30K Vanished From the HOA’s Account. The State Can’t Investigate the Management Company. (ProPublica) by Brittany Freeman, Rocky Mountain PBS Aug. 30, 4:30 p.m. ED