HOA Oversight: A Call For Licensing of HOA Management Companies.

A member shared the following HOA information at a recent meeting. HOA fees controlled and dispersed by Colorado HOA management companies amount to a billion plus dollars a year. Please read this article then visit our management company licensing page.

The HOA Homeowners Association the author lives in has always hired a management company to help our board run our complex. We do this because most of our home owners that serve on our board lack the management experience and knowledge to run and administer and maintain a 88 Unit Town House project.

We have gone through three management companies in the past five years and four over the past 20 years. We currently spend $214.00 per month per owner (88 owners give $18,832 Mo., $225,984 Yr.) to maintain (Mow, water, clean-up) and repair our properties and common Areas (Roofs, Siding, fences, Cement Areas).

A recent report by the Colorado HOA Information office (click here to read it) indicated:

“The Office has received 8,037 HOA registrations to date which compromise 838,211 units. We estimate that those units constitute roughly two (2) million Coloradans who live under an HOA. We are aware that there are many HOAs who have not registered. Industry experts believe that between 10%-25% of all HOAs in the State have not registered.”

Average monthly homeowner fees vary from less than a $100 to $700 but average about $150 in Colorado. (This is a purposefully conservative estimate.) When you do the math., a conservative 900,000 home owners surrender fees to management companies in the amount of $142,500,000 a month and $1,710,000,000 (One Billion-seven hundred million) yearly. That’s what we call a real cash cow-and, speaking as a HOA home owner, the author knows for a fact it never stops giving.

The management company controls the dispersal of these funds under the “oversight” of the board. Our board, like most HOA boards, has only limited oversight and management abilities and must rely on a relationship of trust with the Manager. Home owners have no direct input into the spending process and must rely on the trust of their board and the management company the board retains.

What it boils down to, is this: In your average home owners association, there is a whole lot of trusting going on and very little oversight of the management company.

We should take an interest and spend the time to oversee our board and management company including monitoring board elections, but, like most associations we don’t pay attention like we should, so our association is run by just a few members. Over time, these board members develop a bond of reliance and trust so that the division between board and manager blurs.

We have seen it happen in our own HOA.  After years of working together the manager runs the meetings, hires the contractors, collects the money, and brings by the checks to sign. It’s great to be a board member–the community looks up to you as a leader and the managemnt company makes everything so easy. 

Not only that fact,  but, in Colorado there are no licensing requirements, competence standards, laws, State oversight, and State sanctioning power to prevent wrong doing. Many of the managers we have worked with have advised our board to take actions that were contrary to Colorado C.I.O.A. (common interest community code)

 Our association is nearing thirty years old. It seems to be in a state of declining decay, more than well worn around the edges. We are worried because we have heard that many older HOA’s are in danger of bankruptcy. Many have let their common areas decline to the point (called the tipping point by industry experts) so that in order to reverse the declining state of assets, it will cost more than the association can raise.

Others are plagued by the problem of mortgage walk-away foreclosures, further complicating the problem. Most state laws are construed to provide a guideline for boards to run their Associations and are light on enforcement provisions to protect the volunteer boards from sanctions and actions by homeowners.

Since HOA management companies are hired by the board, they are likewise exempted prosecution or sanctioning. When mismanagement occurs, who is at fault? The management company was taking direction from the board and the board was relying on the management company. In the case where property has been allowed to decline over time and financially damaged the owners, who is responsible?

Our management company is hired by our board and paid a substantial fee to oversee dispersing these funds to assure that our property is properly run and that our board complies with state laws and regulations (Colorado Common Interest Community Code) and run according to a budget  that accounts for operating expenses and repairs to common areas. (a reserve budget.)

In spite of this fact,  a recent reserve study (An assessment of the condition of common area assets) disclosed Association under funding of common area repairs to the extent that we are facing more than two-million dollars just to restore our common property to full repair. In fact, things are even worse, we found our reserve repair fund was completely depleted in 2008 in direct opposition to our governing documents (which stated at the time that reserve funds are not to be spent for operational expenses).

We found, further, that a prior reserve study was under spent for more than 20 years. We also, found that a reserve repair budget was never maintained as currently stipulated by state law, since 2010. All of these factors have contributed to the repair obligation we are now facing. All of these events occurred in spite of the fact that our Association was under the control of four professional management companies during the period of decline.

A group of our home owners looked into whether the board or management company was liable for mismanagement of our resources. They found that the recently stipulated requirement for frequent reserve studies and further stipulating that an up to date Reserve plan be maintained had been muddied by the poor wording of a Senate “clean” up Bill (SB-09-1359). They also found that the lack of clarity of Colorado laws and the especially the lack of clarity written into the provisions .of the reserve funding and reserve study may have, many feel, the result of lobbying efforts by advocacy organizations for boards, management companies, and HOA lawyers.

Under current law, because of the lack of enforcement provisions and the desire to protect volunteer boards (and, we might add, their hired management companies) it would cost hundreds of thousands of dollars to litigate. Even then, because of the poorly written laws in effect and the inability of Colorado courts to enforce them, our ability to prevail is uncertain at best. There have been several recent instances of outright management company theft running into hundreds of thousands of dollars by HOA Management companies in Colorado.

We believe in free enterprise and minimal government incursion into the rights of small business, but can see no other answer to preserve the rights of HOA home owners. We must get our Legislature to supervise the activities of HOA management companies with stringent sanctions for wrong doers, and set firm competence standards at least as stringent as those covering the activities of Real Estate Brokers. We should also consider using the Real Estate enforcement apparatus, as it is fully structured and in place.

This entry was posted in Bankruptcy, Dysfunctional Board, Good Enforcement, Home Owner Abuse, Legal Transgressions, Poor Regulation, Property Manager Abuse, Uncategorized. Bookmark the permalink.

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