How Homeowner Groups Run

Homeowners associations are big business.

In California alone, there are more than 28,000 homeowners associations with a buying power estimated at more than $5 billion. Nationwide, homeowners association boards control as much as $28 billion in reserve funds, earmarked for the replacement of major items such as roofs and plumbing.

Homeowners associations boards--the individuals who must safeguard the investments of more than 32 million association residents nationwide--must employ an array of professionals to help them run the associations.

In the last three decades, a specialized market niche has developed for service providers--from attorneys to bankers to property managers, accountants and landscapers--who work solely for homeowners associations.

“There are a lot of people who have been awakened to this as a market. The volunteer boards of directors cannot really run the whole show, so a host of others--led by managers and attorneys--have taken over,” said Evan McKenzie, a political science professor and former lawyer who has written a book about homeowners associations called “Privatopia.”

Just who are the people running these de facto private governments called homeowners associations?

Once a developer sells most of the units in his tract, control of the property is turned over to a homeowner’s association board of directors. The board, which collects assessments, establishes a budget, enforces the rules and maintains the common areas of the development, is made up of residents who volunteer for the job and are elected by their neighbors.

Typically, boards consist of five to seven directors who serve two-year terms.

A survey of directors done by the Community Assns. Institute in 1991 showed the average age of directors to be 48 years. Most said they were motivated to serve on the board to protect their property values, fulfill their civic duty and use their organizational skills.

Homeowners associations were set up so that residents could control their own communities with a minimum of outside government intervention. Boards are usually protected by law from personal liability in the event of a lawsuit.

The concept sounds good on paper, but does not always work in real life, experts say.

Directors are not required to have training in managing property or finances. They are also not required to take classes or seminars in those areas, although some are offered by the various trade organizations.

Many times, directors are elected by default because no one else wants the job or--in worst-case scenarios--they may run for the position because they enjoy wielding power over their neighbors.

“It is very hard to find people who are willing to (serve on the board),” said Celia Spitzer, who has been on the board of her Shadow Hills homeowners association in Cerritos for 13 years.

“Almost all the votes are cast by proxy and so few people actually vote that we keep reelecting ourselves. We can only get about 20 people to come out for annual meetings. Most people just are not interested. They figure if it’s not broken don’t bother fixing it.”

Liz Jaeschke, of the N.N. Jaeschke Inc. property management company in San Diego, said there is a basic problem with putting volunteers on the board. “You don’t make someone who buys a car the president of General Motors. But that’s exactly what happens in a homeowners association.”

Most professionals who work with boards of directors believe that the volunteer board members should receive training before they start their jobs. Some people even feel that training should be mandatory for board members.

“Having educated board members is critical to the successful operation of an association,” said Karen Conlon, president of the California Assn. of Community Managers.

There is growing concern in the homeowners association industry about volunteer boards that are ill-prepared, overwhelmed by unanticipated responsibilities or governed by dictatorial homeowners.

David Levy, a Bay Area accountant who handles homeowners association finances, explained that many boards of directors become unpopular as soon as they take over the administration of the association from the developer.

“Frequently, the developer is trying to keep assessments as low as possible during the sales period so he can make the project as attractive as possible,” Levy said. “When the board comes in, they realize right away that they have to raise assessments or they won’t be able to maintain the property.”

When repairs and replacements have to be made, they are not always handled well by inexperienced board members.

“Boards are not required to open-bid their jobs. Sometimes there are conflicts of interest, like when the management company owns the maintenance company and the disclosure to the board of that relationship is not too good. Sometimes, it’s a board member who has a brother in the painting business and doesn’t mind throwing him a job,” Levy said.

Sam Dolnick, who served as president of his La Mesa condominium complex board of directors for seven years, said he noticed that it was sometimes difficult for board members to pass judgment on their neighbors.

“If somebody is violating a rule, but he’s a friend of a board member, that member often does not want to vote against his friend or he’ll abstain because he’s torn between hurting his friend and doing his duty,” Dolnick said.

Sometimes board members derive satisfaction from having control over their neighbors.

“There’s a tendency in certain associations for people to get on the board who really probably ought not to be there,” said John Hanna, a Bay Area lawyer who specializes in association law.

“Generally those are problem people who are not that busy or successful in their other lives. They see this job as their chance to assert themselves. If they don’t like somebody they can make them miserable by shoving rules down their throats.”

Just as elected civic officials like city councilmen hire professionals to advise them and carry out their decisions, private governments like homeowners associations typically hire outside help as well.

The most essential professional in a homeowners association is the property manager, who works either off-site or on-site to carry out the day-to-day operations of a homeowners association.

Experts estimate that there are more than 5,000 management companies in California that specialize in homeowners associations, some providing an array of managerial services and others that do only certain services such as collecting dues.

A full-service property manager must handle and refer calls for things like backed up drains or leaking showers, attend board meetings, go to committee meetings, provide physical inspections of the property to determine if there are any rules or architectural violations, make inspections with subcontractors like pool cleaners and landscape contractors and coordinate with board members.

Back at the office, the manager is typically responsible for collecting assessments, mailing billing statements, paying bills for the association, monitoring collections and obtaining bids for projects--among other things.

“It’s a tough business,” said Jaeschke. “If one manager has five associations, with five (board members) each, he has five bosses on each property plus the bosses back at the office.”

Although professional association management is a demanding and highly specialized task, there is no licensing process for management companies and no board to which associations can take complaints about dishonest or inept managers.

An unsuccessful effort to regulate California property managers stemmed from a fraudulent management company based in Westminster a decade ago. Condominium Account Management Specialist (CAMS) was the largest property management company in Southern California at the time it went bankrupt in 1984.

CAMS managed more than 300 associations and when it failed, it took $1.8 million in association dues with it. Its owner, Jack Miller, was sentenced to four years in prison for misappropriation of funds.

The crisis fueled public hearings in Sacramento and promises about instituting regulation of property managers and other legislation aimed at making life better for association residents.

Nearly a decade later, however, only a few of those promises have been realized.

By and large, there is little government regulation of homeowners associations in general and there is not likely to be more in the near future. State bureaucracy, stripped to the bone by budget cuts, has nowhere to expand.

The industry has begun to regulate itself, however.

Conlon’s group, the California Assn. of Community Managers (CACM), is a 3-year-old association with 1,000 members. Her group has recently developed its own ethics and standards of practice guidelines.

A year and a half ago, CACM instituted a voluntary statewide certification program for property managers. The program, since endorsed by the state Department of Real Estate, requires that a property manager have education and experience before he or she is certified.

Klein is a Monrovia free-lance writer.