Horror stories prompt industry group to ask Colorado to regulate HOA managers

02/13/2012
By Aldo Svaldi
The Denver Post
http://www.denverpost.com/ci_19951732
http://www.daily-times.com/farmington-business/ci_19951732

Ask Val Ford whether a homeowners association can do harm, and he will respond that his destroyed his health and wealth.

Ford, 72, and his wife, Ann, are on the verge of losing their home after the Master HOA for the Southcreek Townhomes in Englewood foreclosed on them.

The HOA, which charges dues of $240 a year, has amassed $9,000 in fines and late fees against the ailing couple in a nine-year battle that started with a misplaced trash can that Ford used to collect debris from a nearby community mailbox. An attorney for the HOA says it's still willing to work with the Fords.

"We have taken it, taken it and taken it," Ford said. "There is no recourse as far as I can see."

Conflicts and complaints, and a request from the industry trade group representing homeowners associations, have prompted Colorado to consider regulating HOA managers. Criminal-background checks, training and licensing are under consideration.

"We are trying to establish a level of professionalism and performance in the industry," said Chris Pacetti, co-chair of the licensing task force at the Rocky Mountain Chapter of the Community Associations Institute.

Colorado legislators received so many complaints about HOAs that in 2010, they voted to create an HOA Information Office and Resource Center to gather complaints and help homeowners.

Through Dec. 1, the center had collected 478 complaints, a third of which named managers. Many of the rest centered on poor management practices — from a lack of transparency to ignoring homeowners' concerns.

About 2 million people in Colorado live under more than 8,000 HOAs, according to state estimates.

At the CAI's request, the Colorado Department of Regulatory Agencies is conducting a "sunrise review" to determine whether HOA managers should be regulated. Nine states and the District of Columbia license or regulate community managers.

HOA horror stories

To bolster its case, the CAI provided the state with a list of horror stories. Embezzlement has been a recurring problem at HOAs, which collect and spend monthly assessments from homeowners. State law doesn't prevent felons from working as HOA managers.

In 2010, Stacey Lynn Chevarria received a 10-year prison sentence after embezzling more than $720,000 over a three-year period from 17 HOAs run by Vista Management Associates in Westminster.

Then there's Tamara Jane Chmelka, who pleaded guilty to felony theft charges in 2010 related to the embezzlement of $308,000 from the Portico HOA in Cherry Creek over a five-year period.

The CAI also lists cases of incompetence, such as a community manager who signed a $750,000 contract to replace condo roofs without making sure the HOA could afford to do so.

For many people, troubles with HOAs start small and escalate into full-blown feuds if not handled properly by managers who often act as intermediaries between homeowners and association boards made up of volunteers.

Association managers perform the day-to-day and longer-term tasks required to run a community on behalf of the volunteer boards. That includes collecting monthly dues, budgeting for expenses, building reserves, enforcing covenants and scheduling repairs.

Increasingly, they work for larger management companies and handle multiple communities, which has boosted calls for making the industry more professional. Pay starts in the mid-$20,000 range, and more experienced managers can pull down $65,000.

A key question that the state is asking is whether community association managers cause harm, and, if so, would regulation be able to fix it, said Brian Tobias, a senior policy analyst at DORA.

Most of the time, requests for regulation come from industries rather than consumers, he said, so the sunrise application from the CAI is not out of the ordinary.

Opening the door

There is always a risk that an industry will get more than it bargains for when it opens the door to regulation.

"There are other protections that homeowners need beyond property-management licensure," said state Sen. Morgan Carroll, D-Aurora.

Those include better election-fraud rules and protections against retaliation, Carroll said. Foremost, she would like to see enforcement on existing laws stepped up.

Pacetti, of the CAI, said his sense is that most community managers support licensing, even if they are concerned about who will pay for the added costs.

The group wants HOA managers to undergo criminal-background checks. Barred from the job would be people with felony convictions in the past 10 years and those with lesser offenses related to embezzlement, financial crimes or breach of fiduciary duties. So too would those who lost their certification in other states for violations.

HOA managers would need to be at least 18 years old, hold a high school diploma, pass a certification exam and recertify every two years. They would be required to take courses that provide a basic understanding of state and federal laws related to HOAs, Pacetti said.

Managers would receive training in how to work with HOA boards of directors and in conflict resolution, said Molly Foley-Healy, chairwoman of the local CAI's Colorado Legislative Action Committee.

"One part or the other can get angry, and the anger can escalate out of control," she said, often because of a failure to communicate.

At one extreme are HOAs that fail to do the basics — keeping up on maintenance, enforcing covenants and collecting on delinquent dues and fines. At the other are HOAs that unnecessarily hound homeowners to the point of foreclosure, which Ford claims is what happened to him.

The fine print

Ford concedes he didn't read the fine print, which ran 20 pages, on the community's covenants. He violated rules that limited his ability to fly an American flag or display a lit cross at Christmas and Easter. When he put the wrong kind of slats on his fence, he had to rip them out.

But Ford said he thinks the HOA is looking for any chance it can to punish the couple. In late 2010, before his wife's surgery for breast cancer, the HOA won a court order allowing it to garnish their bank fund. The HOA took all the money the couple had saved for the surgery, almost delaying it, Ford said.

"We do try to act fairly with each homeowner," said Ste-phane Dupont, an attorney representing the Southcreek Townhomes Master HOA. "We are willing to work with them to bring a resolution."

DORA's decision on the sunrise application is due March 2. If it recommends regulation, the state legislature will have the responsibility of drafting and passing a bill.

"I think there is interest in HOA manager regulation, but touching HOA law is always a bit dicey around here," Carroll said of the vested interests surrounding the state's HOA laws.