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How Homeowner Groups Run

COMMON GROUND. Last of three parts

March 12, 1995|KAREN E. KLEIN | SPECIAL TO THE TIMES

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.

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