Devil's in the dues

Devil's in the dues

There are 23 comments on the San Mateo Daily News story from Nov 25, 2007, titled Devil's in the dues. In it, San Mateo Daily News reports that:

After 22 years in a condominium in San Mateo, it's not the mortgage payments that are weighing on Moxi Posner.
After 22 years in a condominium in San Mateo, it's not the mortgage payments that are weighing on Moxi Posner. It's the homeowners association dues. <br/> <br/>Since 2003, Posner said, the dues for her three-bedroom unit at Edgewater Isle South have surged from $285 to $487 a month. That's a big bite out of a fixed income. <br/> <br/>As a widowed, 68-year-old retiree, can Posner afford it? <br/> <br/>"I can do it now," she said. "Can I do it if it keeps on going up? I don't know. But if you sell, where would you go in this area, with everything so expensive?" <br/> <br/>Posner's plight isn't universal, according to experts. But it's becoming increasingly familiar on the Peninsula, where the first wave of condo complexes are showing their age and many homeowners associations lack the money for repairs. <br/> <br/>The problem, many say, is a failure of planning by homeowners boards, whose members are not financial experts but average residents elected by their neighbors. Soaring construction and insurance costs aren't helping. <br/> <br/>A deeper issue, some argue, is weak regulation of the boards, which collect more than $200 million in assessments each year from homeowners statewide, according to the Center for California Homeowner Association Law. <br/> <br/>"It's a huge market without any substantive state oversight," said Assemblyman Gene Mullin, D-San Mateo. With the number of condominiums still multiplying on the Peninsula, "There's just a real area of concern that needs to be addressed." <br/> <br/> <br/> <br/> Massive shortfalls <br/> <br/>Homeowners boards are responsible for raising enough money to keep a condominium development in good repair, from the landscaping, to the paint and siding, to streets and sewers in some larger complexes. <br/> <br/>Paying for routine upkeep is relatively easy, said Oliver Burford, executive director of the state's Executive Council of Homeowners, or ECHO. The harder part is building up the budget reserves that will inevitably be needed for bigger repairs. <br/> <br/>"Associations go a long time without accumulating enough money. Then suddenly the roof starts failing and you get leaks, and people say, 'Oh my God, we've got to do something.' But they don't have enough money to do it." <br/> <br/>That's when homeowners get hit with special assessments, which can cost in the tens of thousands per homeowner. Or, as in Posner's case, the monthly dues skyrocket. <br/> <br/>California law requires associations to perform "reserve studies" to estimate the amount they need to save. But no law requires them to actually save it, Burford said. <br/> <br/>"Because nobody likes to pay more, boards will simply ignore their reserve study. Or they'll look and say, 'This reserve study says we need to re-paint in three years, but the paint looks pretty good to me. Let's extend that to six years.'" <br/> <br/>That's the problem Will Gray sees at his San Mateo complex, called Lauriedale. He pays $340 a month in dues for his two-bedroom unit, but says the grounds haven't been kept in good repair. <br/> <br/>On Nov. 1, Gray and his neighbors were assessed $11,000 each for painting and siding repairs. "Because of the neglect, it's costing us more now," he said. <br/> <br/> <br/> <br/> Legislation stalled <br/> <br/>Assemblyman Mullin says the state needs to regulate condominiums more carefully, especially given their growing share of the housing marketplace. <br/> <br/>"Cities and counties like them because a lot of the public services like streets and sidewalks are done privately, not through the city," he said. <br/> <br/>Mullin said he's particularly concerned about residents of below-market-rate units getting hit with big bills. "They don't have much leeway, so they're getting affected by it dramatically." <br/> <br/>He has proposed two bills, though neither one has passed so far. <br/> <br/>One would give below-market-rate residents a separate vote on any increases in dues above 20 percent. That's so they can't be outvoted by their higher-income neighbors. <br/> <br/>That bill enjoyed Assembly support but is stuck in the Senate amid opposition from homeowners association groups, Mullin said. <br/> <br/>The other bill would have set up a state ombudsperson's office to handle problems that arise between homeowners and their boards. At present, there is no agency that provides such oversight, leaving nonprofits like ECHO as the only resource for people like Posner and Gray. <br/> <br/>The bill would have required a fee of about $2 per year for every condominium resident to support the ombudsperson's office. It was vetoed by Gov. Arnold Schwarzenegger in 2005. <br/> <br/> <br/> <br/> Financial stress <br/> <br/>Posner can't believe current law allowed her homeowners board to raise dues 68 percent over four years without a vote of the full membership. <br/> <br/>She claims it has created "an atmosphere of financial stress" in her bucolic complex, with owners unable to find buyers willing to pay such high dues. "Renters are leaving left and right," she added. <br/> <br/>Posner is trying to drum up support among her neighbors for a board recall effort, but she is finding it tough going. <br/> <br/>"No one wants to be on the board," she said. <br/> <br/>Meanwhile, she is pushing for a new state law that requires homeowners to vote on any annual hike over 10 percent, instead of the current 20 percent. <br/> <br/>But her property manager, who asked to be identified only by the company name Pargett Association Management, said that would be a mistake. <br/> <br/>"I think it would turn places into slums. There are a lot of HOAs that have not (raised their dues) and really need to," he said. <br/> <br/> <br/> <br/> Cost of living <br/> <br/>While he couldn't speak specifically to Edgewater Isle South, the property manager said many of the boards that are raising dues are finally doing the right thing. <br/> <br/>In some cases, he said, the dues were set artificially low when the developments were built, to entice buyers. In other cases, the boards caved to pressure from homeowners and failed to raise dues to keep up with the cost of living. <br/> <br/>With the ballooning expenses of flood and earthquake insurance, fuel, and construction materials, he said, it figures that homeowners dues should be rising as well. "Compare the change in homeowners dues to the price of gasoline, and it starts to look not so bad." <br/> <br/> <br/> <br/>E-mail Will Oremus at woremus@dailynewsgroup.com. <br/>
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Edgewater Homeowner

San Francisco, CA

#1 Nov 26, 2007
Dues increases like this are outrageous. I live in Edgewater Isle and am tired of special assessments for things we were supposed to have covered in the reserve funds. Once we had 2 special assessments concurrently!

And why won't Nick Pargett identify himself? He is the property manager. Why won't he stand by his own comments? That makes him appear untrustworthy.
Geri Kennedy

United States

#2 Nov 26, 2007
While I can understand Ms. Posner's financial concerns, the article does not mention the increase in property value that Ms. Posner has realized over her 22 years in the association.

Boards of directors are stuck between the membership saying they do not want to increase assessments and the buildings that are deteriorating.

All associations have mandated requirements to perform a reserve study every 3 years. The board then determines how much money to set aside, but is also required to disclose to the membership if they are not saving enough. Members get this information at least once a year with their budget.

The members are in charge - they elect the board from their own ranks. The board members must pay the same assessments as the general membership.

Single family homeowners living in older homes must also pay to renovate their property - often they just get a home equity loan, but in essence, it is a special assessment to themselves. Property ownership requires property maintenance and the unit owners must take responsibility.

When buyers make their choice of association by looking at a lower assessment rate, they should look more deeply at the financial statements to see when, not if there is a special assessment in the future.
Securitize condos

Gridley, CA

#3 Nov 26, 2007
Assemblyman Mullin is right in noticing the financial risk to the homebuying public posed by condos. Since they are essentially closely held, publicly traded real estate holding corporations, they should be regulated as securities as they originally were in California. As such, they should be required to file publicly available financial statements signed by the current directors and their management agents acting as fiduciaries. Those who make a market in condos should be held to a suitability standard as with other investments to ensure only those buyers whose real estate investment risk tolerance level and ability to pay HOA assessments are appropriately matched to a given condo.
Homeowner

San Francisco, CA

#4 Nov 26, 2007
While #2 Ms. Kennedy is right that the condos have appreciated, one only realizes that when one sells. And while single family homes also require maintenance, the owner can choose the vendor, the method, the payment options, etc., while an owner in an HOA cannot.

And not ever board election is done legally or ethically. There are plenty of examples of that.
Former Edgewater Resident

Santa Rosa, CA

#5 Nov 27, 2007
Ms. Posner has been unhappy with the board since her late husband was pushed out as President of the Homeowner's Association. She even accused the board of causing her husband's heart attack. They both have a history of filing complaints with the city over various things. The board should get tough and stick by their own rules and force Ms. Posner to remove her four cats...since Edgewater owners are not to have more than two.
Edgewater Homeowner

San Francisco, CA

#6 Nov 27, 2007
Former Edgewater Resident wrote:
Ms. Posner has been unhappy with the board since her late husband was pushed out as President of the Homeowner's Association. She even accused the board of causing her husband's heart attack. They both have a history of filing complaints with the city over various things. The board should get tough and stick by their own rules and force Ms. Posner to remove her four cats...since Edgewater owners are not to have more than two.
Doesn't sound like a "former" owner but a current board member.
Current condo owner

San Mateo, CA

#7 Nov 27, 2007
As a former board member who also does not like to see the dues increase or assessments charged.. as we all have to pay them equally, I would like to make one observation. Keep in mind that every year the cost of all services goes up. Maintenance and repairs, management services, landscaping, security, insurance (a huge one here), utilities, payroll, etc. The people who perform these services generally get increases on a yearly basis, or the cost of doing business (workers comp, insurance, taxes etc.) also goes up and must be reflected in what the associations must cover. I don't think there is ever going to be a time where we cannot expect to see some increases, that is not realistic and these increases in cost have to come from somewhere. I would expect to see much larger dues increases if associtions are going to be mandated to build up reserves over time. Can you imagine what you would have to pay in dues if you only had 10 years to get your reserves up 4-5 million dollars? Also, historically, reserves were based upon the replacement value of the original buildings, the replace cost has gone up so quickly, most reserves would not cover anywhere near what is needed in this day and age. This will be interesting to see where it all goes.
Another Condo Owner

United States

#8 Nov 27, 2007
It's funny how differently board members and homeowners see the same issues. Board members are obligated to look out for the association as a whole and for the future of the association. Homeowners generally look at how they are affected "now" (financially or otherwise) and not how future homeowners will be affected so Boards are often dealing with this conflict while making decisions. Homeowners have the absolute right to get involved with their association and to offer suggestions on how to make things cheaper/better. Unfortunately, most homeowners do not get themselves involved, nor do they offer constructive comments and suggestions for improvement. The ones that do get involved don't always feel that they are heard because their suggestions aren't followed and they get frustrated, but not all suggestions are seen as good ones for the association as a whole. Will it save money down the line but cost us a lot now? Can we justify that expense now? It's impossible to make a "hard" decision that makes everyone happy. It's a double-edged sword. Boards are not trusted; homeowners are unhappy. Hindsight is, well, hindsight, and now we have to figure out how to move forward and manage the current challenges HOAs are facing. We try to bring well-researched suggestions to Board meetings and some are accepted and some are declined but at least we try.
Securitize condos

Gridley, CA

#9 Nov 28, 2007
"It's funny how differently board members and homeowners see the same issues. Board members are obligated to look out for the association as a whole and for the future of the association. Homeowners generally look at how they are affected "now" (financially or otherwise) and not how future homeowners will be affected so Boards are often dealing with this conflict while making decisions."

That's because condos are mistakenly regarded as attached single family dwellings when in fact they are more like shares of airspace in a closely held, publicly traded company. This also explains why there's little interest among unitowners in the governance of the condo association and ensuring the association is sufficiently capitalized. If condos were regulated like the securities they are with stringent oversight and financial disclosure requirements, the current dysfunctional dynamic would come to an end.
Homeowner

Sausalito, CA

#10 Nov 28, 2007
Go Ms. Posner!
Condo owner

Sausalito, CA

#11 Nov 28, 2007
Edgewater Homeowner wrote:
<quoted text>
Doesn't sound like a "former" owner but a current board member.
You make it sound like sour grapes. It's clearly not. I think we need to look more deeply at the issue of board misuse of power and fee structures.
Former Edgewater Resident

Santa Rosa, CA

#12 Dec 1, 2007
Trust we moved and laugh that crazy things that went on at Edgewater with the Posners. They meddle in peoples private lives. Two of our neighbors had restraining orders against them. Their children do not even have communication with them. Unfortunately the association dues cannot be used for Ms. Posner's mental illness.
Daryl Mullins

Santa Maria, CA

#13 Jan 6, 2008
My personal solution to this issue of under funding of Capital/Long-term Assets resulting in large Special Assessments is to REQUIRE potential owners be provided a single number by the Association prior to purchase.



That number is “Percent Funded” from the Reserve Study contained in a current Reserve Study. All Reserve Studies would be re-formatted by state mandate to put that percent funded number in a minimum 25 point font on the front page of the Reserve Study.



To prevent home financing abuse, the Federal Government required several decades ago “Truth in Lending”– the result was a single number – the APR (Annual Percentage Rate). This APR allowed comparison for home financings. That let the competitive market act – and consumers could make informed choices. They could do the same thing with “Percent Funded” in buying a Condo.



Percent Funded Guidance for the number of years of Condo Association existence – less minimum percent funding early in an Association’s existence and more later as the Long-term Assets aged is appropriate.

The State could publish such guidance in 5-year increments. The state could require a buyer’s initials of that guidance as part of financial disclosure when buying a condo or other association-regulated development.

SOME regulation of Condo Associations in needed; i have lived in one built in 1989 for 4 years. Our monthly dues have increase 2.5X in 3 years due to earlier Board members ignoring the future (politely) or stealing from future owners (a more direct statement).

Gene Mullin's solution is more regulation than may be needed.

Daryl Mullins (no relation)
Pleasanton, CA
Jack

San Mateo, CA

#14 Jan 20, 2008
We considered Mr. Pargett for our association. Pargett does not have secretary or even someone to even answer phones. The best managers have staff. Like in any other service, you get what you pay for. I have worked with property managers for years, there are the good, the bad, and the ugly. If board members really want to save money, pay more to get the best. In the long run, the board members and homeowners will be shaking hands and not be enemies of each other.
Traci

Gilroy, CA

#15 Jan 31, 2008
Our HOA in Gilroy, CA hired Pargett Management approx. 1.5 years ago to manage our newly-built neighborhood. My experience thus far is that Pargett avoids communication with homeowners; it often takes repeated letters, emails or phone calls to get communication on the most routine matters. More and more homeowners are becoming wary of both Pargett and our own Board because of the lack of coherent, timely communication. Some of us are still trying to understand why our own Board would hire a management co. that is 80 miles from our community. I lived in a condo. prior to my current home and I agree with Jack, the best managers have staff and you do get what you pay for. I worry that if I cannot communicate with the managment co. on minor issues, what am I to expect when a real problem arises.
Jim

Santa Clara, CA

#16 Feb 1, 2008
While 80 miles is a huge distance, the much greater issue is the firm that represents your complex. If people are not interested in running for your board, then expect years of wasteful spending, mismanagement, and and a property manager than is probably a very cozy relationship with its vendors.
Sandra

San Francisco, CA

#17 Feb 1, 2008
Jack is right on! There is so much infighting at Edgewater Isle. Edgewater Isle associations even sued each other! It's on the web site www.edgewaterisle.com

I think part of the problem is the management companies each association hires is territorial, resulting in a turf war. Pargett runs his operation from a cell phone and a PO box.

Traci is indeed in a tough situation: Gilroy is way too far from Belmont. Business must be tough for him to accept a job 80 miles away. He's too small an operation to be responsible for large HOAs.
Rick

Cupertino, CA

#18 Mar 19, 2008
The Magagement in question is a poorly run outfit. If any HOA organization did their dilligence, the would probably not use them.
LarryP

San Francisco, CA

#19 Apr 20, 2008
Too many condo homeowners are whiners, especially people like the woman who originated the article. I don’t think people like her should be allowed to speak. I just pay my dues and shut up.
Rick

Cupertino, CA

#20 Apr 22, 2008
Now that Pargett has once again shot his credibility playing Russian roulette with $16,000 of other folks money, where does is future hold? Are the people at Edgewater going to use their brains or have Pargett bleed them dry?

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