The HOA Blotter: October 8, 2015

While lying in bed this morning it dawned on the HOA Detective that one of the things that is missing from his blog is a recurring update on the events of the day in the world of the HOA Gumshoe. Specifically, a brief recap of significant acts of malfeasance, incompetence and bad behavior on the part of HOAs, the companies that manage them and the many vendors who seek their fortune by servicing the HOA marketplace…..sort of like the old-fashioned police blotter that used to be published in the town gazette, which helped to keep the citizenry informed about the activities of local hooligans and assorted miscreants who roamed the night preying on the law-abiding, God-fearing element of society.

To that end, yours truly has decided to offer The HOA Blotter as a periodic feature on his blog space. Be sure to keep an eye open for updates and breaking stories, because you never know what evil lurks in the hearts of men….

Dateline – Portland, OR: A local high-rise condominium association recently received the bad news that its lawsuit against the manufacturer of allegedly defective plumbing components used in the construction of the building, had yielded a paltry monetary settlement that was less than 10% of the estimated repair cost which the HOA had asked for in its civil complaint against the manufacturer.

In spite of being represented by not one, but two separate law firms with alleged expertise in this particular area of product liability, the jury found that there was insufficient proof that the defendant in the case was willfully negligent, intentionally fraudulent or otherwise intent on inflicting harm, damage, misery or pain and suffering upon the plaintiffs.

The exact amount of the damage award was not announced by the court, but in a post trial forum held by the Association’s Board of Directors it was announced that the total financial award was less than $200,000 in spite of the exhaustive pleading by the plaintiff’s counsel which alleged damages in excess of $2 million dollars!

It is believed that the plaintiff’s legal team had taken the case on a contingency basis and therefore stands to receive little from the settlement, but that still leaves various other litigation expenses, including a $60,000 bill from the Court itself, in addition to the expert witness fees; forensic investigation expenses and the like.

The end result of this unfortunate situation is that it is all but certain the bulk of the settlement will end up in the pocket of the Court and the HOA’s litigation support consultants, rather than the Association’s own bank account.

Dateline – Portland, OR: In another display of willful disregard for ethical business conduct a partner in a local HOA management company was recently reported to have attended the Board meeting of one the condominium associations that his company manages, for the express purpose of presenting bids from various HVAC service companies to perform needed maintenance on the Association’s HVAC system.

As it turns out three firms ended up submitting bids for the project; two of them being reputable vendors from the local area while the third (and successful) bidder was none other than the service department of the management company that manages the condominium, and which is owned in part by the individual who managed the bid process and attended the meeting to present the bids to the Board of Directors.

When the amount of each bid was revealed to the Board and it was learned that the bid from the management company’s service department was the low bid by a few hundred dollars, the Board quickly and unanimously awarded the contract to the management company’s service department; most likely based on the rationale that accepting the low bid was the fiscally responsible thing to do.

It appears that there was little or no discussion of the propriety or impropriety of having the management company’s own service department compete for a job in a competitive bidding environment when there is a high probability that the management company and its service department were privy to the details of the proposals from the other two vendors; perhaps even knowing the price for which the unsuccessful bidders had quoted the job.

Down in the neck of the woods from which the HOA Detective hails they call this kind of behavior, “shooting fish in a barrel.” In some professional circles such practices are actually illegal or at the very least considered highly unethical, but in the HOA management industry it is nothing more or less than business as usual!

Dateline – Seattle, WA: During a recent visit to one of the largest HOA management companies in the city of Seattle, the HOA Detective and his business development team were greeted by the owner of the firm who politely listened to our sales pitch as we went about introducing our firm and explaining our approach to conducting reserve studies for homeowners associations; a business model which has led to yours truly and his partners having been engaged to conduct reserve studies for some of the largest HOA’s and government agencies in the United States.

After listening to our standard refrain for a few minutes this esteemed member of the association management industry quickly shifted the focus of the conversation by stating that the type of condo associations that his firm managed were comprised of owners who had enough money so that they could afford to break out the checkbook and write a check for $5,000 or $10,000 any time there was a major building maintenance or repair project that required funding.

Hence, he did not see the need or benefit to having his association clients bother with preparing a reserve study, much less actually funding a repair and replacement reserve account. He went on to state that his clients were the sort of astute financial types that could reasonably be expected to do a better job of managing their own funds, rather than having to sacrifice control over those funds by contributing them to the Association’s reserve fund.

When the HOA Detective pointed out that this approach was short-sighted and did not serve the interests of future owners, as it was simply a variation on the kicking the can down the road financial planning strategy, this individual was thoroughly unimpressed and responded by pointing out that he was often asked to teach classes on the subject of HOA management and budgeting….

And this is why we say: “Because You Are Buying More Than a Home!”