Community Next: 2020 and Beyond

In March of 2016 the Community Associations Institute (CAI) released a white paper titled: Community Next: 2020 and BeyondThe Association Governance Model Panel Report.

The panel responsible for this report was comprised largely of management industry insiders with a sprinkling of representation from homeowners associations and a Colorado state regulator thrown in for good measure. Chairing the panel were, of course, two members of the esteemed legal profession. Completing the package were a pair of CAI operatives who are listed as the Staff Writer and Staff Liaison.

With the stage set and the gun apparently cocked and loaded one might have expected the usual self-serving, industry patronizing babel to emerge from this essay. While there is no question that the report is intended to further the agenda of those in favor of privatizing the American neighborhood, in the opinion of the HOA Detective the report does represent a major paradigm shift in terms of the position of the industry on several key issues affecting homeowners associations.

Of course it stops far short of advocating the type of reform that is needed in terms of regulatory oversight of the management companies and vendors who serve the industry, but it is arguably a step in the right direction, at least in some respects. The report identifies several areas of concern which are neatly organized into the following bullet list of seven topics:

  • One size does not fit all.
  • CAI must strengthen alliances with developer.
  • All stakeholders, including legislators, need to recognize the need for associations to conduct reserve studies and to fund reserves based on those studies.
  • Future resident demographics will change everything.
  • Technology must become a priority.
  • State legislatures unwittingly perpetuate problems.

The report then goes on to address each of these topics in a brief summary. In total no more than 12 pages are needed to redirect the industry and set it on the path of the straight and narrow well into the 21st century and beyond, if the title is to be believed.

One Size Does Not Fit All

Under the heading One Size Does Not Fit All the panel addresses the issue of board competence – which is really a way of addressing board incompetence – by suggesting that both developers and existing owner-controlled boards should consider establishing minimum qualifications for serving on the board of directors of an HOA. While this may be a good idea, it raises a number of questions which must be addressed before any meaningful reform can occur.

One issue raised by the suggestion that board competency standards are needed is the question of, who is going to establish the standards? Another is whether or not such a move will only discourage HOA members from serving on boards, if in fact it is going to require time and possibly money to be expended, before someone is deemed to be “qualified” to serve on an HOA board.

The issue of board competency speaks directly to the question of whether it is a good idea to create homeowners associations, expecting that they can or will be competently governed by a board of directors comprised of amateurs who are not paid for their service to the community. Especially when those individuals may have no particular expertise that necessarily qualifies them to serve on a board.

By way of comparison, if we look at elected officials in government who are compensated, it is clear that it is not easy to attract qualified individuals who possess the integrity, necessary intelligence and ethical standards, even when they are being paid! Therefore, it seems reasonable to expect that it will be difficult to interest homeowners to serve on HOA boards in a volunteer capacity especially if we start demanding that they meet minimum competency requirements.

It is worth noting that while CAI has historically been loathe to embrace the need for management companies and managers to be subjected to mandatory education, testing or regulatory oversight, it is now adopting the position that the board of directors should in fact be subjected to exactly the sort of imposing regulatory environment that it finds unnecessary for the management industry.

These issues aside, it is clear that HOA members need to have a certain amount of knowledge and competence before being allowed to serve on the board of directors of a homeowners association. The question is, how do we implement the needed changes without discouraging people from serving on boards? And, do we or do we not, address the equally important need for educating, testing and licensing of association managers?

Beyond Self-Regulation

The issue of manager/management competence is not addressed in the panel report. Perhaps we should not be surprised given that CAI has long maintained the position that the management industry and homeowners who live in HOAs are best served by allowing the industry to “self-regulate” the conduct of management professionals.

Of course anyone whose brain cells are still receiving oxygen knows that “self-regulation” doesn’t work!

Self-regulation is what led to the gunfight at the OK Corral. It’s also what led to the savings and loan crisis in the 1980s and it is what led to the implosion of the subprime mortgage market in 2008.

If self-regulation was such a great idea we wouldn’t have every state in the country licensing real estate agents, attorneys, architects, engineers, doctors, dentists, accountants, barbers, beauty salons, restaurant owners, pest control companies and used car dealers.

If self-regulation actually worked, we wouldn’t need a civil court system, a police department or a process for licensing automobiles or drivers because everyone would behave. If self-regulation worked we wouldn’t need the IRS….everyone would simply pay what they should pay in taxes because they know it is the right thing to do!

The point is that self-regulation doesn’t work at any level. The mere existence of government, and the acknowledgement that government is necessary to create a civilized society, is an admission that some form of regulation is needed at almost every level of exchange between two parties. In particular when there is money involved.

So-called “self-regulation” is a fantasy which has no logical place or purpose in the context of an advanced society. Self-regulation benefits those would otherwise be regulated by government. Generally at the expense of the most vulnerable members of society. In the case of HOAs and the industry that has evolved to serve the needs of these HOAs, it is the association members who lack a political voice. As a result they are the most vulnerable; the weakest link in the chain if you will, and it is most often the HOAs members who suffer the biggest burden from self-regulation.

After fifty-plus years of an ever-expanding population of HOAs and Americans who live in HOAs it is abundantly clear that what needs to be regulated far more than HOA boards, are the companies and the individuals who manage these organizations. Simply put, it is a case of what’s good for the goose is good for the gander. Hence, if we are going to acknowledge the need to educate, test and certify HOA board members, then it stands to reason that we must also advocate for the education, testing and licensing of industry practitioners and we must begin with managers and management companies.

Anything less is a disingenuous attempt to create self-serving legislative agendas that will ultimately benefit the cabal of attorneys, insurance companies, banks and management companies that profit the most from the never-ending cash flow stream generated by the growing number of HOAs in America. Unless and until the CAI vision for “2020 and Beyond” includes a call for mandatory education, testing and licensing of management companies and individual managers, then their “vision” of the future of HOAs and the industry that serves them cannot be taken seriously.

In our next installment of this series we will examine the implications of mandating reserve studies for all HOAs and more significantly the mandatory funding of HOA reserves according to the outcome of those studies.