All HOAs blamed for bad behavior of a few

Was the newspaper article, "Sex, drugs and money" about Lindsay Lohan, Paris Hilton or Charlie Sheen? No, it was Sen. Mike Schneider referring to his latest proposed regulation on homeowner associations and why HOAS don't work. Local newspapers and TV stations have run several stories about the U.S. Justice Department and the FBI investigation of HOAs, management companies, attorneys and construction defect companies.

I call it the HOA Sting. In 2005, there were some homeowners who went to the Nevada Real Estate Division and the local FBI to bring concerns about their board of directors. Nothing happened until 2008 when the FBI raided nine locations including one community management company, one construction defect attorney, one construction company, several HOA boards and three homeowner associations.

What unfolded were the conflicts of interest and possible collusion between the parties that were governing the association. According to the complaints by the homeowners, the three new board members were either employees or co-investors with the owner of the construction company. The legal counsel for the association was also involved with the management of the construction company. The husband of the community manager who owned the management company was a Metropolitan Police Department officer in the fraud division, who was also a business partner with the construction company.

The complaint also contended that the construction defect attorney's home was refurbished by the construction company as a kick-back for the work that the attorney was sending to the company. It was also stated that the construction company had the first right of refusal in entering into a contracts with associations to perform the remediation. The management company was said to have some relationship with the construction defect attorney since a number of construction defect lawsuits were filed during their management of other associations where the same defect attorney would represent those associations. In addition, a recall was started against the HOA board of directors where it has been alleged that there were employees of the management who destroyed recall ballots. A second recall was eventually required by the state's Ombudsman Office where the directors were in fact removed from office.

Finally to tie all of the pieces together, the investigation focused on the board of directors who also were alleged to be directors of other associations that would initiate a change of management, bring in the construction defect attorney and eventually bring in their construction defect company.

It is now 2011. There have been no indictments. There are now claims that the FBI mishandled the investigation and that one of their own FBI agents may have even leaked information to the construction defect attorney, who may have then destroyed valuable records, hence the entrance of the federal government's Justice Department.

In 2009, in response to the 2008 raid and subsequent publicity, the Legislature passed two new laws in NRS 116. The first required that all bids be sealed and only be opened and discussed at a board of directors' meeting. Decisions could no longer be made at a board's executive session. The second law brought the punishment of a Felony D for any person who fraudulently altered the true outcome of an election, forging names, falsifying ballots, rejecting, failing to count, destroy ballots, etc. Felony D can mean a substantial fine and prison.

Obviously the investigation is a serious one. Too many people are still waiting to see indictments after almost six years since when the complaints were first filed. It is hard to justify the delay in this case, either you have a chain of evidence or you do not a chain of evidence. If you have, then action needs to be initiated and it needs to be now.

Unfortunately, this and other issues have brought unwarranted residual side effects. There are almost 3,000 homeowner associations in Nevada, many management companies, attorneys and construction companies that are being brought through the mud by innuendoes that this kind of conflict of interest and collusion are widespread. It may make for great headlines but it is far from the truth. The news articles read like Arthur Miller's "The Crucible" where the young girls indiscriminately charge that their neighbors are witches.

Associations can be such easy targets of negative press and the bad behavior of the few tarnish those associations and directors and mangers who truly care about their associations and their members.

Which leads me to back to Sen. Schneider's bill. For years, the Legislature would inundate the proposed bill hopper with laws pertaining to the mobile home owners and managers, then came the apartment owners and managers and now, over the past 11 years, the homeowner associations and community managers.

If HOAs don't work, part of the blame needs to be shared with the Legislature, which has had ample time and opportunity over these past 11 years to have hosted serious workshops on the areas of contention to find resolution and balance between the homeowner advocates and association board members. (I am not talking about hearings, which often turned out to be a farce).

The Legislature has had time to meet with the Nevada Real Estate Division and the CICCH Commission to review the results of actual mediation, arbitration and intervention cases and to seek their advice and input prior to proposing new laws.

Taxpayers' money has been wasted. How many times can you change how board members are elected and removed? How many times can you change the requirements of reserve studies, financial audits and financial statements, agenda, meetings, notices, hearings, fines, assessments, collection costs and proxies just to name a few of the sections that are changed every legislative year? In the management of any company of any business, if the manager of a department keeps firing employees, you begin to wonder about the competency of the manager. You have to wonder about the competency of the Legislature.

Do they even have a clue as to how associations are actually managed because changing the same laws every session just doesn't make sense and shows that the Legislature has failed to do its job in finding the proper balance.

I have been reviewing the multiple proposed laws. I have seen bills which remind me of attorneys who, when asked to review some document, feel that they must redline everything to make clients feel that the changes were necessary in order to earn their fees.

Right now there are a number of proposed changes that substantially do not change the existing laws; they have been "wordsmithed" and re-located to different sections of the law as if the sponsors of the bills think that NRS 116 would read more coherently and be more logically organized as to topics.

Why did HOAs become so popular in the first place.?

First, developers realized that they could have a higher sales price per unit as opposed to building apartments and make more money. In addition, there were less protests from existing homeowners who did not want to have renters living next to them.

Second, municipality governments would see higher property taxes (based on the higher per unit sales price), see more streets and improvements being built by private money, and, where the streets were private, enjoyed the fact that the municipality budgets did not have to support those private streets, lights, landscaping and sidewalks.

Third, it allowed more citizens to become owners, i.e. the "American dream."

Finally, the purpose of the regulations were to maintain a consistency in the appearance of the community and to maintain a higher standard of the physical integrity of the property so that the homeowners would realize continued economic benefits of homeownership and increased value of their property. (Just look at those neighborhoods that don't have associations and ask if you truly want to live next door to one of the homes).

We have enough time before the legislative session ends to have Sen. Schneider hold work sessions on the various bills that he and other legislators have introduced to allow the advocates from both sides to work together to find balance and then for the advocates to present to the legislature revised proposed laws for the legislature's consideration. The work sessions could save time, energy and resources to allow Sen. Schneider and the Legislature to work on our state budget, its deficit and programs to help bring new business to Nevada and help us move forward from this devastating depression.

Barbara Holland, certified property manager, is president and owner of H&L Realty and Management Co. To ask her a question, e-mail support@hlrealty.com.