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Politics & Policy


GROWING DISILLUSIONED WITH HOAS

In certain neighborhoods, residents must join homeowners associations, and pay
them high dues and abide by strict rules. Breaking these rules can result in
severe consequences, and in some extreme cases, foreclosure. How did it get like
this?

By Jay Root
May 20, 2013 6

graphic by: Marjorie Kamys Cotera / Todd Wiseman

This is the second part of a series produced with the Texas Tribune about state
senator John Carona, the founder and CEO of  Associa, the largest HOA management
company in the United States. The first story can be read here. 

The slick brochure advertising homes in the Sun City Shadow Hills neighborhood
near Palm Springs has escapist senior fantasy written all over it. 

On the cover, a lush green expanse of golf course fairway cuts through two
shimmering lakes and ends at what looks like a Spanish village, where uniform
clay roofs sit on top of white building facades, offering a perfect color
transition between the Bermuda grass in the foreground and the desert mountain
landscape behind it. 



But there is trouble beneath the utopic veneer: Many of the 55-and-up “active
adults” who live here have become disillusioned with the homeowners association
and the property managers who run it. They worry about how their nearly $9
million in annual dues money is being spent, complain about financial conflicts
of interest, and say they collectively are getting gouged by fees and fines
without the kind of transparency or due process one would expect from a
government agency with similar responsibilities. 

Like most new developments in U.S. metropolitan areas, Shadow Hills is governed
by a private homeowners association, and membership is not optional. To live
here, you must become a member, pay $237 a month in dues and abide by a lengthy
and sometimes onerous set of rules. One that has been generating controversy of
late is the “Conduct Code” section of the sssociation’s rules and regulations.
It says homeowners are responsible for the actions of friends, visitors and even
vendors.

That was the policy the HOA cited to Carolyn Little when she was issued a $50
speeding ticket, even though it wasn’t her car and she wasn’t driving. It was a
Home Depot carpet installer who got caught by the association’s private police
force for driving seven miles over the 35 mph speed limit down Sun City Blvd.
Little, 71, said she just happened to be the first homeowner expecting a visit
from Home Depot that day—and it was her address that the driver gave the guard
when he checked in at the front gate.


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“They want their money and they don’t care if it’s at the resident’s expense,”
she said. “We like it here. It’s just that these rules are crazy.”



The dissidents say complaints about heavy-handed rules fall on deaf ears in
Shadow Hills: the association recently authorized the purchase of another radar
gun—evidence, as they see it, that the property managers are looking out for
their bottom line and not the best interests of the homeowners.

While the Sun City Shadow Hills Community Association was organized as a
nonprofit dedicated to the protection of the neighborhood and its residents, it
is run by a for-profit management company. With a budget of about $10 million a
year, it’s not unlike running a medium-sized business. 

In this case the task falls to Professional Community Management, or PCM, a
subsidiary of Associa, the largest HOA management company in the United States.
The company’s founder and CEO is state Sen. John Carona, R-Dallas, chairman of
the powerful Senate Committee on Business and Commerce and architect of Chapter
209 of the Texas Property Code—the section dealing with single-family HOAs.

Associa bought PCM, one of the largest property management firms in Southern
California, in 2010, marking a decade of acquisitions by the privately held
company. In 2000, Carona listed just five companies in which he reported
ownership or executive oversight on financial disclosures Texas elected
officials must provide. By 2011, the figure had ballooned to more than 120
companies.



A dizzying number of acquisitions and spinoffs has turned Associa into an HOA
management behemoth. The company now operates in 31 states, plus several
locations in Canada and Mexico. It also has created numerous subsidiary
businesses to cash in on the growing HOA market and to become what Carona calls
“a one stop service opportunity” benefitting both his company and his customers.
 

Carona was not familiar with the specific concerns from Shadow Hills, one of
more than 9,000 associations Associa manages, but he said complaints from
homeowners generally come from a vocal minority: “In the service business you’re
only going to hear from the people with problems,” he said. Associa spokeswoman
Carol Piering referred questions about dealings with homeowners to the volunteer
board that is legally charged with overseeing the affairs of the estimated 5,400
residents living in Shadow Hills. 

“With a community this large, it is not uncommon to have a variety of viewpoints
that create a dialogue that would contribute to the board making informed
decisions for the common interest of all of the residents,” she said.

Repeated requests from the Texas Tribune for interviews or answers to specific
questions from board members were either ignored or turned down.

Carved from the picturesque Coachella Valley, Shadow Hills offers all the
amenities one might expect in an upscale retirement community: two eighteen-hole
golf courses, tennis courts, indoor and outdoor pools, a bar, a restaurant and
even an amphitheatre. On a recent visit to the massive Montecito clubhouse and
recreation center, sixty- and seventy-somethings could be seen playing bridge
and mahjong (a card game), lifting weights, loosening up with water aerobics
and, in one pulsating room, taking a Zumba dance class.

“Baila! Baila! Sabor!” the music blared.

Only senior citizens are allowed to live in Shadow Hills, so most people came
here to retire or to spend their winter months in the warm desert climate.
Tangling with the HOA board, generally speaking, wasn’t on the to-do list.

“I don’t think any of us were doing anything more than buying a house and in
some cases buying into a lifestyle,” said Martin Stone, 63, a former bankruptcy
lawyer who moved here two years ago after a heart attack sidelined his career.
“I don’t think any of us thought we were buying shares in a private government
and that it was then going to seek to exercise this level of control over our
lives.” 

The first rumblings of discontent were felt in late 2011 when the Shadows
Restaurant was temporarily shut down for a kitchen remodel few knew about. At
first the complaints were confined to an inquisitive group of seniors who were
easily dismissed by the board as troublemakers with too much time on their hands
and too many pesky questions. 

Then the board awarded PCM-Associa an additional $3,000-a-month contract,
effective January 1, 2012, to manage Shadows Restaurant and revealed plans for a
large expansion, even though it had been losing tens of thousands of dollars a
month.

Soon it was announced that residents who wanted catering services for events
held at Shadow Hills facilities could henceforth contract with Shadows
Restaurant or face a twenty percent surcharge on the gross price of any outside
service provider, or $200, whichever is higher. Given the reputation of the food
at Shadows, which appears to be in no danger of winning any culinary awards or
turning a profit, the board won few friends with that edict.

Residents say things reached a boiling point in early 2012, after the board held
a raucous town hall meeting to discuss plans to expand the money-hemorrhaging
restaurant. The board subsequently appointed an Associa subsidiary employee,
Jerald Cavoretto, to fill a vacancy on its board of directors, which fueled more
criticism about PCM-Associa’s influence over the non-profit board. Cavoretto was
later elected to a full two-year term. 

All board members must live in Shadow Hills, but having financial ties to the
management company is allowed, and the board president said in a written
statement at the time that Cavoretto’s work in association management infused
him with “concrete knowledge” of HOA duties.

Cavoretto, who serves as board treasurer, said in an email that he recuses
himself from voting on any issue related to PCM-Associa “or any other issue
which I feel would present a conflict.”

For critics, the permissive ethics rule sits atop a pile of complaints about
PCM-Associa and the Shadow Hills board, which they say has been too cozy with
the management company and unreasonably slow in providing the financial
documents to which they believe they are entitled. 



Ronald Bob Marley, a CPA for more than fifty years and former president and CEO
of Baskin Robbins, said he moved to Shadow Hills to live out his golden years in
peace. But after the restaurant controversy exploded, he threw in with the
graying revolutionaries. 

Marley, 82, said in all of his years in the business world he had “never seen
such a one-sided contract” as the one PCM-Associa signed with the association.
The company is paid about $145,000 a year in management fees, figures from
association financial records indicate. Marley estimates the association is also
paying $3 million a year to Associa for payroll, and association records show
that includes a processing fee of 5 percent — which is above and beyond the
management fee — and a variety of tack-on charges. 

Marley and other critics are upset that PCM-Associa is also advancing itself
large sums each month, without formal invoices, to cover payroll costs. They
liken the payments to a revolving zero-interest loan. 

“They’re using our money to finance their business,” Marley said. In emails
exchanged with one dissident homeowner, board members defended the payroll
advances, saying they are authorized and reconciled monthly to reflect actual
costs—which are sometimes higher than the advances.

Shadow Hills is not the only common interest development where homeowners have
complained about a lack of transparency and overly warm contractor ties with
governing boards. That’s a common refrain across the industry, said Mike
Parades, former owner of an HOA management company and instructor of best
management practices at the Community Associations Institute, the chief lobby
and education group for HOA interests. 

While it’s generally a low-profit business, large “mega-management” companies
like Associa rack up profits by selling ancillary services to a captive
audience, Parades said. He said in many cases the associations often have no
idea that their management company has ties to everything from the maintenance
contractors to insurance and even banking services. 

“They are a big business and they are all run by a volunteer board of directors
that may or may not understand what the hell they’re doing,” Parades said.
“That’s kind of scary, isn’t it?” 

Carona said Associa managers always disclose the company’s links to
subsidiaries, presenting itself as a turn-key operation with a long list of
affiliated contractors. 

“We don’t ever go and represent ourselves as just a management firm. From day
one we represent ourselves as a management and lifestyle services firm,” he
said. “We show our full array of offerings but clients are always free to pick
and choose from  what they want and what they don’t want.” 

However, Carona also said in mid-March that Associa’s ownership of
Dallas-based Associations Insurance Agency Inc. was disclosed on AIAI’s website.
It was not. After the Tribune asked about it, the Associa parentage was
disclosed under an “About Us” blurb. 

Parades said the CAI code of ethics, which he helped draft, requires more than
that, though. He says management companies must provide associations with
written disclosures of any actual or perceived conflicts of interests, including
ownership of any companies providing ancillary services.

According to interviews and published reports, board members repeatedly have
said they were unaware of Associa’s links to subsidiaries and affiliates,
including AIAI, founded and owned by Associa. 



Linda Jeter, president of the board of the Silvermill Homeowners Association in
Katy from 2008 to 2010, said she and fellow members did not know that Associa
affiliates had quietly gotten in the banking and insurance business, for
example. 

“They did switch our accounts over to the Associa bank and the Associa insurance
without ever saying anything about it,” she said. “We didn’t really pay any
attention to it.” 

The board fired Associa after complaining of poor service and unresponsiveness,
but it had nothing to do with directing any business toward affiliated vendors,
she said. 

(Carona was the co-founder and largest shareholder of Dallas-based First
Associations Bank, which specialized in HOA accounts; the bank was sold earlier
this year to California-based Pacific Premier Bancorp, Inc., which made Carona a
director and retained its depository services agreement with Associa, according
to Securities and Exchange Commission disclosures).

Gary Stone, a former Associa subsidiary manager in Dallas, says it’s no
coincidence boards often have no idea that an Associa-owned company is producing
the insurance policy that an association is required to have.

When it came to discussing the sale of AIAI coverage to HOA boards, his managers
were expected not to mention the ownership and to “just tell ‘em they’re good
policies,” Stone said. 

“I would have to go the board and say, ‘Look, now it’s insurance time,’ and ‘Oh
look, we’ve got a new insurance company that we can use,’” Stone said. “It just
happened to be Carona’s.” 

Carona told the Tribune that there probably are times when “we push a little
hard” to sell add-on products but he said the company’s policy is to disclose
ownership ties and he insisted the bundled services are “good for the client.”

“Nothing that we’ve ever proposed that I’m aware of in terms of ancillary
services has ever been any higher than the market rate,” he said.

(Whether the insurance policies are a bargain or not is a subject of dispute.
Carona says AIAI never intends to sell insurance to assocations unless it’s the
lowest bidder. But critics say Associa stacks the bidding process in its favor
and sells questionable “master program” policies that don’t provide adequate
coverage of risk). 

The laws impacting association-ruled communities vary from state to state. But
people who live in them willingly sign contracts binding them to some
pre-determined conformity. Those who break the rules or quit paying their
dues—the private contractual version of a property tax—face penalties or even
foreclosure, because otherwise their neighbors would have to endure their
nuisances or pay their share of the assessment load.

With almost a fifth of the U.S. population living in HOA-governed communities,
“you’re going to have problems,” said CAI spokesman Frank Rathbun. But he said
polls commissioned by the CAI routinely show 70 percent or more of the people
who live in them are happy with their HOAs.



“What politician wouldn’t love that kind of approval rating?” Rathbun asked.

The problem is that when things go south, like it has for many of the residents
of Shadow Hills, generally the only options are to sue, a costly and uncertain
venture, or to eject the board in an election—which can be harder than it
sounds. In Shadow Hills and other HOA-ruled communities, developers control the
votes of unoccupied houses, so until a subdivision is fully occupied they retain
major influence over board seats. 

And unlike a typical town square, the common areas of Shadow Hills are private
property, so the normal tools of democracy aren’t always readily available to
those who want to change the system. When a group of dissatisfied residents
asked for the board’s permission to form a club and use a conference room in the
clubhouse in which to gather and discuss their concerns, for example, they were
turned down on the grounds that a similar group already existed. The management
company also controls the website and the monthly magazine, The View, whose
pages read as if no one has ever complained about anything at Shadow Hills. Even
planting yard signs or distributing flyers in residents’ mailboxes must meet
approval of the association, the dissidents say.

Martin Stone, the former bankruptcy lawyer and Shadow Hills rabble rouser (no
relation to Gary Stone of Dallas), recently had his rights to the common areas
suspended after the association said his swamp cooler violated strict
architectural design protocols. He claims they even deactivated the transponder
on his car—so he can’t automatically open the front gate of the neighborhood
from his car when he comes and goes. 

Living under the current board rules “has all the evils of a monarchy with none
of the benefits of noblesse oblige,” Stone fumed.

The dissidents discussed filing a lawsuit against the HOA but say they don’t
want to go that route. Instead, they are throwing their energy into the upcoming
2014 spring board elections—the first in which residents expect there will be no
developer-backed candidates. Stone and other critics, including former Deloitte
accountant Gaelyn Lakin, say the rebellion has morphed into a full-fledged
opposition movement, and they believe they have a good shot at electing
neighborhood leaders who will better represent their interests, throw open the
books and strike a better management deal than the one they say never should
have been given to PCM-Associa. 

That day can’t come soon enough for Lakin. 

“I’m ready to move back to the United States,” she said.

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