Berding | Weil - Attorneys At Law

Needed: A 500 Pound Gorilla

Doing Away with Government by Exception

by Tyler P. Berding

It's the 10th anniversary of the formation of ECHO's Legislative Committee and its legislative advocacy program. For a decade now, we have been slugging it out in the political trenches in Sacramento. I suppose congratulations are in order if, for no other reason, simply because we have survived in this arena for that long! Actually, ECHO has more than survived. It has been very instrumental in shaping legislative policy on CIDs and in protecting its members from arbitrary and unnecessary legislation. Without ECHO's involvement in Sacramento, the Davis-Stirling Common Interest Development Act would be very different today, and the legal burden carried by community associations would be much heavier indeed.

But as successful as it has been, ECHO has never been a "first tier" legislative advocate. We cannot claim to have the same level of influence as, say, the California Association of Realtors, the Consumer Attorneys of California, or the California Building Industries Association. One reason is that we don't have the cash to make political contributions to legislators. But even without cash, we have been able to influence legislation that is important to us because we can offer something that other groups cannot we speak for homeowners and their associations, we are reasonable, and we know what we're talking about when it comes to CIDs. We are well prepared, logical in our arguments, and practical. Believe it or not, that all still counts for something in the political arena.

That is not to say that we don't cooperate with other interest groups. We have learned over the years that, next to cash, alliances are everything in Sacramento. For that reason, and because we often share similar beliefs, we have allied ourselves with powerful groups many times to support or defeat specific legislation. We try to play the legislative game with dignity and respect for the interests of others, but we always stay true to the ideals of ECHO and the interests of its members.

After ten long years of doing battle, some essential truths about the legislative process have emerged. They aren't necessarily pretty and they don't give us a warm, fuzzy feeling about our government, but they are truths nevertheless, and those who ignore them are doomed to repeat their mistakes.

Scandals Score Points

More often than not, legislation is spawned by an event that is out of the ordinary. A home that is foreclosed upon for non-payment of assessments, for example, reaches the headlines and the attention of a legislator. Collecting assessments in this manner is a proper exercise of the necessary powers of the association but, nevertheless, this incident becomes a cause celebre and the object of legislation. Industry professionals testify about usual and customary assessment collection systems, but the professionals are seen as biased. and protective of their livelihood. Instead, the legislators listen to fringe groups who recite a few random incidents, often irrelevant to the issue at hand but scandalizing and illustrative, they say, of the need to place tight restrictions on an entire industry. The legislature often listens intently to such anecdotal evidence as if it were gospel.

Money Talks, Voters Walk

In Sacramento we are frequently reminded that money is the "mother's milk" of politics, as Assembly Speaker Jesse Unruh once said. Bills are introduced, supported, opposed, or amended more often because of the economic influence of interest groups than for any other reason. That's a fact and, no doubt, no surprise to anyone. That's the way it's been for more than a century and a half, and the way it will be for the foreseeable future. All of the talk about campaign contribution reform is just that talk. Votes are important to a legislator's future, and when you can secure votes, if you have enough money to spend on a campaign, it is the vote, and not the voter, that counts. ECHO takes great pride in representing the true "grass roots" of the voting public-homeowners. And make no mistake; there are many times when the voices of our members have made a true difference. But against a well-funded and orchestrated campaign in support of a bill by an influential interest group, the voices of voters are often not quite loud enough.

Good Information Can Carry the Day

As a kind of corollary to the section on scandals above is the fact that if you are very well prepared with hard facts that are overwhelmingly in support of your position, and if you can present them succinctly and convincingly in less than two minutes, you might be able to score enough points to offset the influence of powerful opponents. It is especially good if you can catch them unprepared in a public hearing. They won't like it, and they may punish you in the future, but if you can publicly expose a ridiculous position, it may get you a committee vote or two.

The Good News Never Stops

As long as there are groups who believe that common interest developments in some way impact their economic, political or personal interests, they will continue to influence the laws that govern CIDs. ECHO and its allies can boldly carry the flag onto this field of battle each year, but our battlewagon, fueled as it is with only logic and good intentions, is often outgunned. To use a football analogy, ECHO is a quick little 175-pound tailback running against a field of 350-pound linemen (who, by the way, can run the 40 faster than we can!) We might surprise them once in awhile, but well never make it through the middle, and if we get in their way too often-well, you get the idea.

Community Associations Cast Adrift

So, why do homeowners and their associations continue to be cast adrift in this sea of random, special interest regulation? Why can't the voices of hundreds of thousands of owners of common interest properties and their elected boards be heard more often? Because California common interest developments have no official government advocate. Real estate professionals and the real estate industry have the California Department of Real Estate. The insurance industry has the Department of Insurance. Contractors are regulated by the Contractors State License Board. Virtually every professional or industry group has some form of government representation in Sacramento.

Of course, that's not to say they are always pleased with the representation they get, but at least there is a department or agency whose purpose it is to focus on these various industries and professionals. Not only do they license the businesses or professionals they serve and provide for education and training, but they also set standards for their operations. More importantly, these agencies are consulted by legislators, and their opinions are incorporated into the analyses of bills. If common interest developments had an agency or department that was focused on the needs and welfare of the millions of homeowners who own interests in community association-managed projects, they would have a strong government advocate to better balance all of the competing interests. Random legislative attempts at regulation based on mere anecdote would be tempered by an agency in possession of real facts, because it would be the mission of that agency to investigate complaints and gather facts. Notwithstanding the recent debacle at the Department of Insurance, a Department of Common Interest Developments would be at least partially insulated from the influence of powerful political interests. While the executive branch is susceptible to the efforts of lobbyists, it is much harder to assert influence with an agency that is not worried about the votes that are counted every two years. Further, it would be the responsibility of such an agency to draft and promulgate regulations appropriate to the operation of the community associations they serve. Once issued, these regulations would not so easily be subject to the whims of the legislature. The power vacuum that presently exists in the arena of common interest developments would be partially filled by a dedicated agency. You know the old adage: "What does a 500-pound gorilla do?" Answer: "Anything it wants to!" Common interest developments may need their own 500-pound gorilla right about now.

Why Be Regulated At All?

Why not just let the real estate marketplace do the regulating? Isn't it true that well-managed and well-maintained properties sell better than those that are nod If a community association is regulating itself properly, won't that fact show up in the value of the units or lots? What about insulating them from the whims of legislators and state law, so that they become more like charter cities, and let them write their own ordinances or regulations? Or what about letting the existing system of private regulation (CC&Rs) coupled with state statutes, continue to do the job? Because all of these "regulatory" schemes are essentially flawed.

Real Estate Marketplace

In reality, the real estate market is often blind to the true value of a common interest. It prices properties on the basis of appearance and location, relying on the premise that if it needs repairs, the owner can repair it. Sales prices are usually based on an inspection of the dwelling and, perhaps, a cursory review of the management and financial documents. Neither of these methods is likely to reveal issues that impact value. The inspection of the dwelling itself, if it is located in a condominium complex or even many planned developments, will not reveal the condition of the other dwellings in the complex, for which each owner has some responsibility for the cost of repairs. Also, given the natural limitations of reserve studies, major repair issues may not be noted for years and often do not become the subject of a reserve account. Finally, in a super-heated real estate market like the one that exists today, buyers must make very quick purchase decisions or risk losing the opportunity, which mitigates against a careful and considered review of the property or the association. The marketplace is simply not an adequate "check and balance" on the proper operation of associations.

As evidence of that fact, properties are selling at above-market prices in projects today that are in such need of reconstruction that the true value may be tens of thousands of dollars less than the asking price. How-ever, when the object is to sell a property for the greatest price in the shortest possible time, and there are multiple offers on the same property, it is easy to overlook the condition of property. This does nothing to protect the equities of owners and prospective buyers, and in fact, leads buyers into situations where their equity is at risk.

City-Like Governance

Giving CIDs the power of municipalities won't work either. There are too many developments to expect any type of uniform regulation or consistent oversight It would be the equivalent of a state with 30,000 cities! An even more compelling reason is the frequent turnover of directors and managers. Common interest developments already lack sufficient institutional knowledge to guide directors in the decisions they make. Making them completely self-regulating and self-taxing would allow too many opportunities for the inexperienced to lead the association into costly or fatal mistakes. If all that was at stake were local schools or police protection, that would be bad enough. But the long term survival of individual homeowners' biggest investment the equity in their homes-demands skilled and experienced management by directors and property managers and, perhaps, state oversight to ensure that it occurs.

The Status Quo

Ok, so why not just leave CIDs alone and let the legislature decide what to do with them on a bill-by-bill basis? Because that system has allowed a crazy quilt of regulations that few homeowners or directors can understand, and from which even fewer benefit. The present system reacts to anecdotal evidence recounted by individuals who have a beef with their association. There is generally no effort to ascertain the factual basis for these complaints. Real problems may be demonstrated by these accounts, but no one knows for sure because they are often accepted at face value without investigation into more fundamental issues. The opinions of professionals serving the industry are usually ignored as self-serving. There is no institutional "filter" to evaluate and separate the valid claims from the fanciful or to lend structure to the regulatory scheme. The legislation that results is heavily influenced by special interests, but just as often it is influenced by one constituent who does not understand the nature and purpose of a common interest development and basically doesn't care. This is government by exception rather than by rule.

A Solution For The Future

So isn't it time for a Department of Common Interest Developments to be our 500-pound gorilla and provide a uniform and thoughtful regulatory scheme? To guide and assist directors in the performance of their responsibilities? To be an ombudsman and provide a quick and affordable forum for homeowners who believe they have been abused by the system? To investigate issues and compile facts upon which rational legislation can be based? To register and license all managers, including the associations themselves? To be the advocate for all of the owners of property in common interest developments who are joined as associations?

This question deserves serious consideration. Let the debate begin.

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