AUGUST  2008 ISSUE

We do not make jokes, we simply watch the LA Times, the Orange County Register and CID/HOA board of directors and report the facts!

LETTERS

Different Homeowners Association, Same Issues

C. Grundke  response to a Walnut/Batavia Homeowners association board member experiencing problems with the property management company

July 15,  2008  

                     
Debb,

I assume that you are a member of the Walnut Creek Leisure World Association, or is this another HOA in the area? We have had many comments of similar problems by HOA's who happen to run into our website and I'm glad that you contacted me.

Good luck in your endeavors. It took us many years to get Board Members and Residents to ask the right questions and allow us to find the answers to questions that have been cropping up over a 10 year period.

Let me try to answer some of your questions as best I can. Much of this data is accessible via our website www.rvoice.org and might be of interest to you.
First; We are a CID (HOA) whatever you you wish to call us and our governance is thru 4 Corporations (3 housing Mutuals and one Mutual which controls our amenities). The Mutual for the amenities is called the Golden Rain Foundation (GRF). The Board members for the 3 housing mutuals are elected via all the corporate members, while the GRF Board is elected via the Directors of the Housing Mutuals (something in GRF we'd like to change).

Each Mutual has an individual Management Contract with PCM to provide a Managing Agent who will run the maintenance of all of our facilities (for a price). The Management Contract has been renewed every 5 years and was renegotiated in January 2007. The Management Fee which had been going up on an average of 2-5% per year from 2001-2006 went up 53% from 2006-2007 ($367,000 to $562,000). To date we have not had an answer to our question as to the justification for this increase, but I have my own opinions on that.

There were rumors of Credit Cards that the Managing Agent had issued to a number of staff (subsequently found that to be 9 staff) that were brought up over the past 10 years, but none of the Boards could force the GRF Board (the mutual that the cards were charged against) to dig into the charges and verify their usage, or, allow the Housing Mutuals to have access to the GRF books. The Managing Agent said that the reason for the cards being issued to staff was to allow expenses in case of emergencies (fire, earthquake, etc). This was publicly stated by the Managing Agent about April 2007 after we made the expenses public. It enraged the residents, but, as you can well imagine, things have died down when the Boards have taken no action other than stating that the costs were all justified.

With the state forcing Home Owner Associations to provide access to their books, one of the residents turned in a request for all Credit Card Charges. This broke the dam. When I entered those credit card billing statements into a excel spreadsheet and analyzed the results, all hell broke loose. You can see some of this information on our websight.  www.rvoice.org  >>> Start - go to Site Map >>> Documentation >>> Credit Card Data >>> look at 6g for starters. This sorted the data by Card Holder/Usage/$Amount. The usage was guessed at by the name of the Payee.

Then we asked for all Employee Expense Reimbursements and you can see this data at; www.rvoice.org  >>> Start - go to Site Map >>> Documentation >>> select 3 - Food (selected entries), for some of the additional charges that are an extension of the credit card data.

We had no line entries in our budget that would identify these charges when we reviewed our budgets and it falls back to, "Not knowing what questions to ask because of the information we did not know" as Board Directors. Naturally the Managing Agent did not highlight, or even speak about, these charges and so we paid the price.

These charges ran between $100,000 to $300,000 a year and were embedded in our monthly assessments via non-disclosed/identified costs. Last year when the Management Contract was renegotiated with the $200,000 increase, it became evident to PCM that the Board might take away the Credit Cards and some of the Employee Expense Reimbursements ($200,000). Isn't it interesting that the Management Fee made a $200,000 jump at that time? The Managing Agent publicly stated that we "... either allow the Credit Card charges or we'll get the money some other way."

Now it turns out that this was a drop in the bucket. PCM, without authorization and knowledge by the Directors of the Mutuals, has been awarding their non-union Administrative Personnel, Staff, and Managers, Bonuses via an Incentive Plan that was initiated by the Managing Agent, Defined by the Managing Agent and awarded to employees by the Managing Agent, without written approval by any of the Boards. This, like the Credit Cards was rumored to exist, but never was made public until this year. To date, only one of our housing mutual boards has dug into this (thanks to a new aggressive treasurer). We have only seen a part of the Incentive Plan Costs and it is estimated that we are talking about millions of dollars a year.

The Managing Agent reviews cost savings submitted by the employees, determines the savings, gives the employee 1/3rd of the year's savings via the Incentive Plan. The one Mutual that received the costs has terminated any further Bonuses until the Management Contract is renegotiated at the end of the year. I believe that these costs were buried in the employee compensation since there is no Financial Account Number that would allow a reviewer to see this, unless they knew what they were looking for within other line entries.

This process was always covered up because we always come in under budget. The natural priority of our Managing Agent is; First to PCM (management fee, etc), Second to their employees (bonuses, readily reached budget levels, etc.), and, Third to the resident owners. We are at the bottom of the food chain and after 40 years of PCM management, they are experts at hiding things and allowing our assessments to increase every year (even with millions of dollars in yearly "cost savings").

One of the major frustrations is our lack of effort on the part of our Boards of Directors to dig into the financial data. I was a Treasurer on one of the Boards about 2 years ago and resigned in protest when they came up with the current Management Contract. A couple of us wanted to hire an independent attorney to represent us with writing and negotiating our contract in late 2006. The Board did hire an attorney and when it came time to negotiate the contract, the Board ignored the attorney's input and basically rewrote the existing contract. Several Board members resigned as a result of this contract and the remaining board members felt perfectly comfortable with what was signed. The writers of the contracts were basically composed of, one or two board members and the Managing Agent. Of all people to have involved in writing the contract, the Managing Agent should have been the last person included.

You can see a sample of one of these contracts at; www.rvoice.org  >>> Start - go to Site Map >>> Documentation >>> Corporate Documents >>> Management Agreements >>> GRF Management Agreement 2007  (Article 2.f Incentive Plan). This was the first reference to an Incentive Plan since it was establish about 1996. None of Board Majority got excited over this and that is how HOA's get taken by the "sharp" HOA Management Companies.

If I can be of any further help, please feel free to email me at (cgrundke@dslextreme.com) or call me on my cell phone (949) 683-6923.

Best of luck in your endeavors. CAUTION: You are entering a den of vipers and they are all poisonous.

Connie Grundke

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