NOVEMBER 1, 2017

– Ken Skelly, Legislative Action Committee 

 

A Joint HOA Study Committee Report was submitted in December 2015. In that report and since, the following arguments have been presented to the Legislature by the CAI:

DISCLOSURE

The majority of current owners and potential buyers in “common interest” communities have little knowledge or awareness of the extent to which Declaration of Covenants, Conditions, and Restrictions (CCRs) control what they understandably consider “their” home, and even the very quality of their lives.

The proper State agency should compile a pamphlet, understandable to the average South Carolinian with at least an eighth grade education, that explains the importance of CCRs, the fact that, while they seem to be just legal mumbo jumbo, they are actually real and important commitments that must be appreciated in order to avoid expensive and disappointing surprises.

The Seller (developer, builder, or owner) must make available to any bona fide prospective buyer (upon reasonable request and payment for costs of reproduction) current CCRs, the most recent financial statement, and a statement of current and reasonably anticipated monthly fees and any special assessments (Required Disclosures).

Although the homeowner pays Everyone – the seller, the lawyer, the HOA, and the property manager – it is the homeowner who is least able to obtain accurate, unbiased practical advice and information about his or her rights, duties and obligations within a common interest community. 

The one best situated, although not always able or willing, to provide this to the homeowner is the property manager.

Webinars and in-person seminars should also be made available to board members. Associations or property managers should be encouraged to provide these benefits at a nominal or no cost to both board candidates and members.

CERTIFICATION & LICENSING OF PROPERTY MANAGERS

The Community Associations Institute estimates that in 1970 there were 10,000 community associations nationwide. In 2014, there were 333,600 associations housing nearly 65 million Americans. (CAI Foundation for Research)

Management of common interest community properties has become a specialized industry. Rarely are their energies spent in selling or buying property.

Property managers are responsible for collecting, handling, investing, and disbursing significant funds as a fiduciary for HOAs.

In SC, the Estimated Value of Homes in Associations in 2014 was $99,000,000,000; the Estimated Annual Assessments were $1,400,000,000, and the Estimated Annual Reserve Fund Contributions were $440,000,000. Every month, these managers handle the fortunes of South Carolina’s planned community residents.

Certification by one or more recognized organizations, after training and testing, is necessary to protect homeowners from incapable, uninformed charlatans posing as property managers. Licensing by the State is necessary to protect homeowners from the truly larcenous, stupidly criminal or criminally stupid property manager.

NEED FOR COMPREHENSIVE OR UNIFORM PLANNED COMMUNITY ACT

Issues facing these communities and their legislative bodies are common around the country, as is the availability of often used, time-tested statutory approaches to these issues.

South Carolina’s laws (such as they exist) regarding Planned Communities are dispersed in two primary places: The Horizontal Property Act and the Non-Profit Act. However, Homeowners Associations are mentioned in more than a dozen other SC laws ranging all the way from the SC Alcoholic Beverage Control Act to the Uniform Arbitration Act.

We should adopt a comprehensive statute that incorporates South Carolina’s unique approaches to specific issues within the parameters of an otherwise Uniform Common Interest Ownership Act. This step is highly recommended as a necessary, if not sufficient, first step to offering South Carolina homeowners clarity and common sense in the law of planned communities.

DEVELOPER CONTROL AND EFFECT ON BUDGETS

Developers exercise control of Associations necessarily and beneficially for a limited period of time to assure that they can complete the project and sell the units without interference by newly resident owners.

By controlling the Association’s Budget, including both its Operating and Reserve Budget, and the Monthly Fees owners must pay into the Association, the developer maintains control over a key cost factor in a potential buyer’s calculation as to whether to buy or not. In early years of development, sales are especially important – and fees are kept low.

By subsidizing the Association’s Budget as the developer deems necessary, and providing that any such subsidy is to be deemed a “loan” to the Association, the developer can both artificially maintain lower monthly fees than are realistic as well as threaten to call the “loan” and counter sue if the Association asserts a significant claim against the developer at transition. The developer often subsidizes the budget, but designates all subsidies as “loans,” payable on demand.

To prevent these obligations and assure homeowners reasonably reliable budgets going forward, funds provided by developer to subsidize an Association’s budget should not be repayable by the Association if the developer has controlled any aspect of the formulation or development of the budget.

Real control must begin to be assumed by homeowners no later than as soon as at least half of the units are sold. At least three homeowners should be elected at that time to the Association Board of Directors. Upon the sale of 75% of the Units, developer may retain no more than one seat on the Board with the remaining seats being elected by homeowners, and developer shall have no right to veto any action by the Board. Upon sale of 90% of the units, the developer shall have no right to attend any meeting of the Board, unless invited by a majority.

PROVISIONS OF LAW NOT SUBJECT TO WAIVER

These provisions should apply, any provision in the CCRs to the contrary notwithstanding; otherwise, current projects will lose substantial value compared to projects begun and governed by the more enlightened law.

H. 3886 was introduced in March, 2017. In an effort to address the many complaints to the Legislature about HOA’s, the sponsors’ initial and primary effort appeared to be the creation of a new State bureaucracy to receive and somehow resolve common interest community residents’ concerns. This became known as the Office of Ombudsman.

The newspaper article coming next month reflects the view of Senator Tom Davis who understands what is really needed.