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Homeowners Associations Face More Regulation

Virginia the latest to put HOAs under scrutiny

By D. O. Volente
ConsumerAffairs.com

February 4, 2008
Everyone has their horror story when it comes to their homeowners association. In fact, many people -- tired of being reminded to mow their lawn and paint their shutters -- choose to live in communities where no such associations exist.

Now Virginia is about to write the next chapter in the HOA saga.

Virginia's General Assembly is said to be considering legislation that would make it harder for just about anybody to get into the business of running an HOA. The Washington Post reports that the Assembly may create a regulatory board to license professional management companies, just like Realtors and other occupations.

Employees who work for such companies would also be required to be certified by the state and be prepared to open their books to independent auditors each year.

This latest move comes in the wake allegations that a Fairfax, Va.-based firm, Koger Management Group, allegedly siphoned at least $2 million from some HOAs it managed last year.

No criminal charges have been filed, though the State's Real Estate Board and the Department of Professioal Regulations (DPOR) are said to be investigating the alleged disappearance of the funds. Koger has since filed for bankruptcy, the Post reported, and now operates under a new name, Tri-State Management, and the same officers run the new company.

The legislation would require mangement companies to buy fidelity bonds or insurance that will cover in the event of any theft or dishonesty by HOA officers or employees. Bond requirements for board members would be increased too.

State Sen. Mary Margaret Whipple (D-Arlington), who introduced the measure on behalf of the Virginia Housing Commission, said the lawmakers were very concerned with what happened in the Koger incident. She told the Post that the legislation would try to establish an ombudsman system for handling complaints and would also require HOAs to implement a system for handling issues and complaints.

While neighboring Maryland is also considering moving forward with similar legislation in the wake of the Koger scandal, the District of Columbia has always required community managers be Realtors or real estate brokers.

Beyond legal strictures, many homeowners feel that HOAs should also be held accountable on other matters, such as offering friendly customer service, returning calls from irate residents, and offering full and accurate information to residents, which may allow for a larger number of issues to be sorted out before they are escalated and end up being litigated in small claims court.

"HOAs think they are God," said David Koresh, a member of the River Falls Homeowners Association in Woodbridge, Va. "They are just so combative and all they do is find faults with residents on the smallest lapses, such as forgetting to store away your trash can one time. It's riduclous."

Area brokers, however, expressed concern about how this would help when such a measure is enacted.

"Many HOAs can't even agree on what kind of decks are acceptable in a community, how can they try to do their day-to-day jobs if they have to be held to such standards," said a local Re/Max Broker in suburban D.C. who did not wish to be quoted by name.

Many local real estate agents feel that the state wants to regulate HOAs because that would add a segment of their profession that is actually still in business and is able to retain their licenses and pay their association dues.

"Most realtors can't make their ends meet in this market and are looking for other sources of employment but HOAs are pretty much in business and now the state can go after them [as a source of revenue]," said Muhammad Khurran, a realtor with Fairfax, Va.-based Ikon Realty.

Others feel that residents who live in smaller clusters and have tiny HOAs may no longer be able to afford the services of a management company because of added financial burdens imposed by the state.

"Who wants to serve on a HOA these days," concluded Khurram. "Every lane has a foreclosure sign where the grass has not been cut and the newspapers have not been picked up from driverways of vacant homes. It's a major headache business and a home is no longer the prized investment as it was two years ago."

Whether the state ever passes such measures, one thing rings close to home: If you've ever had a beef with your HOA, and we all do, than this may be the time to start paying closer attention to how your HOA does business. Get in line.

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