Elected officials are not done meddling with the association management industry. Given the number of special and emergency assessments and many boards neglecting their fiduciary responsibilities, the legislature is getting demands to intercede and regulate the industry more. Here are a few of the ongoing proposals:
Certification
As you may know, or not know, a Community Manager is not required to have a certification or designation and no license to manage is required. It is the wild west out there. There has been talk to for years, and that talk is getting louder, to require certification of all managers. The debate has been: who is the entity to conduct this certification, CACM or CAR?
Regulatory Agency
Currently, no California government body oversees associations. Boards must adhere to the statutes of the state (the Davis-Stirling laws), but if an owner is disgruntled with their board, they must hire an attorney to see their issue resolved. Residential management companies are regulated by the Department of Real Estate (DRE) and if an owner or tenant is convinced their owner or management company is acting improperly, they can file a complaint with this agency, and if the complaint is considered egregious enough by them, they can investigate the matter and have the power to fine a management company or defend a tenant. That does not exist in the association world. Increasingly, upset owners and boards disgruntled with their management companies clamor for greater oversight. They reason it would force out the “bad actors” and give a less expensive way for owners to air their grievances.
Minimum Reserves
The Surfside tragedy in Florida put a harsh light on the finances of associations, not only in that state, but in all states. Only 12 states require an annual reserve study and only one, Hawaii, has minimum reserve balances. California does require a reserve specialist to complete an on-site review every three year and a desk review for the other two. In Hawaii, the minimum reserve level of the “fully funded” reserve level is 50%. Let that sink in. Perhaps 20% of our associations reach that level. There is renewed talk of implementing a minimum reserve level in California because so many communities are below 50% and quite a few below 20% where they are “unlendable”. Rather than starting at a high figure of 50% and creating chaos in the mortgage market because so many communities would not qualify for conventional financing (they would deny a property below the minimum reserve level) there is a discussion about increasing the minimum reserve level over time. Maybe start at a 20% minimum reserve and increase it each year by 3% so in five years the minimum level is 35% and in another five, California reaches 50%. Regardless, many communities would struggle substantially to reach these levels and monthly dues would skyrocket to achieve these minimums.
