Why Property Managers are Bad for Homeowners' Associations
Since 1996, Kuau Bayview has experienced various property management companies, CPAs, and bookkeepers. What has become crystal clear over the years is that hiring 3rd party "professionals" has been costly and ultimately disastrous for Kuau Bayview. We are still sorting out the mess left in their wake. According to online research, more and more Associations are turning away from property management companies in favor of self-management as homeowners wake up to what is really going on.
- 1996-2002 Oihana Property Management
- 2002-2003 Lyn Erickson, Bookkeeper & Admin Assistant
- 2003-2004 Self-Management
- 2004-2007 CPA Sharron Courter
- 2007-2011 CPA Marlin Boeckmann
- 2011-2012 Valley Isle Management
- Aug-Sep 2012 Aloha Property Management
- Oct 2012 to present: Self-Management by Darlene Brothers
Why Property Management Is Not the Answer
- The 2011 Board members delegated every Board task to third parties so that they could merely "manage" rather than doing the work themselves. This wouldn't have been so bad if they had been good managers, but they provided no oversight whatsoever. This was very dangerous because they voluntarily gave VIM sole signing authority over the KB bank accounts. VIM wrote themselves checks and apparently funneled a lot of money to favored vendors. KB was paying a lawyer who was actually working for VIM. The Reserve Account was set up falsely claiming that Duane & Diane Wrobel were the President and Secretary/Treasurer of the HOA. This is fraud. On the Reserve account, Diane Wrobel claimed to be the Secretary. VIM then proceeded to empty our BoH accounts and move all the funds to American Savings Bank & State Farm Bank in Kihei. This was totally unnecessary and made the bank records & the funds inaccessible to the KB Board as no one had signing authority but Valley Isle. I couldn't even get access to the bank statements. We are still unsure that we got all the money back.
- Valley Isle Management hijacked our Hawaii State & Federal tax accounts such that they had access and we didn't. We couldn't get the password because VIM used their own contact info instead of ours. It took over 3 weeks of letters and phone calls to government agencies to finally gain access to see what taxes were paid. Turns out Valley Isle overpaid the taxes in 2011 and didn't pay at all in 2012. In 2010 CPA Boeckmann didn't file taxes even though he charged us $372 for doing so. We had to pay a penalty and interest for late filing. In 2005 CPA Sharron Courter filed the federal taxes incorrectly after telling the Board that she thought it was a bad idea to have a homeowner do the taxes. This "homeowner" (Darlene Brothers) did them correctly for free whereas the CPA did them incorrectly and charged us $392.00.
- VIM wrote checks to vendors without the Board ever seeing the invoices. Some vendors were paid for work that was never done. The 2011 Board didn't check invoices and then threatened to force President Luba to resign if she didn't pay Ho'olawa $1400 for work they had refused to provide evidence of having done. As they had been paid $697.69 for March when they had worked only 2.5 hours according to their own work log, we paid them for one more month comprised of 3 weeks in June and the one week in March. So they were paid in full between the dates of Mar 26 to June 22, which is more than fair.
- Management companies sort the records by month which means nothing goes into the owner files. Over time it becomes almost impossible to assess the actual status of an owner account. They became 100% dependent on the QuickBooks data which was inaccurate, so the 2011 Board hired a lawyer to foreclose on one owner who in reality owed no money (Lot 50). Several owners were likewise persecuted unjustly and forced to pay thousands of dollars under threats of foreclosure. In some cases these were simply owners whom the Board members did not like. The owner of Lot 50 had a valid lawsuit for $5 Million all ready to file against the Association and the Board for civil rights violations among other infractions, and he would have won based on the former Board's bad actions. It took considerable effort to make amends. He was presented with an estoppel certificate, a sincere apology, and a refund of overpayments, so he dropped the lawsuit.
- Property Management companies do the accounting on an accrual basis. This method considers money billed to be included in revenue even if the money is never received. Valley Isle would pay a lawyer to send demand letters to owners demanding money they could not pay. So the HOA was paying the lawyer but the HOA was not being paid by the owners for the lawyer's services. In this way, Valley Isle ran up over $14,000 in Accounts Receivable, which is considered an asset, thereby giving an inflated sense of how much money the Association actually had. And the targeted owners were put in some cases into foreclosure proceedings running up even more legal fees. The lawyer and the management company both benefited from the arrangement (like parasites) at great expense to the owners and the HOA. This does not make for a positive atmosphere in a community. The targeted owners ended up feeling helpless, alienated, angry, and were labeled "problem" owners by the previous Board.
- Valley Isle converted our QuickBooks data file to a format that made it unusable without purchasing $3500 Enterprise software. They basically took 16 years of our digital records and made them inaccessible to us, and refused to even give us the file they were paid to maintain. What they gave us was a .QBX file which Intuit said was useless without the .QBW file we needed. What they did is called "computer fraud" by the police and it is a felony.
- The 2011 Board didn't make a copy of the data file before giving it to Valley Isle. This could be considered criminal negligence. They simply asked CPA Boeckmann to send it to his friend Duane Wrobel. Both Duane Wrobel and Boeckmann now claim they don't have a copy of the file. Our only recourse was to update the 2004 version of the data file, which was hugely time-consuming. After paying Valley Isle Management $9,224.72 and CPA Boeckmann $30,605.97 we were right back where we were in 2004. Actually we were further behind because it took over a year of intensive work to audit every owner account going back to 1996 including previous owners. Darlene provided a separate account history to each owner, reconciling all past errors, refunding over-charges, and collecting missed payments until all accounts were 100% accurate.
- The 2011 Board used Valley Isle as a means to make themselves inaccessible. If owners wished to contact the Board, they had to use "proper channels" which meant snail mail or phoning Valley Isle who never answered their phone and ignored all messages. The 2011 Board call this a "firewall" to protect themselves from the owners. This is the opposite of transparency.
- Duane Wrobel of Valley Isle told President Luba in June 2012 that he was supporting Karen Chun in her efforts to illegally keep Joe Bustillos on the Board after his house had been sold (violating HRS 421J-3) with the express purpose of preventing Ann Pitcaithley from filling his vacated Director position as had been agreed upon at the Annual Meeting. According to HRS 421J-3, all Directors must be members of the Association. A manager is supposed to help the Board abide by state laws, not help them break the law.
- Valley Isle Management, who held all the owner files in their office, failed to advise the 2011 Board about attorney Robert Rowland's 2005 letter which would have prevented the 2011 Board from inadvertently violating Section 13 (f) of the CC&Rs forbidding construction in Easement 19. So almost $1000 of HOA money was wasted on getting Rowland's legal opinion because the 2011 Board totally disregarded it.
- Valley Isle Management upheld Bob Pellettieri's fraudulent election in Feb 2011 which placed Dan Judson, Karen Chun, and Joe Bustillos on the 2011 Board at a meeting with no quorum and falsified proxies. If this had not happened, Valley Isle Management would never have had a chance to trash our Association records, the front landscaping would not have been destroyed, and there would be no vinyl fences at our front entrance.
- Property managers are not lawyers and when the Board requires legal guidance, managers always advise the Board to hire an attorney. It is much more cost effective for the Association to consult with an attorney in the first place than to hire a property manager.
- Property managers charge transfer fees every time a property is sold. This money is paid directly to the property management company, not the HOA. As it does not go through the HOA books, Boards are often not even aware that these fees are supplementing the amount of money the property management company is earning from the HOA. They also charge the buyer for providing the Association governing documents and Minutes to the buyer. These fees are also paid directly to the property management company. In other words, they sell the HOA's documents and keep the money themselves. The fees they collect for each house sale are generally over $600. By contrast, our HOA provides all documents for free. We do charge a transfer/membership fee but the money is paid directly to the HOA bank account and is used to keep the annual dues low for every owner.
- Property management companies usually use QuickBooks or some other accounting software to manage the HOA finances. When an HOA terminates their services, they do not hand over the data file the HOA paid them to create. They consider it their property. They provide only a print-out of the current status of the financials and the HOA has to create a new data file by re-inputting the data. Better for the HOA to retain their own data file
- On Nov 16, 2010 Bob Pellettieri wrote a check to Marlin Boeckmann for $5430.21 when we all know Marlin had done nothing at all since April. The one-man "Board" had expired in August and Bob Pellettieri was not legally authorized to write checks on the HOA account or sign contracts. He could/should have been held personally responsible for reimbursing the HOA for the more than $17,000.00 in checks he wrote without proper authority.
- The monthly property management fee covers only the very basic services. Anything beyond that is billed at $105 to $150 per hour. For example, to attend the Annual Meeting, Certified Management charges $140 per hour per person. Apparently Bob paid CPA Marlin Boeckmann $1000 to attend the Feb 10, 2011 meeting.