Wednesday, December 14, 2011

Licensure for Common Interest Community Association Managers in Colorado: Should Construction Professionals and Their Insurers Support the Effort?

On November 4, 2011, the Colorado Legislative Action Committee (“CLAC”) Licensing Task Force of the Community Association Institute (“CAI”) submitted a Sunrise Review Application for Licensure of Common Interest Community Association Managers.  You can view a copy of the application here.



This blog entry will briefly describe the application, and then discuss why Colorado construction professionals and their insurers may want to support this application, with some revisions. 



The Application



To me, the most interesting parts of the application are the following:



5.         Describe the functions performed by members of this occupational group. Note which functions are unsupervised or supervised and by whom. In addition, indicate functions which are similar to those performed by other groups and identify those groups. How do the functions performed by this group vary from the other groups’ functions?



Background

Common Interest Community Associations are created under Colorado law to govern and operate common interest communities (commonly referred to as “Community Association” and “Homeowners’ Association”). The vast majority of Common Interest Communities are created as nonprofit corporations under Colorado law and are comprised of the owners of units located in these communities who are the members of these nonprofit corporations.



Volunteer Board Members are members of their Community Associations by virtue of owning a home in that Association. Election to these volunteer Boards of Directors generally requires no experience or knowledge; just an interest in serving on the volunteer Board of Directors. The natural legal and business structures of Community Associations place these institutions, and the people who serve them, in control of hundreds of thousands to millions of dollars of assets; often without consistent education or expertise. Directors serving on these volunteer Boards have a fiduciary duty to protect and preserve the common property in these communities and the property values of their fellow individual homeowners within the association. Directors often rely upon the expertise of their Community Managers for advice and assistance in carrying out their fiduciary duty, making decisions of significance, managing the finances of the Association and implementing policies and decisions of the Board.



*          *          *




Detailed tasks are outlined below, but in general the Manager is frequently responsible for . . . providing guidance and expertise to the Board to assist the Directors in fulfilling their fiduciary duty to the Association.
The Community Manager typically provides advice to the volunteer Board on when to seek legal counsel or the guidance from other experts.


*          *          *



What is unique about this occupation is that the volunteer Board Members who hire, supervise and are responsible for the actions of Community Association Managers are often inexperienced and lacking knowledge regarding the governance and operations of Community Associations and the applicable laws in Colorado.



Application, pgs. 5-6.



8.                                      Does the applicant propose licensure, certification, registration, or another type of regulation? Why? (Under licensure, it is illegal for anyone to engage in an occupation without a license, and only persons who possess certain qualifications are licensed. Certification protects specific occupational titles of persons who have met certain educational and experiential standards. Only persons certified in that occupation may use the protected title, although anyone may practice the occupation. Under registration, any person may engage in an occupation, but he or she is required to submit information concerning the location, nature, and operation of the practice.)



It is in the best interest of the citizens of this state, of Common Interest Communities located in this state and the individuals who reside and/or own property in them, to provide for the licensure of Managers of Common Interest Communities to insure that persons who hold themselves out as possessing professional qualifications as Managers of Common Interest Communities, also commonly known as Community Associations, are, in fact, qualified to render management services of a professional nature. Licensure will ensure such individuals provide for the maintenance of high standards of professional conduct by those licensed as Managers of Common Interest Communities.



We seek licensure of Community Managers because:

·                     . . . Without licensure; there are no assurances that the Community Managers have the specialized knowledge necessary to provide this assistance and advice to the Boards and communities they serve. In addition, without licensure, there is no mandatory system of checks and balances and no standards with which a Community Association Manager is required to comply. . .
·                     This occupational group is hired by volunteer Boards of Directors who are not required to have any prior knowledge of the industry, any experience, any education or any business knowledge.

Application, pgs. 9-10.



16.       Describe the minimum competencies necessary to enter this occupation.



Proposed minimum competencies would be:

·                             Must be at least 18 years old;

·                             Hold at least a High School diploma;
·                             Shall not have been convicted of a felony within the past 10 years; Shall have demonstrated knowledge of the fundamentals of Common Interest Community (CIC) management as evidenced by passage of the CMCA exam;
·                             Shall have demonstrated knowledge of the laws of Colorado that govern CIC’s specifically: CCIOA and the Nonprofit Act as evidenced by passage of an exam;
·                             Shall agree in writing to abide by a standard of professional conduct; and,
·                             Shall not have failed to cooperate with any law enforcement or regulatory agency in any investigation of any law enforcement or regulatory investigation.

Application, pg. 18 (emphasis added).

 The National Board of Certification for Community Association Managers (NBC-CAM) develops and enforces the CMCA Standards of Professional Conduct.
CMCA Standards of Professional Conduct: A Certified Manager of Community Associations (CMCA®) shall:



Be knowledgeable, act, and encourage clients to act in accordance with any and all federal, state, and local laws applicable to community association management and operations.



Be knowledgeable, comply and encourage clients to comply with the applicable governing documents, policies and procedures of the Client Association(s) to the extent permitted by that Client.



Not knowingly misrepresent materials facts, make inaccurate statements or act in any fraudulent manner while representing Client Association(s) or acting as a CMCA.



Not provide legal advice to Client Association(s) or any of its members, or otherwise engage in the unlicensed practice of law.



Promptly disclose to Client Association(s) any actual or potential conflicts of interest that may involve the manager.



Refuse to accept any form of gratuity or other remuneration from individuals or companies that could be viewed as an improper inducement to influence the manager.



Participate in continuing professional education and satisfy all requirements to maintain the CMCA.



Act in a manner consistent with his/her fiduciary duty.



Conduct themselves in a professional manner at all times when acting in the scope of their employment in accordance with the terms and conditions of their contractual agreement and in accordance with local, state and federal laws.



Recognize the original records, files and books held by the manager are the property of the Client Associations to be returned to the Client at the end of the manager’s engagement and maintain the duty of confidentiality to all current and former clients.



Application, pg. 30.



Why Colorado Construction Professionals and Their Insurers May Want to Support This Application



It is undeniable that Colorado’s plaintiffs’ construction defect attorneys are extremely entrenched in the Community Associations Institute - Rocky Mountain Chapter - Colorado.  By looking at its website, one can see that all of the major plaintiffs’ construction defect attorneys sponsor the CAI and at least one member of such a firm sits on the CAI’s 2011 Board of Directors.  It is my belief that the plaintiffs’ construction defect attorneys are so closely associated with the CAI because they naturally derive some benefit from the association. In other words, involvement in the association results in referrals and recommendations from property managers, which results in new retentions and new construction defect lawsuits. 



To read about extreme examples of how the alliance between property managers and plaintiffs’ attorneys can be abused, one needs look no further than Nevada.  In Las Vegas, the FBI has recently investigated a scheme employed by property management companies and plaintiffs’ construction defect attorneys to take control of homeowners association boards with members who pushed for construction defect lawsuits against builders.  If you have not yet heard or read about this story, you can follow it here.



Even though there is no reason to believe that similar schemes are in the works in Colorado, it would not hurt to shed some light onto the role of property managers in evaluating the need for a homeowners association to retain a lawyer to investigate alleged construction defects, in recommending certain plaintiffs’ construction defect attorneys, or in recommending certain courses of action with respect to pursuing construction defect actions.



This is certainly true in light of the fact that the CAI has acknowledged in its application that members of homeowners associations boards of directors may have no experience, knowledge, education, or expertise in managing the affairs of a homeowners association and that they “often rely upon the expertise of their Community Managers for advice and assistance in carrying out their fiduciary duty, making decisions of significance, managing the finances of the Association and implementing policies and decisions of the Board.”



I wrote an article for Mountain Builder Magazine, Aspen and Vail Edition on the topic of construction defect lawsuits and why they are not always in the homeowners’ best interest.  You can read that article here.  In that construction defects lawsuits are often avoidable and should be a decision of last resort, perhaps the Colorado Department of Regulatory Agencies should include requirements or guidelines for property managers who recommend this course of action.



I do not yet know what those requirements or guidelines would look like, but if this sunrise review process gets legs, it might be something to look into.  If nothing else, making it crystal clear that property managers cannot accept any form of gratuity or other remuneration from individuals or companies that could be viewed as an improper inducement to influence the manager, or to recommend a certain course of action to a homeowners association board of directors, would be a good start.  Stay tuned and we will see where this goes.



-- David M. McLain


For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.


4 comments:

  1. Joe Felice, Independent ManagerDecember 15, 2011 at 12:39 PM

    I am a professional community-association manager, and have been since February, 1994. I have lived in the "condo capital of the contiguous 48 states" (Aurora) since 1964. I am a long-time member of the Community Associations Institute (CAI), and I believe it to be a strong advocate for communities. I have served on the Board the Community Associations Institute - Rocky Mountain Chapter (CAI-RMC), and on several committees (currently the Editorial Committee). I am the past-President of the Independent-Managers' Network, and have been published many times, both locally and nationally. I normally do not trot out my qualifications and accomplishments, because, as a responsible manager, I know that these mean nothing if I have not done an excellent job for the communities I have managed, and unless I have maintained the highest ethical standards. As an independent manager who does not work for a management company, I have been personally and solely responsible for the funds of the associations and the proper accounting for them, and not once has any CPA ever found so-much-as-a penny of discrepancy in any audit. Under the proposal currently supported by the Legislative-Action Committee (LAC) of CAI-RMC, however, I would not qualify to be licensed as a manager in the state of Colorado, because I have not taken any class from CAI, have not passed any test given by CAI, and do not have any CAI-sponsored designations. My comments on the recent Sunrise Review Application by the Legislative-Action Committee of the Community Associations Institute – Rocky Mountain Chapter are listed below.

    Licensing, in and of itself, would do nothing to increase the “professionalism” of a manager, as claimed. All it means is that an individual has gone through the process, obtained the necessary credentials, and paid the required fee. Licensing may, however, impart the impression (sometimes incorrectly) that a manager is more “professional.” True professionalism, however, can be proven only by an ongoing and proven commitment to the industry and to communities by a manager who has a consistent track record of service and ethical behavior. It is true that many management companies hire people to serve as "property managers," but who have no knowledge, experience or education in this field. I suppose the proposed licensing procedure would put an end to this, although I fail to see how this would help management companies. The pool of likely candidates would suddenly become infinitely smaller, and those in it would command a higher salary.

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  2. Joe Felice, Independent ManagerDecember 15, 2011 at 12:41 PM

    The LAC of CAI-RMC proposes that state licensing be handled through its own organization, in which membership is currently voluntary. CAI-RMC proposes to change this and make membership mandatory for any manager seeking a license in Colorado. No organization should be allowed to increase its membership (and coffers) through legislation.

    Payment for membership in CAI would be at the manager’s expense. The Certified Manager of Community Associations (CMCA) certification requires taking a class offered only by CAI, at the manager’s expense, and the passage of an exam given only by CAI, also at the manager’s expense. In order to maintain this certification, or to upgrade it, additional classes are required, both inside (Professional Management-Development Program) and outside of CAI, again at the manager’s expense. The National Board of Commissioners of Community Association Management (NBC-CAM), which has been proposed to oversee the entire process, is itself an arm of CAI, and not an independent entity. Three problems with this process should be readily apparent:
    1. The cost for a manager to become licensed would be much more than the fee paid to the state. There would be the cost of membership in CAI, the cost of each class and exam taken, and the cost of continuing education. These costs are not trivial. In fact, they are a primary reason for my not holding a CAI certification.
    2. This process is at once self-serving and a conflict of interest. CAI proposes to have the state enact legislation that would inure to its sole financial benefit.
    3. CAI would be the sole determiner of who gets to be licensed in Colorado, rather than the Colorado Department of Regulatory Agencies (DORA).

    If a manager is to be licensed by any governmental agency, this should be done independent of membership in any trade organization. In other words, a person should not have to join CAI and pay for classes and tests in order to be able to obtain a license. There are other avenues for courses: community colleges, and the Institute of Real-Estate Management, for example. While CAI’s call for licensing may seem to be in the public interest, its proposals for handling the process are in its sole interest. Governmental oversight should be accomplished without the involvement of a private entity outside of the government. There are numerous examples in which allowing oversight and testing by outside entities has backfired. Just look at the recent scandals involving the issuing of driver licenses.

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  3. Joe Felice, Independent ManagerDecember 15, 2011 at 12:41 PM

    The question arises: "To whom should a licensed manager be accountable?" I have always maintained that a manager is accountable to the members of each community that he manages. If to the Division of Real Estate or some other division of DORA, this body would need to have investigative and enforcement abilities. There would need to be some type of due process that provides for a hearing, in which alleged complaints are considered, and in which the accused is able to present a response or defense to the charges, with or without counsel. Is DORA ready, willing and able to administer this process? Without it, licensing would not be a deterrent to any type of malfeasance. It should never be up any civilian organization, to enforce the provisions of the Colorado Common-Interest Ownership Act (CCIOA). In some cases, action should be taken only following criminal prosecution.

    On the other hand, there are numerous examples of malfeasance, including theft, by managers, all of whom could have easily been licensed. A license or any professional designation, such as the Professional Community-Association Manager (PCAM), does not guarantee adherence to ethical standards. In order to obtain the license, each applicant would have to sign a statement agreeing to maintain ethical standards. REALLY? Someone actually thinks this guarantees ethical behavior? Licensing is not, and never has been, a deterrent to criminals. In 1989-90, the husband and wife team who managed Peachwood Homeowners’ Association here in Aurora embezzled $50,000.00 from the association’s reserve account. They were apprehended, convicted, and made to pay restitution. And yet, the wife had CAI's highest designation, the Professional Community-Association Manager (the coveted and almighty PCAM), and was the President of the local chapter in 1988. No action was ever taken by CAI against her, and, in fact, she and her husband moved to Las Vegas, where they set up shop under a different corporate name. I attempted to alert the Las Vegas Chapter of CAI, but was told that it could not take any action based on my say-so for fear of defamation. Investigation, anyone? It should be apparent that allowing CAI to handle complaints would be an example of “putting the fox in the hen house.” (By the way, the person who uncovered the embezzlement, got the managers fired, put together the prosecution's case, and insisted upon restitution to the HOA was none-other than yours truly, when I was the HOA's President and before I became a manager. This was, however what caused me to become a professional community-association manager.)

    I also fail to see how licensing would prevent a manager from being unduly influenced by service providers to recommend their services to their boards. I have always considered this to be an ethical issue to which I subscribe, and need no license to do so. I personally know of the owner of a management company who contracted with a restoration company to use its services exclusively in the associations that it managed. The management company added a certain amount to the bills and, in essence, re-sold the services to the HOAs, assuring a nifty little profit. The owner of the management company? You guessed it--a CMCA and PCAM with long-time membership in CAI.

    In any type of licensing, credentialing or registration, states need to recognize action taken in other states, and be able to deny or revoke a license based on any-such action. There needs to be some type of national database, communication, and mutual enforcement action.

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  4. Cheers for a very good post. You have given me satisfaction to every post i read here. Hope you keep on sharing relevant information to all your readers.

    ReplyDelete

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The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.