James Phifer Q&A

HOA Board Q & A with James Phifer

James Phifer:

Get to go have a meeting with one of my managers in her community. They asked me to come out tonight. They wanted me to come out and do a board 101 class with them. I’m really excited that someone reached out and asked us to do education. And, nothing I’d like to do more than to try and educate this industry. So, let’s get moving.

Speaker 2:

Okay. I guess we’ll start. Thanks for coming tonight. So, James, there you go.

James Phifer:

Thank you very much. Again, James Phifer with ACCU. Thank you for allowing me to be here tonight. This meeting went very well and I’m excited about what we’re going to do moving forward and in the process I was asked to come give some education and as I’m not an attorney, I only play one on TV, I can’t really talk about LA, but I can talk about what it is that we do.

James Phifer:

And, there is a lot going on and the HOA world who had heard about manager licensing? So, the government got involved in our business and said managers should be licensed and I was very for that. I thought that was great. I thought it elevated the industry. It gave barrier to entry for somebody who wants to be a community manager. They have to show that they have a level of knowledge before they come in and start managing associations. And, what we do for a living, I think that’s very important. If we were to add up the amount of money that we have under management for one of our managers, for all the liquid assets and real estate assets, it’s a lot of money and so you should have a license to have it. So, when we were going through this process myself and ACCU was heavily involved with the sunrise process and giving our input.

James Phifer:

We were a stakeholder through that and I think we really helped shape what licensing was. And, so we were very happy with how it came out and it was set for some, it was going through sunset review last year during the legislative process and I was testifying to the Senate judiciary committee on why licensing should stay intact. And, there was a lot of people there that were going against the bill and thought it should die. Well, what we do is very confusing. And, so the Senate judiciary committee said, “We need to look at this more, we’re going to go another year before we sunset this thing because we need to talk to more stakeholders.”

James Phifer:

It wasn’t what we wanted, but at least it was going to stay intact. So, we left that room and a couple of weeks later, Jared Polis, our governor, went out and killed it. He vetoed the bill. And, so manager licensing has since been dissipated. So, what’s happening now through this process? I was down talking to representatives Duran, Tittone and Weisman because they’re interested in running something. It really looks like licensing to me and being this Jared Polis already killed licensing. I’m not exactly sure what they’re going to do, but there is some interest in having what they’ve called mandatory accreditation, which is something that managers would have to go get from a governing body like CAI, the organization that kind of oversees us and provides education to homeowners and management companies, et cetera.

James Phifer:

It doesn’t look like anything’s going to happen in that area, but they may end up bringing a bill forth. More of what they’re looking at is trying to give the HOA information office some teeth with CIOA and to say that if a community association board or a management company is in violation of CCIOA, which the Colorado Common Interest Ownership Act, that a violation can come forth, but more importantly they’re trying to do what’s called the dispute resolution clause.

James Phifer:

They’re trying to give owners of an association a way to resolve an issue without having to file litigation in court. Because, right now that’s really the only way that most boards, they’re good boards, right? It’s the minority that have a pretty big problem. But, homeowner associations are reaching out and asking for an alternative. And, so this alternative dispute resolution has come up and I don’t know what that looks like because in our world it’s, I relate what we do to coming out and finding a ticket on your car when you’re downtown trying to have a good time. Nobody likes to come outside and find a ticket under car. We ticket homes for a living, so we’re not the most popular people in the world.

James Phifer:

So, if we had to go through an alternative dispute resolution for each issue that came in to our office, unfortunately that would form a whole new department that we would have to fund to be able to handle that volume.

James Phifer:

So, that’s something that they’re considering through this process. Because, the last thing we want to do is add additional expense that’s going to pull in the associations attorney. It’s going to pull in ACCU’s attorney, we have an indemnification clause with the association and the last thing we want is to add additional expense to the association. So, that’s nothing is set in stone. A bill hasn’t even been written yet. These are just conversations that are happening down at the Capitol building and the legislators are really trying to look out for the better interest of you as homeowners and making sure that property management companies are doing the right thing.

James Phifer:

And, I really appreciate that because I really feel like it elevates the industry to our standard. ACCU is a gap accounting company. We separate out all accounting responsibilities. So we have accounts, well your association has an accounts clerk, receivable clerk, a bookkeeper, a banking specialist, a legal liaison, and a controller who oversees the whole process. In a management company, you don’t want the person who is ordering the work, booking the work and writing the financial statements. Because, that opens up to fraud. So, we are that type of company and that’s what licensing did. It really elevated to say that you need to be gap compliant and that you have to have certain insurances and those are all the things that we bring and so we thought there was value.

James Phifer:

I will continue to campaign for industry and for our customers to try and bring everybody up to that level. So, that’s a little bit about what’s going on legislatively. I did hear that your community is very, very good at looking into the details when it comes to things like how to fund projects and the accounts within your association. Reserves are a big deal and I think you’re going to hear from a real estate agent and possibly a mortgage lender tonight, about what it takes to be able to get a home in an association and as a management company, one thing that we’re constantly trying to educate our boards and our homeowners on is how important it is to have a certain amount funded and your reserves.

James Phifer:

If a homeowner is out looking for a new home, they want to make sure that they’re walking into a community that has a certain reserve fund, because if it’s too far depleted, the real estate agent may have a hard time selling in that community as opposed to a neighboring community. And, so when a board is faced with the challenges of how we are going to fund things, that can really be a tough decision. I think special assessment is usually a bad word when it comes to living in a homeowner’s association. But, sometimes it can be the better option as opposed to depleting the reserve funds because it really can affect resale value.

James Phifer:

And then I’ll leave the rest of that to the other speakers tonight. But, do you have any questions about what I presented tonight? Yes sir?

Speaker 3:

What was the governors reason for killing the bill?

James Phifer:

The letter that came out stated that it is putting a hardship on people interested in starting management companies, is really what it came down to. It’s putting too much of a barrier between, for people who want to start a management company. I’m not sure that I buy that 100% but that was essentially what it said.

Speaker 4:

When you said dispute resolution, is that a form of mediation?

James Phifer:

It is going to be a form of mediation that’s very perceptive. So, when you file in court, the court’s going to send you back to mediation. That’s almost what happens 100% of the time. If you’re not able to resolve at mediation, then they’ll hear it in court. So, this is a step before you pretty much to make that mediation is occurring. Some sort of alternative dispute resolution for associations-

Speaker 4:

Would it be binding?

James Phifer:

No. Nope. Well, I can’t say yes or no because nothing’s written yet and it hasn’t been passed, but they’re really looking at ADR as something that needs to happen in Colorado for homeowners and boards. Any other questions? No?

Speaker 5:

I’ve got one.

James Phifer:

Yeah?

Speaker 5:

If there’s a lawsuit between an HOA and unit. Does it affect the rest of the units property values. What about the sale of the unit? Will it affect them selling it?

Speaker 4:

Is it detrimental to the sale?

James Phifer:

And, what we’re talking about here is effecting the entire association because the association is filing that litigation normally against the declarant for defects in building the property. I think the question is, is if a unit owner sues the association, does that affect value? And, yes. Any negative thing like that, that’s going to be on a questionnaire and I don’t know if lending is going to be available because I don’t lend. More often than not, my experience is no, but I don’t think it’s going to effect the community it’s entirety.

James Phifer:

If your neighbor’s home is for sale and you’re the ones suing the association, the lender might not have an issue, they’re going to look into it. But, underwriting will have to make that determination. Is it going to affect property value? Again, I think it’s situational. If it’s a potential for a big lawsuit, yes. If it’s “I’m suing my board because they’re violating me because I painted my door yellow,” probably not.

James Phifer:

The last thing is, associations are a little bit different. Corporations normally had D&O directors and officers insurance for monetary mistakes. But, in associations you have monetary and non-monetary claims such as “I painted my door yellow,” that’s non-monetary. And, so we have to be very careful how we get insurance for associations to make it cover.

James Phifer:

And, I’m going to just, one more thing and then I’m going to answer that question. And, this comes down to things like fidelity insurance. This is very important. Fidelity insurance was a requirement of associations when the licensing law was in effect. And, what fidelity had to cover was all of the reserves plus two months worth of assessments, the monthly assessments. And, there were insurance agents out there that I saw doing things like putting employee dishonesty policies on and saying, “Oh, that’s fine.” Well, the management company is not an employee of the association. So, if there was a theft from management company to association and a claim got turned in, they’d be, “Sorry.” But, if it’s a fidelity policy that covers, then it’s going to cover you and what you have put into this association.

Speaker 2:

And, you’re actually working through that issue right now?

James Phifer:

Yes, so those types of things are very important for communities.

Speaker 3:

Let’s say that someone purchased a property and there was different things left out, because what we were discussing was that you know the HOA provides the documents but normally the agent has to pay for those documents.

Speaker 2:

The agent doesn’t, the seller does.

James Phifer:

So, this is a big issue.

Speaker 2:

He’s the one who the is one of the people who the agent went to a knock off website to get the documents and they didn’t have all the documents.

James Phifer:

We’re having huge problems with that.

Speaker 3:

And, we didn’t have an underwriter, we just paid cash.

James Phifer:

I just bought a home myself and if I didn’t run at the community association management company, I wouldn’t have realized this. There’s a couple of companies out there that are third party resellers of our documents and what we have all of the legwork in it. We have, I’ve got people hired, we gathered the information, we put it all together, they come on and they buy one package for an association and then they sell it for the rest of the year. And, so they make all the profit on it. It’s a very profitable model because they don’t have a whole lot of overhead.

James Phifer:

The issue is, is that they don’t know if anything’s changed. They don’t know, and oftentimes documents are not updated and so the buyer doesn’t get them. And, so I am talking to the legislator on a high level right now trying to make sure that there’s consumer protection in this area.

James Phifer:

We had one association that had a water leak and the resale package didn’t show the water leak on it and out $10,000. Big problem. Their association had changed their documents and a homeowner buys in, hadn’t read the documents while they had changed and they didn’t allow for commercial vehicles and he had a commercial vehicle. So, he moved in and he was in violation, started to receive fines. These are problems and why it’s really important to use the management company for these things so we can make sure that you get the proper documentation.

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