Interesting enough, HOA managers do not have to be licensed by any entity. What does this mean for the consumer? (Concerning HOA management, a “consumer” would be any member of an association or a board member.) When managers are not licensed, consumers are not able to file a complaint with the Arizona Department of Real Estate (ADRE) and the ADRE cannot investigate any conduct or claim against a HOA manager or that of a management company. ADRE does not have the authority to investigate the conduct of HOA managers and HOA management companies; they do not audit the HOA’s accounts nor verify the integrity of the HOA’s financial reports as issued by management. The ADRE website merely suggests that if consumers have any concerns they should seek legal counsel.
It is very important to know that ADRE does not audit or verify that the association’s financial reports generated by the management company are true. There are some associations that may hold significant funds in reserve accounts to pay for future maintenance costs. These reserve accounts are funded by the HOA’s members paying HOA dues. Historically, an employee of the management company is a signer on the HOA’s accounts in order for the management company to pay the HOA’s bills. It is also common for the management company to be responsible for the bookkeeping on behalf of the association. With all of this said, you can see the risk! As a member of any HOA, this is your money and you must take care in order to protect these funds. Here are some suggestions of how to protect your association from misconduct from HOA managers and management companies:
- The HOA’s board of directors must exercise care when hiring a management company. The HOA’s board should ask the following from potential HOA management companies:
- Are your managers licensed real estate agents? Even though HOA managers do not need to be licensed, it’s a benefit to the HOA if they are. Licensed HOA managers will more than likely have a better understanding of real estate law and associated transactions. More importantly, in order to hold a real estate license in the state of Arizona, you must pass a background check, which includes fingerprinting sent to the F.B.I.
- Does the HOA management company have a fidelity bond? If so, ask for a copy of the policy. Most fidelity bonds cover loss of the association’s funds due to theft by the management company. Review the policy to ensure the amount of the bond is adequate to cover the estimated dollar amount that the association will hold. Remember, the management company will more than likely have access to those funds. If the management company does not have fidelity coverage beware.
- Ask if the HOA management company delegates separate financial functions within their company. You do not want the same person within the management company issuing work orders on behalf of the association, writing checks on behalf of the association and reconciling the association’s accounts. Know the management company’s employees and their responsibilities.
- Ask the HOA management company where they conduct business. Know where the management company conducts the bookkeeping on behalf of the association, and the preparation of the association’s financial reports. Some management companies have a large home office outside of the city in which the association is located. Independent HOA managers may conduct their business out of their home office. Although it is not illegal for the management company to have smaller satellite offices, it is important for the board to have the ability to “spot check” the association’s financial reports and bank statements.
- Ask the HOA management company how many associations they manage. This helps the board determine if the company has the needed experience and if others feel they are trustworthy. On the other hand, if a management company manages 45 associations and they have two property managers, this could also be problematic. The managers will more than likely not have enough time to service all of their accounts.
There are many HOA management firms that perform outstanding work for their HOAs. They are trustworthy, have proper insurance coverage and ensure their employees remain current with the rapidly changing HOA laws. HOA boards should exercise great care and hold the management companies and managers accountable, and conversely, a good manager will hold their board accountable as well. This is the best-case scenario as it reduces the risk of malfeasance by the management company and harmful decisions by the board members. Good HOA management benefits the entire membership of an HOA. If an HOA board is uninvolved or uneducated, the HOA’s potential damage could be in the thousands of dollars and this is completely preventable. FBN
By Mike Hutchins Sterling Real Estate
Leave a Reply