106 | The Brutal Truth About HOA Leadership (Are You Ready to Face It?)

106 | The Brutal Truth About HOA Leadership (Are You Ready to Face It?)

SUMMARY KEYWORDS

HOA Insights, board of directors, financial pressure, insurance, reserve study, vacation ownership, fiduciary duties, transparency, communication, professional management, compliance, assessments, board members, legal requirements, community associations.

SPEAKERS

Speaker 1, Jessica McConnell, Rob Webb, Announcer, Robert Nordlund

Rob Webb 00:00

Seek the advice of knowledgeable experts where you do not have particular expertise and rely on them to the extent that you reasonably believe they’re reliable. And if you’ve got a board of directors that doesn’t trust its manager, doesn’t like its manager, doesn’t believe its manager, then that is a situation doesn’t matter who’s right and who’s wrong. That’s a situation that’s hidden for problems.

Announcer 00:30

HOA Insights is brought to you by five companies that care about board members, Association Insights and Marketplace Association Reserves, Community Financials, Hoa Invest and Kevin Davis Insurance Services. You’ll find links to their websites and social media in the show notes.

Robert Nordlund 00:45

Welcome back to Hoa Insights: Common Sense for Common Areas. I’m Robert Nordlund, and I’m here today for episode number 106 with a special guest that I heard speak at a conference last year, and I immediately thought that would be a great guy to have as a guest for our podcast audience. So today I have the good fortune to have Rob Webb on the program. Rob is a Florida attorney. He currently serves as director, secretary and association general counsel for Arda, which is the American resort Development Association. Now for those of you in the residential community association world. Arda is the resort or vacation ownership version of Cai, the National Trade Organization. Rob’s also active in his private practice, with all the normal and crazy things that happen at an association on a daily and weekly basis. Well, this is a follow up to episode number 105 with regular co host Julie Adelman, where it’s always a treat to hear what she’s doing and learning from a consultant point of view, helping boards and communities to thrive. And if you missed that episode or any other prior episode, take a moment after today’s program to listen from our podcast website, Hoa insights.org, or watch on our YouTube channel, but better yet, subscribe from any of the major podcast platforms so you don’t miss any future episodes. And those of you watching on YouTube can see the HOA insights log that I have here that I got from our merch store, which you can browse through from the HOA insights.org website, or the link in our show notes, you’ll find that we have some great free stuff, like board members zoom backgrounds and some specialty items for sale, like this mug. So go with the merch store. Download a free zoom background for your next Zoom meeting. Take a moment look around, find the mug you’d like and email me at podcast@reservestudy.com with your name, shipping address, mug choice, mentioning episode 106, mug giveaway, and if you’re the 10th person to email me, I’ll ship that mug to you free of charge. Well, we enjoy hearing from you responding to the issues you’re facing at your association. So if you have a hot topic, a crazy story, or a question you’d like us to address. You can contact us at 805-203-3130, or email us at podcast at reserve study.com and this episode was prompted by a question from Julie in Sarasota, who asked Sarasota Florida, who asked our Florida condo association is facing some financial pressure due to insurance and the new reserve study legislation? Is this going to affect my two timeshares? So I thought this would be a great episode to have a Florida Community Association vacation ownership specialist, attorney on the program. So Rob, welcome and what would you answer to Julie?

Rob Webb 03:48

Thank you very much. It’s a pleasure to be here, Julie, I would say, depending on the financial health of your association and your current state of compliance with the new condo laws, it could affect your two time shares incredibly negatively, or it may not really impact you at all. If your association has been thoughtful in planning for the structural reserve requirements and other recent changes to the condo law, then hopefully it’s simply a matter of increased assessments and smart collection planning, and the impact will be minimal. If your association is wringing its hands because it doesn’t even know where to start or has other reasons to believe it can’t comply with the law. That could be a very dangerous situation indeed.

Robert Nordlund 04:46

My listeners know I come from the reserve study point of view. The reserves are the big ticket items, the big ticket items that you would like to have years and years and years of financial preparation to get ready for so you’re. Not hearing about a leaky roof and saying, Oh no, what are we going to do? And I think Rob that from your point of view, that’s got to be even bigger and bigger for vacation ownership resorts, where not only are you dealing with the roof, but you’re dealing with all those unit interior assets, the flooring, the carpeting, the kitchen remodels, all that kind of stuff. So the reserve projects at timeshares, at vacation ownership resorts kind of be just huge. Yes,

Rob Webb 05:28

they are. And the modern vacation ownership industry, I would split it into four pieces. One piece has a well capitalized public company or well capitalized private, independent developers, very professional management, and they continue to sell. And after they’re finished, basically selling out one resort, they continue to have a presence because they’re selling other resorts or a vacation club or multi site, and they tend to be well reserved, well maintained, and they don’t really have difficulties, and they show us the very best of what timeshare can Be. Then you have older resorts that are not managed by a public company affiliate, but very professional management notwithstanding, there are several of those in Florida alone, and they and their boards have a good relationship, very transparent. They communicate well with their owners. Their owners understand why assessments are going up and where the money’s going. They’re also in pretty good shape. Then your last two categories are, unfortunately, older resorts, primarily, but not all, but older resorts that have no professional manager, have no developer or resale program. They’re doing the best they can. This isn’t an indictment of the board members by any stretch of the imagination. Yeah. Well,

Robert Nordlund 07:08

most board members are short term people that they inherited a problem.

Rob Webb 07:12

You know that that’s true. I think of many condo associations, but timeshare condo associations and regular timeshare associations, if the place is run, well, it’s difficult to find volunteers for the board, because there’s really no problems. It’s even if I should show up for meeting, we had to reduce our quorum, legislatively, 15% for the purpose of electing boards, no matter what your quorum is in your documents, because we couldn’t get anything done otherwise. So that’s a blessing if that’s happening, even though it’s frustrating, because you want to encourage participation. And then you have the fourth category. I’m going to use a euphemism that’s not very complimentary, but I think it’s very descriptive, and that’s zombie resorts, resorts that are in a financial death spiral, and corners are cut just about everywhere to try to keep the doors open. Again. It’s not an indictment, necessarily, of the board members, unless they’ve been there for a long time, and even then, board members are under pressure from owners don’t raise our assessments. I can’t afford more. Those need to die. And that’s part of what I want to talk with you about today, is if you look at the life cycle of our shared ownership industry, we’re not doing a very good job with that last part.

Robert Nordlund 08:44

Rob, I don’t know how much homework I assigned you or how much you did, but our very first episode was with some attorneys who were talking about condo deconversion, and I wanted to do that as one of our initial episodes, because when you get on an airplane, the flight attendants tell you what the emergency procedures are, what the emergency exit is. And I see the deconversion, or as basically the emergency exit when it’s failing, you need to find a way out is that a little bit of what you’re talking about it

Rob Webb 09:19

1. And 40 to 45 years ago, when I started in time sharing, I started as a lawyer, 45 years ago in Orlando, Florida, the condo markets had collapsed in Florida, Nevada, Arizona, California and Hawaii, and there were a bunch of whole ownership condos that no one could sell or finance. They were just laying around, and timeshare was one of the devices people turned to as a workout device. Spoiler alert, it’s not a workout device, but through a happy set of of. Occurrences. A lot of it was sold, and even though it wasn’t sold well, and even though we didn’t have professional managers that understood the things that make timeshare very different from both whole ownership condo and hotel. It’s a mixture of the two, but it has its many of its own issues, not withstanding all the things we weren’t doing right. People loved it, but the lenders in those days said we are not going to loan the developer money if there is any chance this thing’s going to be terminated while any of our loans are outstanding. That’s why most old time period declarations in Florida and elsewhere require 100% consent to terminate the timeshare. Now that’s not true in every case, and there are some that have other methods of termination, but we had no idea I counted myself. I was young associate. I was copying other people’s documents and then amending them as I thought they were necessary. And you know, that has brought us to the problem we have today. Whole ownership has it as well, but whole ownership has it for

Speaker 1 11:12

different reasons. I want to follow up on your first category, and if I’m giving you too much of an explanation, just cut me off.

Robert Nordlund 11:20

Okay, well, you got me taking notes, and my brain is spinning, and that’s always a good thing. You talked about the first category. First category is well capitalized developer, continued presence, I think, major brand, and at that major brand, they also run hotels. So could we take a step further to say they’re hotels? There’s well run vacation ownership, and then it blends down all the way to Mom and Pop organizations that weren’t run. Well, that’s your category one. And then that almost blends into the whole ownership, residential condominium association world where people live, and it becomes their home. And sometimes you don’t see things because of what we call familiarity blindness. You since you see it every day when you walk from your car to your mailbox to your front door, you don’t see that crack in the sidewalk. All of a sudden, things creep up on you and you miss so is that can is that fair? Is that that may be a dead end? I shouldn’t I probably shouldn’t have gone down that path. I

Rob Webb 12:27

think it certainly is one way to look at it, because I like to look at issues as if they’re laying on a dining room table, and there are eight chairs or 10 chairs around the table, and each chair you move to gives you a different perspective. It’s interesting, though, that you mentioned familiarity blindness, because in what I’ll call homestead condominiums, where people live there, including the directors, everyone, even if they’re missing that crack in the sidewalk, everyone has a constant opportunity to assess the physical and financial health of this investment of their home, and most of the laws are actually written to protect purchasers and associations for those whole ownership condominiums. Part of the frustration we have its temperature industry is that many of them simply aren’t applicable to timeshare. And if you look through the condominium Act, which is a bit of a Frankenstein of its own, this doesn’t apply, yeah, Florida condo act, this doesn’t apply to time condominiums, right? But, yeah, I think that’s pretty fair. That’s pretty fair with times, sure. Communist. You know, our directors don’t live there, and we get them sometimes, if you’ll pay for them, they’ll come to the resort for a week and then have their meetings. But it more and more, they’re on Zoom, so they’re not there all the time. So it’s almost the opposite problem. They don’t have a chance to see the crack. And when they’re there, there are too many things, sensory overload. So it’s like many of the issues between timeshare and whole ownership, it’s inverse.

Robert Nordlund 14:10

So the timeshare boards have the opposite problem, that they’re not aware or wow, if they’re sharing, then maybe they haven’t been there in five years because they’ve been to another place for the last four years and they’ve lost track. You’ve got it interesting. Okay? What’s it like? What are the challenges you see for timeshare board members? Otherwise, I would think that they’re interfacing with a major brand, which hopefully is an incredibly great assistant who is laying the decision points on a platter for them. Is that does that make being a board member easier or harder?

Rob Webb 14:51

It depends on whether you’re trusting the advice you’re getting from that manager or other fiduciary. Okay, board members directors of any non profit corporation owe fiduciary duties, which is the highest level of duty owed in agency law. Some of the things it means in this context are seek the advice of knowledgeable experts where you do not have particular expertise and rely on them to the extent that you reasonably believe they’re reliable. This is really important. And if you’ve got a board of directors that doesn’t trust its manager, doesn’t like its manager, doesn’t believe its manager, then that is a situation doesn’t matter who’s right and who’s wrong. That’s a situation that’s heading for problems.

Robert Nordlund 15:46

We had a podcast episode just a few weeks ago where the guest expert was talking about trust but verify, and I first learned that phrase long ago because of Ronald Reagan, and he was interfacing with the Soviets, and, you know, very important discussions, and especially at resort associations. Those budgets are big, and the strategic plans that you lay out the implications of what are we going to do? Those are big decisions, and you need to trust and maybe you need to ask that extra question, to say, can you clarify that? Why do you think? But so maybe respectfully, just press them a little bit. Is that what you’re talking about? It

Rob Webb 16:33

is, but before you can even do that, you have to be well informed in the premises. In other words, you have to understand the budget. You have to understand what the line items include, and don’t include. Some resorts have such summary budgets. You know, one page, maybe half a page, full of line items, very, very, very broad in general, that’s not against the law. It is just inadvisable from a director’s perspective, because you don’t know what’s in that. And then when you laid the two directors should ask, Oh, here’s the 2025 budget. Can you lay it next to the 2024 budget and give me a per line item variance? That is a basic request, they should be very happy to do that. If your budget is that half page, you know, 18 line item thing where everything’s bunched together. How are you going to understand the variance? You could say, well, what is that? Oh, we had higher employment costs. Our insurance went up, and that’s where most people stop. In my opinion, that is not a director doing her job. Directors need to say, No, I need more exactly what went up what budget for guesses we get that. Where did you guess wrong? Where did you get right? Give us advice on what we’re going to need to do to refine those guesses based upon last year’s experience that is a director doing her job. I

Robert Nordlund 18:08

like that getting down to a granular level, so it’s not just utilities, but the electric, the water and then staffing. You may not need to know a person salary. But you need to know, how much do you have eight people on the landscaping staff, or do you have 24 how many housekeeping staff do you have? All these kinds of things where you’re seeing what’s happening? Are we getting more efficient? What is the miscellaneous is that the walkie talkies are people using cell phones, lots of things that help you understand what is going on at our resort.

Rob Webb 18:45

It’s very important to understand the difference between direct provision of services by the association through its employees and third party contracted services, both of the examples you gave, landscaping and housekeeping can be done either way, right? And if it’s a third party service, don’t be satisfied with, oh, they’re telling us it’s going to be 5% more this year because their costs went up. Okay? What costs went up and do we need to put it back out for bid? And a manager that’s not ready to answer at least the first round of those questions without research, is a manager that’s not doing a very good job. In my opinion,

Robert Nordlund 19:30

I like that. There’s a board member responsibility, there’s a magic responsibility, and it’s a team that works together for the success of the property itself. And that would be the same, I’d imagine, yeah, whether it’s a resort or

Rob Webb 19:47

whole ownership, yes, that’s true. In whole ownership, you have addition, you have one additional danger that you really don’t tend to have at timeshare resorts, although there are notable exceptions and that. Is politics. The politics of the board in a residential condominium are so much more palpable, so much more impactful on the overall operation of the association and the condominium, whether it’s board members that genuinely aren’t listening to their owners, or owners that aren’t paying attention, and they tend to lay everything off on Well, that’s the board’s problem, and we can’t vote them off. Usually the truth lies in between just about any two points. But I think I know that my friends that are managing whole ownership condominiums tell me that they need to work much harder on transparency, much harder on making sure the board is informed, and much harder on giving interim information about operations to the owners so people aren’t asked to come to one or two meetings a year or four under the current law and be told, Hey, this is happening. Our costs are going up, and people don’t know what to say or think, and people react poorly, and then the meeting doesn’t go well, that kind of thing. Information flow is another key to a condo tranquility.

Robert Nordlund 21:22

Rob, I want to get more into that talk about communication, lowering the temperature on a board so things get done. Think personalities aren’t a problem. But I want to take a quick break at this time to hear from one of our generous sponsors, after which we’ll be back for more common sense for common areas tired

Jessica McConnell 21:42

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Robert Nordlund 22:19

Now we’re back. Well, just before the break, we were talking about the challenges with boards, and maybe the little difference between or a lot of difference between whole ownership boards, timeshare boards. And one thing Rob that you said that captivated me was the maybe bigger role that personalities play and tensions play at whole ownership associations and walk me through that is that, because they’re living close to each other, is that personalities? What’s what’s going on with that? You

Rob Webb 22:51

know, in my experience, it hard to get the people that might be the best officers and directors of a residential condominium association, it’s hard to get many of them to run. They don’t want to be the center of attention. They don’t want to be the ones making the decisions. They just want to get along with their neighbors. Those are the ones you desperately need. So in many cases, people with large outside person, outsized personalities run and get on boards that not bad thing, intrinsically, however, if they don’t know how to put their personal preferences and perspectives, religion, politics, etc, in a silo when it comes time to talk about what’s best for the condominium and its members as a whole, then it can quickly devolve into a very uncomfortable situation dominated by a few loud people and the very people that could be effective counterbalances. They don’t even want to go. I don’t even want to show up. It’s it makes me uncomfortable. I don’t like

Robert Nordlund 24:06

Well, you got me thinking more along those lines. Let’s talk about a hypothetical 100 unit condo association. Okay, in that situation, a whole ownership you have 100 a pool of board member pool, basically of 100 people. But when you’re talking about a vacation ownership, what is it? Roughly 51 weeks. And so you have 5100 people that you could pull from that you could hopefully have a little better chance of getting someone with the right personality, wherewithal, capabilities, to be a board member. That’s the right stuff. Okay, I like that. Now. We have some residential clients, and I’m thinking of two in particular, one that is a large HOA large plan development, and they have miles of horse trails, and they have some wonderful tennis courts. So. And the board is made up of the horse people who wear boots and the tennis people who wear their nice outfits and have white tennis shoes. And there’s inherent conflict at that association. I have another that has private lake, a golf course and an equestrian center. And like you say, the boards have these different motivations. Are you a golfer? Are you a boater, or are you a horse? Horse Rider, horse person. But let me take you back to what you said right at the beginning about being a fiduciary. That means you tend to put these things aside, and you put the association first Correct.

Rob Webb 25:42

You put the association. And another way to put that is the members as a whole, not the people you play bridge with, not the people you play tennis with, everyone, including that old man that you know keeps complaining about the crack in the sidewalk in front of the unit, everybody as a whole. You can’t make them all happy, but if you make them know that you’re listening and doing your best to try to balance competing interests, then you’re doing your job as a fiduciary. Doesn’t mean it’s going to be easy. It often is not transparency, communication, reliance on reliable experts. These are the keys

Robert Nordlund 26:27

I’m stopping because I’m writing that down. Every once in a while, you are going to say something good. How about that? Rob?

26:37

I’ve got a million of them. I think we’re going

Robert Nordlund 26:39

to need to have you back sometime. Transparency, communication and reliance on experts. That’s because, I guess there’s humility in there, understanding that you don’t know it all humility or selflessness, that you understand that the association needs this, even though you don’t want to raise the assessments. But geez, Louise, you’ve looked at the budget, and you need to raise the assessments, not just doing it because you got on the board to do X. Once you get on the board, you need to realize you’re running the corporation, and you carry that burden on your shoulders. And

Rob Webb 27:14

that’s a good way to think about it. A public company usually has boards of directors made up of people that run other public companies or have particular experts expertise in the public arena, but they don’t. Maybe not know how. They may not know how to make the widgets that company ABC make, but they know general rules of engagement in public markets, public financing, shareholder care and communication. They’re experts at that in other contexts, and therefore their perspective is valid for our condo association. You can have doctors, lawyers, professionals, that’s good, but they shouldn’t all be that you want some people that are retired. You want some people that are in different businesses, most of all, you want people with common sense and the ability to doubt themselves just a little bit.

Robert Nordlund 28:07

I have a friend who is a real singer type person, and he talked once about the richness of singing in a choir with different people of different sizes, shapes and ages, because he said that gave richness to the choir. They brought different things to the choir that just he said, brought color to the black and white of the music. I

Rob Webb 28:33

love that. I love that analogy. But there’s one other point to it, and I’m so glad you brought that up. Perfect analogy, and that is and you don’t want one person singing more loudly than they need to, because that will ruin the the orchestration of the different voices, knowing how and when to inject your opinion and then be quiet and listen. By the way, anybody that knows me that’s listening to this is saying, hey, Physician, heal Thyself. But well, you podcast. This isn’t, this isn’t Rob Webb under examination. God, I wish I could listen. You don’t even know. You don’t even want. Well,

Robert Nordlund 29:16

Rob, that brings up a point. You get paid for being a subject matter expert, you’re a treasure trove of knowledge, of experience. I want to hear more from you someday, and we don’t have time today about what got you into this crazy industry, the this association industry. I want to hear more about termination, because that sounds like that may be an important future of our industry, whole ownership and timeshare vacation ownership, but at this point in time, Rob, It’s great talking with you and having you on the program. You’re leaving me with more questions I’d love to talk with you about. But any closing thoughts to add? At this time, I

Rob Webb 30:01

like what you said about termination. I don’t think you have to read too many papers to fully understand that older Florida condominiums, particularly on our coasts, are in disarray, not in compliance with the law. They’re facing resale problems. They’re placed facing financing problems, and most recently, insurance eligibility problems. It’s a mess, and the solution, I think, is an easier approach to termination than we have right now for another time. But I’m I’m not a pessimist. I love the condominium form of ownership. It would be great maybe to drill down, down to how that form of ownership developed, how it was initially reacted to and what has happened over time to it that has sort of led us to the mess that some of our condominiums in Florida are in.

Robert Nordlund 30:55

Yeah, similarly, I’m an optimist. I think there’s people here, the subject matter experts from different points of view that together, we’re bringing this association industry forward. I think the best is ahead of us. I think it’s interesting. You used a word right there that I want to bring out. You talked about insurance eligibility. So many of our listeners are thinking about insurance affordability, but that’s a half a step away from insurance eligibility, and

Rob Webb 31:21

they’re going to wish affordability was their only problem and not very long from now. Well, said,

Robert Nordlund 31:26

Well, if you’d like to get in touch with Rob Rob Webb, you can reach him through his firm’s website, Baker law.com b, a, k, E, R, L, A, w.com. Well, we hope you learned some HOA insights from our discussion today that helps you bring common sense to your common areas. We look forward to having you join us for another great episode next week

Announcer 31:51

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