Is firing our MC a mistake?

Started by GreggK1 • 10 replies • 1568 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

⚡ Takes 30 seconds

Already a member? Log in

GreggK1 (Hawaii)
Posts: 4

Posted:

I'd like to first express my appreciation for all who contribute their time to this site. It is an excellent resource and often a wonderful source of entertainment for my growing enjoyment of participating in my HOA.

Our Board just voted 4-3 to replace our MC. We are a 15 month old HOA that is about to go to "war" with the developer for expense reclamation and possible construction defects.

Prior to this vote our MC expressed their commitment to be an expert witness should the need arise. Also: our MC is our bookkeeper.

Questions:

1. How significant a loss will we be experiencing with the lack of a 150% cooperative expert witness?
2. For those of you that have experienced a MC transition, what were the greatest obstacles you faced as you went through it?

Thank you

MelissaP1 (Alabama)
Posts: 13,836

Posted:

You need a lawyer BEFORE you need to replace your MC. My gut feeling is that this may NOT be a MC issue. It is but it isn't. Not knowing all the details, I have a "intuition" of what may be going on here.

The MC you have currently was once the Builders/Developer's MC. Correct? The issues your having with the builder/developer involves some construction issues. An early formed HOA has many complications before they become a true HOA. Right now, your either just been turned over by the builder/developer or going to be. This is the "tough" transition period. The motive of firing your current MC is the fact that they once worked for the Builder/Developer. The HOA board feels that firing them will help cleanup some of the Builder/Developer mess they left behind. If you dissociate yourselves from all the bad, then nothing but good is going to happen.

In this case, the MC may be an "innoncent" victim. MC's are HIRED contractors. They will work for anyone willing to pay them money. So they were hired by the builer/contractor to do their bills/bookkeeping. Just like any other contractor from the yellow pages. Just like your doing with getting a new MC. The fact the MC is willing to testify is something you should consider. It sounds like the MC is making a "play" to change alliances here. Their trying to escape the "dark side".

What I would do is entertain a NEW bid from your MC. Tell them that your HOA is shopping around and collecting bids. That you would like for them to put in a competing bid for the job. Acknowledge they have competition but don't tell them any details. You NOW have to treat your MC as a paid contractor with contract terms. I think they will understand this approach more than just letting them go because they are associated with the previous regime.

An important fact that is needed to know is: Has the developer/builder already turn over the HOA to the homeowners? If they have, you have got a battle on your hands that ALL the owner's may have to pay for. If the developer/builder is still in charge you may have a chance to get things changed before they officially turn over.

Keep your MC if the reason your getting rid of them is because their association with the previous builder/builder. Fire the MC if it's because their work isn't adequate. However, do ask them to submit a bid if they want to renew their contract. You may be able to use their bid as a basis of what you want your NEW MC to do or not do.

Former HOA President

Jadedone4 (Virginia)
Posts: 495

Posted:

Gregg,

I am a new President of an HOA transitioning from Developer to Owner control - I feel your "pain" in this process.

I want to make a few things clear (and apologize if I am assuming, or overstepping here)...

First you CANNOT fire your MC, simply based on a board vote. Review your MC contract/agreement, there should be well defined "termination" clauses in that document, which address what can, and what cannot happen, if the board/community is not satisfied by MC's performance.

Second, I do agree with Melissa, that the board should have legal counsel review the contract. However, there is a caution here - chances are the attorney was also hired by the developer. Now having said that, attorneys are held to a higher and enforceable standard than the MC (state bar association, canons of ethics, etc) - so there may be better oversight on the part of the attorney.

It is important to remember that this is a business, and businesses are ran with profit in mind. Chances are again that the Developer has established relationsips with the MC and the attorney, and may choose to use their services on other projects. Does that immediately mean that the MC and attorney are in the developer's pocket..? Absolutely NOT - but it is a reality that this is the case. You have to balance what services you receive from the MC and attorney, against what is in the best interest of the community. If either fails, then you remove and start new.

"Going to war," with a developer is NEVER a good thing for anyone on either side of the table. Further it does not assist the relationship. Now that does not mean that you do NOT stand up for the community and engage the developer to properly respond to their responsibilites. This should be more about negotiating with the developer to get that the community needs. I understand if there are major issues which the developer has not fulfilled their obligations - however, after going to war, courts, mediators, etc - the end result is the same - the community still needs to be made whole (completion of the issues which triggered the problems with the developer in the first place).

I have said it before, sometime a grenade works just as effectively as a nuke - you gotta know which one to toss to get your desired results.

On the issue of the MC agreeing to be an "expert witness" one thing that I believe that Melissa may have missed.. is that any "expert witness" is a paid witness, and more importantly they MUST be impartial parties to the action. In other words, your current MC, is NOT an impartial party to any actions between your community and the developer, because they have worked for the both of you at one point in time. Some may state that the MC is always representing the HOA and never the developer - but that is such a gray and cloudy area, I just do not see any judge allowing a current MC to be an expert witness. Now I CAN see the MC being a witness to what occured in the community (on both sides) which triggered the action.

Upper corner of the page here, there is a "search" box, type in "transition" and there are checklists and information which was VERY helpful to me, when I started out on this process. This will also provide additional comments and resource locations, that other on this forum have posted.

Use the internet, and search for "developer transition" with filters for "HOA" etc - and you find information from "CAI" "AHRC" and other sources/experiences of transitioning from developer to owner control of an HOA.

IMHO - the two most critical steps that you need to consider are an Transition Audit, and Transition Engineering Study. There are many other items, trust me MANY, MANY, more items which are important, but the two mentioned are those which (based on your post) that I would consider priority.

Make sure that whatever MC you go with, that they understand fully the checklists and procedures that you are going to find here and those other sources. Having a good third party, unbiased assistance during this period is critical.

Finally, you are going to make mistakes, learn from them, be open to what your trusted advisers tell you (engineer, auditors, attorney, and MC) - this is what your HOA is paying them to provide. However always make sure that you have done your homework FIRST...

GreggK1 (Hawaii)
Posts: 4

Posted:

MelissaP1 and Jadedone4, thank you SO much for your astute comments, they are very much appreciated! I have attempted to answer your questions below with further detail on our situation. Before I do that I would like to provide my most important question rephrased. I apologize for not making this clear in my original post!

Are we losing a lot by firing our MC who has 150% committed to be on our side should the need arise? If we fire our MC, we run the risk of them "forgetting history". How impactful would that be when financial matters are involved?

I think your responses indicate that there is an impact. I am hoping to find out if the impact is minimal or huge. I will be seeking the opinion of our attorney but I wanted to get a "second opinion" from those who may have experienced a similar situation.

More information on our situation:

1. Our HOA is in area that has only 2 MCs in town.
2. Our MC was hired by the Dev. I am assuming that they were hired because they are the larger and more reputable of the 2.
3. We have competitive bids from both MCs. They are nearly identical.
4. The HOA was turned over to owners late last year.
5. Our current MC is not "performing" in the sense that they are not
executing our directives in a timely manner. But I believe that this can easily be resolved with follow through by our Board.
6. Our attorney was hired by the Owner Board.
7. Sorry about the "going to war" comment. To be more accurate: we are intending to mediate first, arbritrate if that fails, then litigate if that fails.
7. We have completed a transition financial audit and are working on finding a consultant for the engineering audit.
8. Sorry about the "expert witness" phrase. Yes, we are not wanting our MC to be an expert witness but a cooperative witness.
9. Additional information...the supporters of the "other MC" have stated the below as the reasons for supporting the firing of our MC:
A. Other MC has superior accounting software that provides real time
access to the books.
B. Current MC is not executing Board initiatives in a timely manner.
C. Other MC in their sales pitch has asserted they will do whatever it takes to make this successful.
D. Other MC has a sister construction company that can assist us in our construction defect negotiations with the Dev. Current MC does not have a resource.

If there is anything more I can provide to help you please let me know. Again, thank you so much for your opinions!

Gregg

Jadedone4 (Virginia)
Posts: 495

Posted:

Gregg,

Understand on the difficulty your community is in, as every "transition" event is different for each HOA.

You mentioned that your current (and possibly to be "pink slipped" MC) is committed to being on your side, because they may not "forget history" if litigation arises. Well the other side of that coin is this... do you really want to entrust yourself and community to a company that would "remember/forget" as the wind goes by...? Records, if they have been properly maintained are factual, and should not need further "coloring" by a MC or anyone for that matter. You mentioned that you have undergone a transitional audit - those records are with a reputable accounting firm using "GAAP" standards, and more than likely there were two letters of representation signed by the auditor, MC, and then counter-signature on both by the board (President or Treasurer).

Truth when under subpoena is still truth... while I do understand not wanting to make an enemy, I would also balance what I am getting in return for this, and whether or not it is truly beneficial (in terms of enduring bad service from the MC as you have stated).

Sorry to hear that you only have "Coke" and "Pepsi" in your area in the way of MC (only two, sometimes you need a RC, or the storebrand called "Cola"). You additionally mentioned that the bids from both MC's are identical, however, you have a keen "appreciation" of what service is like from one, correct?

You mentioned that that the current MC could be "savalged" if the board was more engaged. Are you on the board, so that there is someone to assure that this will occur (if you continue with this MC)..?

You mentioned that one MC has better software, well that software could be the best in the world, but would not mean much if you have poor service from MC.

Everything is "shiney" when new - but you want the MC that is capable of digging down in the trenchs for your community when times get tough and everyone is tested. I would take a grunt who is like the "energizer bunny" over a gazelle who flys over competition, but has not been tested.

However your community decides, you are CORRECT in having an attorney review the contracts. I skillful and balanced contracted drafted with respect to both parties, will work wonders for the relationship. Look closely at the termination clauses, renewal provisions, and then at including "milestone" measureable items of performance. When the MC and the board have defined roles/expectations it benefits the relationship, because there are no "well, I thought" or "I assumed that" was covered under the contract.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I wanted to add that Item number 6 is EXACTLY what is supposed happen. The attorney for the HOA is supposed to be hired by the board as the attorney reprents the WHOLE and NOT the individual. The board represents the WHOLE and NOT the individual as well. The HOA attorney does NOT represent you as an individual but you as part of the group of homeowners. Basically, if you ever chose to "sue" your HOA (suing your HOA is suing yourself) the HOA's attorney will be the one defending the HOA.

Our developer/builder did leave us with some serious flooding issues. The houses had issues as well. After they turned over the HOA to the owners, there wasn't much we could do about the situation. We did eliminate ALL references to them and their 2 voting system in the CC&R's and By-laws. No need in having something in your documents that doesn't exist or are in control anymore. You may want to consider that more an issue to pursue than the actual developer/builder. It's important to start changing the rules to what the HOMEOWNER's want versus what the builder/developer wrote down. The rules are up for change now by majority member vote.

HOA's are funded ONLY by the owners for the owners. This also applies to the rules. The rules are established and abided by the homeowners. So I would recommend a good review of your documentation. It's NOT cheap and may require a special meeting. Any changes will have to be recorded at the County courthouse with the CC&R's and possibly the By-laws. It's then more money to make new copies. However, I recommend a review of documents every 5 years just to keep up to date with new laws and new technology.

I believe like Jadeone that your wasting some energy and focusing on the wrong group. It's time that the owner's concentrate on themselves and pick up the pieces. Trying to force a developer/builder into doing things is nearly a losing battle once they are gone. Now is the time to evaluate what repairs need to be done and if funds are needed to be raised to fix them.

Former HOA President

GreggK1 (Hawaii)
Posts: 4

Posted:

Thank you both for your replies. I have a lot of insightful information to take back to our Board. Much appreciated!

GloriaM (North Carolina)
Posts: 829

Posted:

Greg:

It sounds like all of your issues are builder/deveolper issues and not the MC. It also sounds like your MC wants to assist you in your battle. As an MC we have gone to battle for many of our communities against the builder/developer and have been successful in the HOA being awarded in the suit.

Sometimes the MC can work out issues with the builder/developer without a suit. I believe the board may want to reconsider firing them and work with them for the betterment of your community.

GreggK1 (Hawaii)
Posts: 4

Posted:

GloriaM, thank you so much for your advice. I would like to provide our Board with the "transition perils" we will be experiencing if we do move forward with this switch.

Can you please provide a few significant issues we may experience if we transition from MC to another? We are aware of the HUGE issue with moving from one maintenance fee autopay system to another. I was wondering if there are any other big ones you can think of.

Thanks again!

JM2 (Oregon)
Posts: 439

Posted:

Hi Gregg:

A few things to ponder/question/find out:
1) Does your MC work for the developer in other communities? If so, the MC may jeopardize their relationship with the developer if they wokr on the CD issues with you.
2) You need a good lawyer to advise the HOA on the CD issues, to make sure that you preserve your rights under the law.
3) CAI has a good resource on dealing with transition from developer to homeowner control of the board, you may want to get their bood.
4) Depending on the level of professionalism in your MC and in the HOA management industry locally, the transition from one PM to another may go very smoothly, or just the opposite. Be prepared for the worst, and hope for the best. One thing some MC's remember is that sooner or later, they will be receiving a community from a competitor. Good companies live by the golden rule.
5) Your attorney can probably advise you on which PM's to invite for a bid, if that's the way you proceed.
6) Follow the termination provisions of your contract to the letter.
7) Your current PM may be happy to be an "expert witness," but you'll probably be paying them at 150% of their normal "extra hour" fee for any time involved with the CD case. It's in their own interest to do so.

J. Patrick Moore, CMCA

GloriaM (North Carolina)
Posts: 829

Posted:

Quote:

Posted By GreggK1 on 06/25/2007 5:00 PM
GloriaM, thank you so much for your advice. I would like to provide our Board with the "transition perils" we will be experiencing if we do move forward with this switch.

Can you please provide a few significant issues we may experience if we transition from MC to another? We are aware of the HUGE issue with moving from one maintenance fee autopay system to another. I was wondering if there are any other big ones you can think of.

Thanks again!

Gregg:

If your MC is doing their job, which from the sound of your post they seem to be, then to me the biggest problem with changing during this transition is the continuity of the history of the community. Again I state it appears they want to serve the board. Just because the Developer hired them doesn't mean they won't work hard for the Association.

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

✓ Ask follow-up questions
✓ Share your experience
✓ Get expert advice
✓ Access 350,000 discussions

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here