 insider. As I've said many times about a third of our population in the state of Hawaii lives in some form of common interest realty association like a condominium. And as we've been discussing over the last couple weeks the legislature is back in session in 2017 and we have a whole bunch of new bills. Last count I think there was over 130 bills being introduced then one way or another in the House and the Senate affect condominium living. Hard to believe but that's true. So what I've asked today is I brought in a really expert Phil Nerney one of our industry lawyers who to talk about one of the concepts that have come forward which has to do with settling condominium disputes. So what is the best way to deal with that. Is it through mediation ombudsman what what are the pros and cons and issues. I'd like to welcome back to the show Phil Nerney welcome to the show. Thank you Richard thank you for having me. And why don't you remind everybody about your personal and business background. Well I'm an attorney and I represent associations which I've been doing full time since 1990 and I'm also a member of the CAI community associations institute legislative action committee which as you know is involved in public policy debate and we express our perspective to the legislature. One thing I've often heard people accuse the legislative action committee not just for ourselves but just to suggest ourselves is that the members are just the lawyers and the management companies. Well that certainly includes people who are represented on the committee there's no doubt and what that means is that the people who spend their days working in this industry are involved in the public policy debate. My recollection that CAI which is a national organization community association institute the Washington CAI appoints the members to our legislative action committee and it has to be equally divided among homeowners vendors lawyers and management companies. So it kind of gives a broad perspective. It's not just the management company saying we want this little lawyer. We have homeowners on the committee and all this is debated and the committee then decides the majority how they want to react to certain proposed bills. That a fair statement. It is a fair statement. We do have vendors and homeowners. So anyway last year we had a bill and I think it was House Bill 826 but don't hold me to it where it was proposed that we have an actual term in the bill with a condo czar kind of like the whole industry is messed up. These volunteer board members don't know what they're doing and that we need to have government takeover by having a condo czar with almost immunity for whatever he says or does in resolving disputes. And now we're in 2017 and I haven't counted them all up but I've got to say there's about a half a dozen bills that are following the same language calling it an ombudsman or a person in the hearing's officer in the attorney general's office. What is an ombudsman. Well ombudsman is somebody who provides oversight usually over government and so it's somebody that you can complain to and that those complaints will be reviewed and processed. The level of actual authority beyond being a facilitator will depend on a particular state or statute for what the role of the ombudsman might be. But typically my understanding certainly is that it's somebody you can say hey I don't think this government office is treating me right. Can you as another agent of government help cut through red tape for example or speak peer to peer in a way that would maybe give the bureaucrat a different perspective. So in the case of our industry what they're saying is they want an ombudsman as an oversight of the volunteer board the directors that make decisions for their associations. True but I would distinguish you mentioned the condos are last year that essentially the same bill has simply been retitled. Condos are was subject to critique so now it's the office of complaint and enforcement. But the same highly intrusive level of government interference would be an essential characteristic of the new regime. So in essence they're saying that these volunteer board members who are elected who have financial interest in the property. We want to have government oversight so if we don't like the decisions of government we can overrule them. I like to think of it this way and we're coming very close to this fine choice for the legislature. Is the legislature going to allow condominiums to remain private real estate or is it going to become public housing. There are people who are pushing the level of government intrusion into what has been historically a self-governed industry. Indeed even when the condominium law was recodified in 2006 or effective in 2006 a bedrock principle was self-governance and now that is called into question in some quarters. Well you know typically having been in the condo industry forever it's just like the legislature not every constituent's going to agree with their elected official like a board member or even a legislator. But where's the evidence that this type of government oversight is necessary. I'm unaware of actual support for it. I do know that CAI national does conduct periodic studies and what it appears is that around the nation there's about 10% of the people who live in condominium associations or other forms of community association aren't comfortable with it for a variety of reasons but a large majority are and then a smaller chunk don't have any particular complaints. So broadly speaking the industry surveys indicate that people are largely either satisfied or indifferent that nothing is bad enough that it comes to their attention. So I think it's a reasonable question to ask whether legislating for a small minority when broadly speaking the system works just fine is appropriate. Well I'm not a lawyer but I've been around this so long that my friends accused me of being a wannabe lawyer. Back a while ago in 2003 I believe it was the legislator passed a law on a trial program called the condo court which basically they set up a program where people could make these complaints and the hearings offered to conduct a hearing and make a ruling. It almost like saying these ambas are billers the same thing as what we tried in 2003 because what's interesting about that but the law was adopted in 2003. The cases were actually conducted between 2004 and 2012 about seven years. In seven years there were only 19 cases submitted to condo court but it seems to me that this quote ombudsman hearings officer attorney general it's just a regurgitation of the condo court that tried and failed in 2003. Well I think the current bills are a metastasized form of condo court. It's far more intrusive. It reflects a deep cynicism about the notion of self governance and indeed it functionally eliminates self governance governance because the mechanism that is set up is one whereby a government official can by hook or crook make an association do what the government official wants done rather than to have the majority of the owners of that association make decisions for itself. And they make the decisions to an elected board of directors just like we make decisions to elect the legislation in a lot of ways. Indeed that's always been a point of concern why the model by which we run our real government isn't good enough in this setting. So how can we be assured this quote ombudsman would have the credentials and experience and the knowledge to make good decisions. I don't think we objectively have a basis for assuring that. You know so in essence what they're saying is that these elected boards who have a financial stake because they're owners by law they have to be an owner in the unit and they're elected by the board. There's certainly a certain to give oversight to annual meetings other ways how boards are elected that this minority says why don't like what they're doing. So we're going to get a government official to try to side with us and an overrule and that government official has no stake whatsoever in the property from a financial interest or living or whatever it may be. Right. So there is the potential for an ideal to get into one of these positions and simply pursue a political agenda of one sort or another. But if you take it back presently the courts are available to anyone with a reasonable complaint and mediation is available. There is a subsidized mediation program that's readily available to everyone. So the opportunities to resolve complaints exist. There is no need for a new mechanism. The perspective I hold is that the proponents of these draconian kind of governmental intrusions the efforts to create that really just don't want to have to advocate their own position or to bear any risk in doing so. They want to be able to complain and then just let government take over. What I don't understand about that is precisely the kind of thing that you allude to. These are people without a stake in the actual community and it means that individual projects will not be able to have an individual identity. So people's investment based expectations are likely to be frustrated. I know one of the bills besides quote the ombudsman or hearing officer or complaints officer whatever they want to call it. They're proposing actually that there's an oversight of that ombudsman by a seven member government appointed commission and of the commission members there'd be a couple of homeowners a couple of maybe lawyers or industry veterans a couple of people who are just good people that the governor appointed. It seems to me we're opening up a very technical legal private condominium and your lifestyle there to people who have no interest whatsoever in the outcome that will react emotionally instead of based on facts. Well I couldn't have said it better myself Richard. I haven't looked before coming on today at the proposed commission composition but I didn't notice a lot of industry people on it. Because this is you know the condominium industry began by legislation. I want to say in 1963 or earlier it was quite early. Yeah where the government passed laws setting up condominiums and and how they operate. And then from that you know you have these declarations of bylaws from the public report. It's almost the contract between the buyer or the owner and associations now and their deed. How do you how do you now 40 years later go and say the contract has been made in your deed is null and void and in someone you don't know who has no stake in your property gets to make decisions for you. I think that's a very good question. It's likely to be litigated if there is the passage of some of these more intrusive bills. Yeah because I I'm not saying the industry is perfect. I know we as an industry are looking at areas where there are complaints and how we can tighten it up to avoid those complaints in the future. It seems right now we're just throwing the baby out with the bathwater not taking the actual and factual issues that are before the industry and trying to set up a whole new form of government saying well let government take care of it for us. Well I agree every time I've heard the anecdotes when you try to run down the particular cases there's often less there than meets the eye. I think it's more a presentation in a dramatic fashion with a lot of hyperbole as opposed to a careful examination of facts. Well hold that thought we're gonna take a quick break sure and we back in one minute with condo insider. Good afternoon Howard Wigg cold green sink tech hawaii.com I appear on Mondays at three o'clock and my gig is energy efficiency doing more with less some most cost effective way that we in Hawaii are going to achieve 100% clean energy by the year 2045. I look forward to being with you. Aloha. Looking to energize your Friday afternoon. Tune in to stand the energy man at 12 noon. Aloha Friday here on think tech Hawaii. Hello this is Martin to Spang. I want to get you get excited about my new show which is humane architecture for Hawaii and beyond. We're going to broadcast on Tuesdays five p.m. here on think tech Hawaii. Welcome back to condo insider. We're here today talk with Phil and Ernie about some of the bills put before the legislature this year. We have been focusing on condo dispute resolution and and there's been several bills introduced proposing that basically we're going to have government oversight and that government will make these decisions not the elected boards of directors and the proponents for that idea and it certainly is a vast minority. Keep citing Nevada. Any thoughts about Nevada? Well Richard I'm actually counting on you for that because in our committee I know that you've taken the lead on doing the research on that. Well says he does for the owners to know or the watchers to know the owners of condos and residents is that the state of Nevada has quite a different set of condominium walls. They don't provide for a value of mediation like we do. They have a different licensing structure to be a condominium manager and actually the rules and authority of the board is quite different than we have in Hawaii and so when you look at Nevada as a model it doesn't really apply to Hawaii and I was actually looking at the 2016 legislative report from Nevada and a couple of things I took away from that. Nevada is smaller than we are. They only had 16 cases in the year 2016 and imagine the size of their office and the number of calls they feel but only 16 rose to the level that maybe there should be a hearing on it. Well with respect to Hawaii I think there is a significant risk that if this vast new bureaucracy gets created it will have an interest in preserving itself or just enlarge by creation over time. But I don't think that there will ever be a real pool that justifies the existence. There as I mentioned the courts for real issues there is mediation there's arbitration. There are existing remedies that are perfectly available and appropriate time tested and honored very mainstream. So I'm just not sure that a bureaucracy will help us and I do think that it will end up costing condominium owners significant amounts of money over time. Well if you look at the Nevada legislative report currently in Hawaii we pay a biannual registration $3 per unit every other year. The Nevada ombudsman requires $3 per year so that's already 100% increase in costs and this year for 2017 they're proposing to raise the cost of $5 per year because the cost of just feeling the complaints even though they don't have a hearing up because they become in their view baseless. It's like we're going to have a hundred and forty percent increase in cost condominiums. We talk about cost of living in Hawaii to handle a very minor number of cases when there's other alternatives available. You and I are in agreement. So we you mentioned earlier that there are other ways that condominiums are handled currently in Hawaii. Talk about what you think the best one and most popular one is. Well mediation and what the legislature has done and it's an action that we were in accord with is to create a subsidized process so that professional mediators can be available without the financial barriers to access so that owners as well as the boards of directors can meet and mediate their disputes and mediation for those who are unfamiliar with the process is a consensual process by which each party to a dispute speaks through a middle person a facilitator and the current mode also has an evaluative aspect. So many of the mediators are retired judges for example who have experience about how cases would work out. So if somebody is angry and they think they're right but they haven't really consulted the law or their project documents and they bring it in they don't have to take the word of the board of directors. They can talk to the mediator and the mediator through some kind of questioning can develop whether the complaint is really well founded in fact and in law. So that's a voluntary process through which consensus can be achieved and it's often very successful. It doesn't resolve all things but it does help bring the parties together and bridge gaps. If people are still unsatisfied there's still an arbitration option that's unilaterally available to condominium owners which is short of a court process. And again it's been in the law for a long time. What I think the difference is that some people simply don't want to incur costs or have investment in the process. They simply want to be able to say I complain pass it off to a government authority and have the government authority then apparently achieve through government fiat what cannot be achieved through democratic process within a self-governing organization. I know we supported the evaluative mediation where we have these retired judges who kind of can take the gloves off and tell the party what they really think and try to bring a resolution. And you were talking about the cost of the evaluation. Do you have an idea what the cost is today for the parties. Unless it's changed. I think it's one hour of time which is somewhere around $300 to get access to it. We have proposed lowering that barrier to entry but that was if I recall correctly a real estate commission contractual provision that there would be a one hour of time investment by the parties beyond which then it goes into a subsidized mode. You're correct about that. The current statute just for clarity is that the first hour has to be split between the parties. So if it's $300 it's $150 per person to get into the game to have a judge evaluate this. The remainder of the cost up to $35 is subsidized through the kind of education fund which we pay the $3 every other year in. However the mediator if he sees he's making progress can request an additional $3,500 so it's up to $7,000 if he feels a different mediation may result in a resolution to a dispute. So it's not expensive to get in and you certainly don't want to have no entry because everybody says it's a free trip. I'll just keep making complaints and costs will get extremely go up high and be expensive for everybody. Some barrier to entry is appropriate because while there certainly are valid complaints you and I tend I think to share a view of the broader picture but in individual cases there are things that go wrong and there's no question about that. If people get too caught up in their perspective however then you have the opportunity to go test it with a neutral third party and that's very useful, very easily accessible and people who are truly concerned should be willing to invest some modest amount to have their issue addressed. Just to kind of give you some statistics on that because I've been researching this and I'm going to be approximate I don't have my notes in front of me but for the last 18 months on mediation requests in the state of Hawaii there were about 71 requests for mediation over 18 months. 11 of them, the people by mutual agreement agreed not to have the mediation which kind of sends a signal they figured out a way to solve their problem. So you have now 60 cases in 18 months. Of those 60 cases about 21 party or the other didn't want to go to mediation neither did it show up or didn't so we don't know what would have happened or not happened on those. So of the remaining 40 half of them were mediated to a resolution and half of them were not mediated to a resolution and it's not a huge number of cases and when you start looking at what caused those cases it was like I was fine for parking and I don't think I was guilty of parking or you know we had a plumbing repair that was caused by me but part of what was the common elements and I disagree how much they charged me for the repair of the common elements and frankly all of those were negotiated to resolution between a mediator and I'm not sure how government can do any better job of those types of things. We certainly don't have this huge problem everybody's alluding to. The last time I knew the number it was somewhere around 165,000 condominium units in the state of Hawaii that's dated information I don't know what the current number is but the kinds of numbers that you just described in relation to that many condominium units suggest that the problem in reality is small. So what we have is a group of determined people who apparently have had unfortunate experiences in their association context. I think it would be useful for people to evaluate the specifics of what these alleged complaints are. I'd also note another thing there's certainly available skilled legal counsel available to people who have complaints against their association and so it's not a problem of access to the courts it's not a problem of being unable to have redress for grievance it's something different. Well my investigation says this follows you know we have an evaluated mediation program that is working because what's interesting when you look at the cases that they didn't mediate to success let's say it's 20 cases. Look at the next step what happened next nothing happened next no one filed anything it gives rise to say that because they were based on pride and ego they went to mediation the judge told me they were wrong they said I'm not going to mediate a settlement then they left and they said well I'm going to lose this court anyway so I'm not going to pursue it. It's almost like sending you can't just look and say well these didn't mediate to agreement say that was a failure what did they do next they got a message from a judge that maybe they were wrong and say they didn't take it to the next level so you can make an argument that that the success ratio is very very high because it didn't result in litigation in the courts. Well I've been a mediator in a number of matters and I can tell you that even in mediations where there is no formal agreement the process of going through the airing of the grievance getting feedback letting out the built up anxiety etc can in itself create new opportunities so I don't have an evaluated the statistics you're describing but it's completely consistent with my experience of the mediation process being valuable even if the outcome is not a specific written agreement. Well let me tell you at the end of our show let me just thank Phil for being here with us today and sharing his views my message to all of you watching no matter what you think the legislative process is greatly determined by your participation it's very easy in Hawaii to go online with the website and make testimony and support what you believe in or don't believe in and being involved in the democratic part process is very critical because my experience is that people don't get involved bad things happen and we end up with laws that don't meet the needs of everybody so I encourage you to get involved this year it's gonna be a really interesting year with more than 130 bills introduced and we thank you for being here today Phil and till next week on condo insider aloha