 Welcome to the condo insider program for all condo owners condo board members and anyone interested in condos and I'm your host today Scott Shirley and we have a very very special guest with us today joining us to talk about some of the issues that came up at the legislative update and some statistics that he worked on. I'd like to introduce Mr. Richard Emory. Well I've been here before. Help me understand why is the seat hotter on this side of the table than where you're sitting? Well I know we had to lower it. Yes I know that. Well since we don't know a lot about you Richard give us a little bit of your background. Well briefly I've been in the industry for 25 years. I was the former General Manager of a very large association management company, Managing Agent. I founded my own company in 1997 which became the third largest managing agent in Hawaii and I sold it back on January 1, 2011. So I've been involved in industry for 25 plus years and the legislature and industry issues and have enjoyed it very much. Well that's good to hear that you've enjoyed it very much. I drink a lot. Yeah well I'm not gonna touch that one. Well our program today is we wanted to talk about some of the issues that bubble to the surface at the legislature. Both you and I attended many of the hearings at the beginning of the year and so we'll start off with what was going on at the legislature in regards to condos this year. I think we talked about the show today. My suggestion was we talked about the facts regarding condominium disputes. Yes. Every year at the legislature we get a small handful of people come down telling the legislators that the sky is falling that the board members don't know what they're doing and they want to impose extreme changes in our laws to create a government official somewhat overseeing association management and we go through that every single year. It is a lot of misunderstanding about that. It's great to have all this unsubstantiated facts but there's statistics out there to say what's really going on with dispute resolution. Well I think you both you and I agree that a lot of times a very small and vocal group of owners will go to the legislature and then the legislature has led to believe that this is a industry-wide problem within all the condos when in actuality a lot of times it isn't. I think what happens is that's true of our city council and rail and all sorts of things. A group of owners or people in Hawaii aren't happy with the decisions made by the elected officials and so they want to have someone else who agrees with them come in and make the other side do what they want you know and doesn't quite work that way. Well I know one of the issues that came up in it and this wasn't the first year it had come up and you and I have mentioned this before but there was this issue of creating something called an ombudsman. Yes well the word ombudsman comes from a Swedish word from 1809 and it's actually ombudsman and we look at their Norse dictionary it meant a representative and that has kind of morphed today into a government official whose job is advocate for the rights of the other guy and to be able to influence outcome with regard to those decisions. Well and I've seen other ombudsman programs in smaller organizations not necessarily on the government level but like you know a nonprofit group might have an ombudsman program the realtors have ombudsman programs but not to the scale that I think this wanted to go to. Well one of the suggestions was to do away with all associations and all boards and have government run the condominium associations in Hawaii and I frankly said look let's get the guy who planned the rail to do it because I've I see government does a really good job of planning these big expenses but you know I'm not sure that people really understand what an ombudsman can do what he can do because there are statutory and legal issues to suggest that some elected official is gonna be able to overturn the lawful rights of a board of directors just as a factual. Well exactly and I believe if memory serves me correct which doesn't always that the Attorney General's office even had something to say about the ombudsman program. I think you have to look at it this way when you move in a condo you have a declaration and governing documents they're all filed you've agreed to follow those when you buy and defines governance your responsibilities and a bunch of other things. Well it's a contract and a you can't have government passing laws to interfere with a private contract. Exactly. They can certainly pass laws to say you have to get three bids you have to conduct an election this way those types of neutral issues but they can't interfere with the lawful business judgment of a board to make decisions. Then when you fell on top of that our Constitution what the Attorney General said was they can't take sides on a kind of dispute like this because we're this ownership group may have a belief and the board may have a different belief they can't be at government taxpayer money being there to take the side of one side over the other side. So I wanted to clarify one thing though because I think we had mentioned it last year in a show that you and I had done together this thing called the condo czar. This is different than the condo czar then right? Well in a way the condo czar was the ombudsman that was the language the person introducing the bill used to define it instead of an ombudsman he called it the condo czar. But you know we have some history on this there's five states out of 50 in the United States that have quote an ombudsman I'm going to say ombudsman loosely because in a way I think we as to why already have an ombudsman which I call RICO a regular industry complaint office. But the reality of it is there's five states with experience and if you read the legislative reports that they have to follow to legislature each year they say approximately 90% of all their effort is for unsubstantiated complaints by homeowners that they have no statute authority to do a hang with. So you have a very expensive mechanism that really has very limited very strong limitations of scope but the people advocating for this keep believing they can have this broad program where some independent government official can make their board go do what they want them to do. Well I know at a recent seminar that I was hosting and you were one of the guest speakers you had pointed out that you know these groups had wanted to get rid of by laws and all that kind of stuff and have the government takeover and you looked at it as instead of private property it becomes government housing. Yeah. I mean people don't seem to realize that the board members are owners. They have to pay the same fees and cost per their declaration as everybody else. They live there they want to preserve their property but in any type of decision making process you're going to have different people different views I don't want to spend the money I do want to spend the money that all these issues come to surface and I'm not so sure that government who has no stake in their results is better than the people who really have to live there and live with their results shouldn't be making these decisions. Exactly. Well you had mentioned that we do have somewhat of an ombudsman program and their name is RICO. Yeah we have the regulated industry complain office and they have very limited authority under the statute now for condos they primarily can force the production of documents but they have very little authority beyond that although they certainly have influence to create settlement on situations so to me if we looked at our laws today and just purified them and gave RICO some more enforcement authority you end up with no new government entity and no new government cost you know the five states that have them their costs have gone from like a dollar every other year per unit to five dollars a month per unit so there's a cost to this extraordinary that's paid through maintenance fees so maybe we're better off examining the laws where we can make improvement granting RICO some more authority than trying to start a whole new government organization. Well you know the other side of that coin too is is look at how condominium heavy the state of Hawaii is where the amount of home ownership in a condominium how long do you think an ombudsman would have lasted. Well you know this is just truth to that because you look at this about seventeen hundred fifty condominiums representing about a hundred and fifty thousand units that's just three people per unit which I don't know that's four hundred and fifty thousand people in condos before you had homeowner associations and planning of developments and other types of association so about half our population lives in some form of association and I can tell you the politics of a condo are no different the politics of the city council on the rail or the politics with regard to our state government with respect to marijuana laws and things like that it's just part of politics and I'm just not convinced that a few minority people professing certain data which aren't factual is something we should act on and change what we have today. And I think that's an important thing is the data that's provided and fortunately somebody like you who does go and research this in great detail will come up with the correct data. Well let's never forget this kind of I know having been a host you're going to be going into a break sooner than later. The current statute already provides for several mechanisms for dispute resolution if you're an owner. The original condominium act 514A provided for facilitative managing facilitative value facilitative of mediation and non-binding arbitration non-binding arbitration was like arbitration but at the end if you didn't like it you could say I want to go to court instead and you had to go to court and but there were certain penalties if you didn't get a better award out of the thing. Facilitated management was like a kumbaya some neutral person had everybody to agree and everybody hard head so nobody ever agreed. So you passed Act 187 which was a value of mediation when you get retired judges going in there and it's paid for through the kind of education fund. So the out of pocket cost for the associations about 175 bucks and the out of pocket cost for the owners about 175 bucks. And so there are mechanisms now to look at how many disputes are there in this form of a thousand people. And let's look at this from the point of view. What were the disputes about and what was the success ratio. And I actually was still on the real estate commission when that bill went through and it was based on adding a dollar per unit registration to pay for this new program. So the bill was passed and then it took about a year and a half to get to the point where they could start having the evaluative mediation. Correct. The evaluation was passed in 2013. It became an application in September of 2015. They had to make rulemaking and bidding and all the things government goes through. And it's a quite a fine program and certainly it's so new it should be given a chance to see how it works out before we criticize and try to find alternate solutions. Exactly. So just in a recap we have this ombudsman issue that's basically come up every year every year and we do have in both of our opinions actually better options than an ombudsman program plus programs that are less expensive. It's not going to cost as much as the rail and things like that. So and of course we also had the AG's Attorney General's office opinion that you can't basically get into the middle of a contract. It's a very complex matter that needs a lot of thought. But people say my board didn't do this. In fact number one lady and I'll say this because it's truthful but who says she's on her board but she can't get her board to do what she wants. So her husband committed suicide. Yeah I was at one of those testimonies as well. And so you get these extreme positions you know the legislatures are smart people they're going to want more factual data. I mean it's emotionally sounded great but the reality of it is there's got to be more to it than that you know. And so the other fortunate side of this is you and I both know some of the legislators that have been very active in these bills are also condo owners live in condos so they understand a lot of this and they know when some of this information is not quite right. Ironically we've tried to get these various interest groups together before the legislator and some just refused to meet and look for ways to deal with the issues. They just have a very hardened position on what they want and why they want it and it makes it very difficult because then we have to spend hours at the legislature bringing facts in and experts and people to try to get the legislature sufficient reliable information to make a decision. Actually stop and think about it some of the testimony we've gone and submitted and heard it's almost like being at a board meeting isn't it. It is in a way. And they're going to sit there and make a decision based on the information they have which like a normal board would do. So we do have an investigatory ability through RICO and we now know that we have different forms of mediation that we can do plus arbitration. Before we get into your data that we got to though we had a piece of legislation passed in regards to mediation. Well there is you know because my data will deal with that more more effectively I can bring that up when we talk about some of the results with respect to this and you know because what I did was do an analysis of all the mediation from September 2015 when Act 187 became law through present to look at who caused it, what were the results, what were the issues to try to give us some semblance because we should know if there are mediation but what are the hot topics. Yeah well I think about now we should take a quick break so you can catch your breath. Okay and then when we come back to talk about your statistics. Yeah well the seats are very hot so I need to stand up and rest. I'm DeSoto Brown the co-host of Human Humane Architecture which is seen on Think Tech Hawaii every other Tuesday at 4 p.m. and with the show's host Martin Despeng we discuss architecture here in the Hawaiian Islands and how it not only affects the way we live but other aspects of our life not only here in Hawaii but internationally as well. So join us for Human Humane Architecture every other Tuesday at 4 p.m. on Think Tech Hawaii. Well we're back welcome back to the Kondo Insider your program on Kondo issues for Kondo owners and Kondo boards and also remember we do have our hotline so if you want to call 415-871-2474 to join in the conversation again that number is 415-871-2474 our guest again is Mr. Richard Emery who knows everything there is to know about Kondominium living and that's why you don't live in one correct. Well I own a Kondo but the reality of it is it means I'm getting old because I've had so much experience. Well really I want to use the word wisdom I want to use experience. Remember the old saying in order to become an old and wise you have to have been young and stupid first. That's probably true. I might be old and stupid but I'm still in this business. So now you're going to walk us through some of the statistics that you were able to come up with and I know personally that you spent quite a bit of time putting this together. Well I see this early stages but I kept getting all this data all these problems and all these allegations these anecdotal stories that may or may not have been exaggerated and said well you know there's public records on this stuff the real estate commission puts out quarterly a bulletin and in the bulletin that lists all the mediations both facilitative and evaluative that have been filed and the results. So what I decided to do was take a look at this from a multitude of directions and put together the data for the period September 1, 2015 through this last quarter which would be at that point is May 31, 2017. So let's just kind of look at this and I have a slide here talking about mediations. Remember I said just like four or five hundred thousand people living in mediations? Well from September 1, 2015 to May 2017 there were only 91 mediations filed which doesn't seem like a whole lot to me out of a half a million people. And then you looked at that and 84 percent of them were filed not surprisingly by the owner against the board and 16 percent were filed by the board against the owner and I just point out by the way that a law that's still in the legislature will be picked up next year House Bill 1499 expands the mediations to be funded by the real estate commission to include owner versus owner owner versus management company it broadens those disputes that can be paid for from the kind of education fund. But you know you look about how much this this is big problem with a half a million people in our state and in a period of time of you know about a year and a half only 91 mediations were filed about one a week and it was kind of like well aren't that many? So I think the next question is you know what kind of mediations were filed for? As I said earlier in the show basically in mediation you have facilitative and evaluative. Filtitative is a kumbaya they get a neutral person they try to get you both to agree so it requires the agreement of both parties. But the mediator cannot engage in his opinion or any type of comments. A value of mediation which is a newer form of mediation you have a person who can say what he's thinking and it's done by an independent group of retired judges and so you get a retired judge who's been on the bench and he says you know if I was the judge and you pursued this I would make you pay all their legal fees because that's not what your declaration says or that's not what the law says. You get a person who is independent with respect who can helpfully influence these so a proper result has occurred. And to me that's my favorite part of the evaluative process is that you do have somebody with knowledge and respect who can say something like that. I think the slide that just came up was the second slide was you know that of the mediations we've had so far in this period of time 63 percent this is slide number two were facilitated and 37 percent evaluative and facilitated is about $50 a person. Evaluated was $175 the best paid by the condo education fund but this doesn't surprise me only because evaluative is so new. Yes. If you look at most current trends they're almost all going to a value of mediation. Yeah. So I think it's just part of the data. One of the things I notice that some people don't realize is what's on your first slide you showed how many went to was owner versus board. But there was also a percentage that was board versus owner. 16 percent. So it does go both ways. Well we're encouraging boards to use this process when they have a dispute and not just stick their head in the sand and have people angry. People are entitled to a solution. But the key question has always been well how successful is the mediation. And so my slide number three I'm helping our producer here basically says as follows of these mediations he's 91. You ended up with 33 percent making an agreement. 33 percent withdrew with no agreement. Then there was another 13 percent they refused either the board or the owner refused to mediate. And then 20 percent there was no agreement with excuse me they withdrew. I think I got those numbers quite declined. Yeah. Yeah. So 13 percent declined. 13 percent withdrew. Now withdrew is interesting because of the fact if you can serve the mediation request to withdraw takes both parties to agree. Was that the catalyst they said we don't need to go to mediation. Let's sit down and talk about this ourselves and see what we can resolve it. So when you looked at the numbers 33 agreed 33 didn't agree. 13 percent withdrew the request and 20 percent. So my next slide says if you take into consideration the withdrawals you had about 47 about half the mediation resulted in some type of resolution. 33 percent ended up with no agreement. Although I'd point out to you that none of those 33 percent resulted in litigation. So the person who said I'm not going to agree with you but the judge said you'd have to pay all the legal fees. Say I'm not going to agree with you because they have a hard head they don't want to agree but it didn't result in any further activity. Interesting. And then 20 percent said that they won't go and this is where House Bill 832 comes into play this current legislature. What it says is you as a board member if you fail to go through a mediation or this non-binding arbitration it may be a breach of your fiduciary duty. And the reason they haven't written that way is that that throws into the play whether your director of national liability insurance will cover you if in fact you lose if you refuse to go to mediation arbitration. This is going to be ultimate claims out of this. So the whole legislative idea behind it was only for mediation arbitration there was some earlier part of the bills they expanded this breach of fiduciary duty. That's such an easy thing to cure if you just go. You just go. You have a breach of fiduciary duty and your insurance is all intact so they're trying to take that 20 percent and get that to a form of resolution whether they just refuse to go. So the next slide you're going to be talking about to me is the most interesting one because we heard some wild stories at the legislature of where the problems were and your statistics show that's not where the problems. Yeah I think it was interesting because you say well where is all this sky is falling and these problems are bad board and you know I try to keep it simple and divide it into six categories. The six categories are number one repair to my own unit that was the largest number 28 percent. So you're arguing that the pipe was blocked up by me and you're making me pay for it was really blocked up by the board or the association or some other owner. So 28 percent were unit repair issues with inside their unit. 22 percent was a house rule violation. I didn't violate the house rule I hate the fines to excessive. Then you got into 14 percent were governing common area issues. You're not enforcing the parking rule there's too much noise at the pool you're not maintaining the fence. Equal to the unit repair was 28 percent were arguments that you didn't follow your own governing documents as a board. And one percent had to do with or seven percent had to do with delinquencies which I respect something to do with how you're trying to collect a delinquency maybe a fine or a rule. And then one percent was fairly to produce documents that's been kind of cleaning itself up. So you know there's a wide variety of issues but again 28 percent only 30 out of the 500,000 people in a year and a half was an argument the board wasn't following their governing documents. So it seems to me that all this sky is falling isn't really applicable. And I think looking at your statistics and you and I having talked about it before we sort of expected the house rule to be a larger one but it wasn't as large as we thought it was going to be. No and the unit repair inside the unit is the logical one to make is you're saying your pipe caused the backup you have to pay for the whole thing or you have an insurance proceeds and how much that's yours versus some other owners. I can understand that but mediation has been very successful in resolving those so. No I think those statistics that you've put together were were fantastic and they especially with what the complaints were were literally in my opinion the opposite of what was being said at the legislature. Right. And so we've now. I think there's things we can do to improve the law. I think just saying that's always the owners have a dispute go see your board first. I think you can look at maybe in certain issues giving a recall a little bit more authority so you get more involved in some of the more serious issues. But generally speaking the problems that's presented at the legislature aren't supported by the facts. Exactly I think. So again I can't thank you enough for spending the time putting those statistics together because you did have to go through a number of real estate commission bulletins look at the mediations what types they were and how they resulted in. And the big problem you face now is the producer is going to be angry with you because he wanted us to save five minutes for a new experimental program which we were unable to do because we planned when to shut up. They really told us that this morning and we planned the show down to the minutes so we apologize to the producer. Yes we do. Well you never know they may not have us back again. Could be. You know we quit every time we show up anyways. That's true. Well again our program was on the issues affecting condos in regards to mediation, arbitration, the different types of mediation and some fascinating statistics that you I'm thankful that you were able to provide. And again thank you for being the guest this time instead of the host. My pleasure the seat's still hot. Yeah is it still hot? It's been a week since I sat there but I know you've got a lot to say about that. So again thank you Richard for being our guest and thank you for joining us here at the condo insider for all the information you ever wanted to know about being a condo owner being on the board or just condo living in general. And until next time thank you again for joining us.