DISPELLING THE MYTHS

Facts regarding the GRF Trust, PCM, Self Management, B of A

Loan Agreementand Direct Election.

Why this PresentationPublication of October 31st political ad in

Globe despite prior decision to eliminate the Directors Corner to avoid controversy.

Publication of 322 word Letter to Editor on November 7th (with 250 word max missing).

Failure of supported candidates to disavow the advertisement.

Re-establishment of 250 word max in November 14th edition of Globe.

Offer to speak at Residents Voice meeting.

The GRF TrustConsists of Trust Agreement & Bylaws – two

documents with different rules for amendment.Trust expires in 10 years. All four entities (GRF,

United, Third and 50 must agree to extend, revise or replace. Agreement will be impossible if just one entity refuses to agree.

Expiration would force distribution of all assets among the mutuals – an Armageddon.

Bylaws, however, can be amended by majority vote of corporate members council (no GRF vote).

The Inconvenient TruthFrom the Paul/Hastings legal memorandum:

“the GRFT appears to be antiquated and fraught with inconsistent recordkeeping, irrelevant exhibits, tax analysis, filings and references that are no longer relevant. It appears that the GRFT was a trust formed for construction and construction lending purposes only.”

Extending it for 60 more years makes no sense. It defines no specific responsibilities between GRF and the mutuals – just sole discretion to GRF.

Cont’d.

Anyone opposing extension has been labeled as wanting to dissolve the Trust and ruin LWV.

The GRFT can be amended, modified or replaced with a more suitable document.

Many HOA’s have a Master and sub associations that share joint responsibilities in crucial economic and policy decisions.

We have GRF with sole and absolute discretion, allowing as few as six people to make decisions impacting the whole community. A $5 million landing pad for UFOs? Don’t laugh – it could be possible!

Cont’d.

Essentially we have four bodies orbiting around each other without any defined relationship other than GRF possessing sole power.

GRF’s business is not United’s business, which is not Third’s business, etc. etc. This is a recipe for continued strife over big decisions.

While GRF’s budget affects the whole community, the housing mutuals have little say or input.

The required approach is to work now on examining the various models for effective Master/Sub HOA structures.

Cont’d.

Unfortunately the GRF task force on bylaws revision voted at their initial meeting to not consider any alternatives other than extension of the existing trust agreement. Hopefully this attitude will change.

They did vote however to remove three actions of GRF that required corporate members approval. Essentially a backwards move to cement GRF sole power.

Our new leaders need to “get it” and work on revision of the Trust. Even the Constitution has been amended. There are many models to look at in determining the best fit for LWV.

Removal of PCMTo be fair, there are many aspects of mgmt.

company evaluation – customer service, maintenance quality, clarity of financial reports, management interaction, etc.

With four separate management contracts PCM is in a difficult position and can be in a position of defending both the victim and the perpetrator. Siding with a particular entity is dangerous.

Nevertheless, the company has a fiduciary responsibility to the HOA corporation – not to the Board or any particular Directors.

Cont’d.One troubling aspect is the use of attorney

letters alleging “tortious interference with contractual relations” to intimidate directors or other Boards who simply seek information.

The legal requirements for such cases are high and are generally lacking, so these are frivolous letters intended to scare.

The key is whether the management agent was complicit, warned the Board or just stood by since this issue has to do with ethical integrity.

Cont’d.Removal is basically a Board decision, but a

weak Board will obviously love a management agent that issues no warning and just goes along.

Bottom line is that PCM is a vendor, like any other, who can be replaced. It happens all of the time and most mgmt. companies are always on their toes as they know they could get the pink slip if they do not please the Board.

Also, agents can be directed to change their behaviors so all aspects of service need to be evaluated prior to pulling the plug.

What is self-management?Basically large scale HOA’s decide to either

self-manage or hire an agent. Coto de Caza employs Keystone Pacific as their management agent, Nellie Gail Ranch hired their own General Manager.

With an agent, the employees are employed by that company and charged back to the HOA. With self-management the employees are employed by the HOA, but the organization structure is the same in either case. With self-management there is no additional management company fee.

Cont’d.

With a change-over to a different format the existing employees are simply re-employed by the new entity. Any changes are normally made at the top level where positions and departments might be eliminated or changed. The HOA has control over all salary levels and benefits with self-management. There is always a bumpy transition period, but life goes on as before.

The reason a new master/sub structure is needed is that it would be difficult for a General Manager to report equally to our four orbiting satellites without more defined roles and responsibilities.

GRF Recreation Plan

I am actually neutral on the plan itself as I consider the financing as seriously flawed.

The $1500 facilities fee was implemented to return money to the mutual for their reserves to tackle big issues such as dry rot and sewers.

To my knowledge there was no open discussion or debate to change this objective to allow a 15 year cash flow to be high jacked for one capital project.

In a normal HOA this type of change would be subject to approval by a broader base of the membership.

Cont’d.

A 2006 engineering report showed total replacement cost of $7.7 mm for CH2, only about $1.2 mm more than renovation. Even with inflation our reserves plus the $1.6 mm annual facility fees over the past few years could pay for total replacement. This would be replacing a Chevrolet with a new Chevrolet – not a Bentley convertible.

Obviously the ease with which the facilities fee cash flow was so easily diverted to a different purpose represents a very serious governance issue.

Direct ElectionThis did not appear in political ad – perhaps

way too popular to pose as a threat to mankind?

Current method assumes super knowledge by directors – how about the 8-11 new directors?

This can easily be achieved by a majority vote of the corporate members. The sticky issue would be “how” to do it – general election, by mutual, by district, etc. Pushing only one method could be a non-starter. Better to change the process and then decide via task force or ballot vote as to the best method.

Resident CEO

This reference appeared in the 10/31 ad without any further discussion.

I am familiar with the person most often pointed to as leading a secret cabal to install a CEO in place of PCM.

That person has denied any interest in such a position and does not feel qualified for such a job. I can furnish a written disclaimer on request. Let’s put this myth to bed.

SUMMARYThe world is not coming to an end – we have many

viable options to improve the governance of the community.

Three of the current Boards have a slim majority of the reactionary directors – just enough to stalemate needed progress on the more important issues.

What is needed is a determination to elect new leaders that have vision, intelligence, ethics and compassion. Most importantly they should have “heart” and also serve those in our community who are challenged financially. Stating that they should just move is not acceptable.