Q&A: Kevin Wallace

Justin M. Bowen

“If you live in a homeowners association, then you do have the abide by the standard and that means you give up some rights,” says Kevin Wallace, CEO of RMI Management.

By Buck Wargo

Fri, Nov 19, 2010 (3 a.m.)

Kevin Wallace is one of the faces of homeowners associations in Las Vegas.

The president and CEO of RMI Management, Wallace oversees Southern Nevada’s largest community association management company, representing more than 85,000 households and more than 250 associations.

The Idaho native and former accountant with Ernst & Young came to Las Vegas in 1994 to serve as the company’s controller. He ascended to his current position in 1996, two years after the company created a new entity to manage homeowners associations.

Wallace, 50, has been at the center of a controversy this year when a group of investors filed lawsuits claiming associations and the management companies that handle payments of delinquent dues overcharged them for collection fees.

An arbitrator recently ruled collection companies aren’t entitled to add on their collection fees to nine months of delinquent dues and the case is likely headed to District Court. It will be discussed by the 2011 Legislature.

RMI, which has 565 employees, recently bought a management company in Reno to expand its Nevada operations. It also is handling association collections in Texas, Virginia, and Arizona and will add Florida next year.

IBLV: What does your company do?

Wallace: Servicing homeowners associations is the core product that we provide. We manage homeowners associations. That includes everything from doing all of the accounting, hiring the contractors such as landscaping, paying all of the bills and providing maintenance in some cases. We also do anything that an association needs to have done. In a single-family home development, that might not be very much, but in a large, active adult community it could entail a hundred different people with a multitude of tasks. For instance, Sun City Anthem has well over 50 clubs, and we provide the service and provide the base for all of those clubs to make sure they function.

What about collections of delinquent dues?

We run it as Red Rock Financial Services. It’s run separately, but it’s only a “doing business as.” There are 89 employees at Red Rock.

How many HOAs are there in the state?

There are 2,500 associations in Nevada, and most are in the south.

What percentage of homes in the Las Vegas Valley are in associations?

It’s less than half. Probably more than 40 percent, but less than 50 percent.

What’s your market share and how does that compare with your top competitor?

We have about 13 percent of the market. Terra West is No. 2, and they’re about 20 percent less than we are.

Has the profession changed a lot over the years?

Tremendously. Nevada has been very active legislatively concerning homeowners associations and with all the laws that have passed, that has changed the industry and many ways for the good and other ways not so good. I’d say the vast majority of the stuff the Legislature has done has been fair and making it better for homeowners.

What were some of the changes?

One of the big changes was the community managers had to be licensed. When we started, that was not part of the rules.

What are your most prominent associations?

We represent Sun City Anthem, which is one of our largest. Sun City Aliente. We manage a lot of the high-rise buildings in town — Boca Raton, One Las Vegas and Panorama, Regency Towers, Las Vegas County Club, Allure, Juhl and Streamline. We have 13 associations of over a 1,000 units.

For those who have never lived in an association managed community, describe it.

It’s a legal entity charged with maintaining the common elements of a community. It provides a community standard so you can’t have a car on blocks, you can’t throw a washer in your front yard. People like community associations for that reason. They like the fact that a guy isn’t going to put three cars in his drive and operate a mechanic shop out of his garage. There’s a Zogby survey that says 85 percent of people who live in homeowners associations like the association, and there’s 15 percent that are either OK with it or don’t like it.

Why don’t they like it?

If you live in a homeowners association, then you do have the abide by the standard and that means you give up some rights, and giving up some rights causes pain. Sometimes people don’t like to feel the pain. People don’t want to have their rights restricted.

What is the No. 1 complaint?

Homeowners can live in an association and get a letter that they violated some of the rules. Many homeowners look at that and may take it personally — that “you’re picking on me. There are other problems in the neighborhood and why am I being picked on?” They can’t see from the board’s point of view and management’s point of view that we’re looking at the entire community and trying to raise the standard for everybody. But they only see their own small piece of the world and sometimes they feel picked on. “Why did you give me a violation when George’s house is worse than mine?” They don’t know that we have given George two violations.

What are issues that come up?

Typical issues are landscaping standards. There are restrictions on when you put trash cans out and where you can leave trash cans. There are restrictions on architectural changes, so if you want to modify your house then you have to get permission, and it has to be same style and consistent with the standards of the community.

What is the top violation?

Probably the most common violation that is issued deals with landscaping. They let weeds grow or they violate the standards. The second most is making changes architecturally without getting permission. They might paint the wrong color or do an addition without getting an approval. They do the work and get a violation letter and submit after the fact. Most of the time, it’s not an issue.

How much are dues?

For a single family it’s around $50 a month or $600 a year. For condos, it’s based on a square-foot basis. It’s typically 45 to 50 cents a square foot. So for a 1,000 square feet, you are paying $500 roughly.

What about fines?

Statutorily, they’re limited on a per violation basis to $100. Typically, you don’t see a fine over $100. But if you park your boat in your front yard, you’re violating every time the sun comes up, but there’s even a cap on that.

When you have a violation, what’s the procedure for dealing with it?

Typically, they will get a letter in the mail. The first letter is usually pretty mild.

Do they get fined automatically?

No. It goes through a process. The letter notifies you of the violation, and if you don’t correct it in a certain time frame, typically 30 days, then a second letter is sent.

So you’re not automatically fined?

No, you can’t be automatically fined by state law. The board has to call you to a hearing that you have the option of attending, and if you don’t attend, you can be fined. You have to go through the hearing process before they can levy the fine.

Is there a process where there’s interaction before then?

The board is the forum of “this is what I did and this is why I did it and I think it is OK.” The board many times will agree and sometimes won’t. The vast majority of boards are reasonable and so if you’re in violation and willing to bring it up to standard, you can probably avoid the fine. “Hey, give me 20 days and don’t fine me and I’ll bring it up to standards.” Ninety percent of the boards in this valley will say OK because what they really want is compliance. There are few boards out there that are interested in earning money through fines. They’re interested in compliance.

But there’s no step before the board?

If you get the letter and you have a problem understanding the (potential) fine, you can contact the management company, and the management company will explain it. We do that all the time. That’s very common.

So they can avoid a fine by dealing with it after the letter?

If they do go into compliance, the next inspection will show they’re now in compliance and the file will close automatically. So we don’t have to go to the hearing if they comply.

So they can stop the fine?

As long as there’s no hearing, they can stop the fine. Anytime from the first letter to the hearing, if they comply, they’re done. There’s no fine. There’s no hearing. It is just a warning letter. They can’t be fined until the hearing. From the time of the letter until the first hearing, there will be at least 60 days.

But why do people not deal with it before the hearing?

I think people in some cases legitimately didn’t get the first letter or they got the first letter and didn’t know what it was. They threw it away. They thought it was junk mail. That happens lot. I think people ignore it. They don’t want to deal with until it becomes a big problem, and they get the fine letter. They probably got the warning letter and just ignored it. They didn’t know what to do and how to interact with the association, even though it’s in the letter.

What’s your response to those people?

It’s a very well documented process. If they’re yelling the loudest, they probably ignored it the most.

Why do homeowners have to log into the RMI website to be informed of on-site improvements and schedules and events that are managed by an outside management firm?

We provide that website as a service to the homeowners. It’s part of our management. We do it for free. We do have a couple of associations that have their own website, and we actually can link the two together. Many associations say that “you’re providing one, so we aren’t going to spend the money to do our own.”

Is there a format for who gets notified about the HOA?

There is a requirement in the law to notify every homeowner of every board meeting. Those are sent out religiously. Most boards do a newsletter, and most of them are quarterly. At Sun City Anthem, we do a magazine.

What guidelines are there for meetings?

State law requires boards to have a meeting every quarter. There has to be at least four meetings. The law requires that they have enough meetings to get their business done.

Who determines the guidelines of how business is done?

We have contract between RMI and the board, and that contract specifies how many inspections we are going to do.

Why is the reputation of HOAs so bad in some cases?

There are a minority of people who aren’t happy with the board, management company or maybe life in general. The board is restricted by the document, the CC&Rs — the covenants, conditions and restrictions are what you agreed to when you bought your house and that’s what the board agreed to and that’s what they’re bound to. That’s what we’re bound to. Most of them are clear black and white. There are some gray areas in where maybe there’s room for interpretation, and that’s what you are talking about. The board says it means this and the homeowner says it means this. That creates friction points.

Are the board members paid?

No. They’re all volunteers. I have never heard of one being paid.

Why should people have an association?

The best places to live in Las Vegas by virtually anyone’s opinion are in associations. It’s not despite those associations, it’s because of those associations. I think that’s something to keep in mind: the best places to live in this city — Summerlin, Aliante, Anthem, Mountain’s Edge, Southern Highland and a hundred other communities like Sun City Anthem and Sun City Aliante. Most people want to live in those places because they’re well maintained. There’s a community standard. They may be a pain in the butt for some people, but for most people they create a very desirable place to live. And the resale values in association versus not associations — hands down they are worth more.

What have been the changes to HOAs in past decade?

With the changes in the laws, there’s more protection for homeowners than there was 10 years ago. There are tighter controls on what the associations could do and should do. Within the past 10 years, the rule about associations required to have reserve funds is a good rule.

What kind of effect are foreclosures having on HOA budgets?

Every month is 8.33 percent of your budget. If you have a delinquency of 16 percent, that means two full months of your association dues are gone. That’s a lot. You don’t have access to that money and how do you replace that money. In a company you would cut costs but in an association, everything on your sheet is needed. You have to pay the utilities and your landscaper. There’s almost no place to cut. They go back to the homeowners and raise the dues. We have seen a lot of dues increases. Four to five years ago, we didn’t even schedule any bad debt.

Do you expect more changes in the next legislative session?

A committee was put together to look at some of the laws passed last time and to see what was working. There was 20 or 21 passed in the last legislative session. Some of those were good and some of those don’t work. They don’t function.

Do you expect anything regarding collections?

There will definitely be stuff about collections. I expect they will clarify the law on collections and make it crystal clear on what is and isn’t not included (in the nine months of delinquent fees that can be collected). I think they will include it. They should. If you look at statistics from state to state on who has our system, it’s a question of who pays, whether it’s the association or the guilty party. That’s the issue. In states where the association pays for it, and there are several, the dues are generally 25 percent higher.

How would a change affect the pending litigation?

We have a District Court judge that says one thing and an arbitrator that says another. They’re diametrically opposed. I think they’ll clarify it. This is what is intended for all along. It’s not a change in the law, but a clarification in the law. If the Legislature said this is how the law was intended, the courts would, perhaps, that would be their interpretation.

What is your reaction to an arbitrator saying collections can’t be added on top of the nine months of delinquency payments?

We don’t think it’s fair for the association because every homeowner has to pay the cost. We don’t think that’s right. It’s just Round One. It’s not over. There’s a long way to go before anyone can declare victory. Ultimately it will end in the Supreme Court or the Legislature, and it will be over.

Is there any positive news?

It wasn’t a class action so they have to bring an individual suit for each and every claim. They lost as much as they gained. There’s no class action. That’s part of the arbitrator’s ruling, so now there are potentially 1,300 lawsuits instead of one. They have got a long way to go.

Why not include the collection fees in the nine months of delinquent assessments?

There probably should be a cap overall. We’re the ones that suggested it (to the state commission that regulates HOAs). But if the cap were just the nine months, than the assessments would be paid, but not the cost of collection, and the costs are still there. All we can legislate or litigate is who’s going to pay it. The associations would have to pay the difference.

What do you say to people who say you are charging too much?

I understand the sentiment and where it comes from. There’s a lot of work that goes into the collections. Whether you are collecting $50, $500, $5,000 or $50,000, you have to go through the exact same steps in the exact same order for every single collection account. Sometimes it seems like the guy who is paying $50 is paying too much and the guy who’s paid $500 is about right and the guy paying $5,000 is not paying enough. Those fees are charged to the person who does the misdeed. It’s a process and at the beginning of that process, the fees are very small but at the end of that process, the fees are very expensive. The average collection people pay is under $1,000. It is $600 to $700.

Are nine months of fees enough?

No. It has taken 22 months on average for a foreclosure to happen.

What effect would it have to have the law changed to get more of a return on that delinquency?

There’s a spectrum out there. Nearly 10 percent of HOAs are in dire straits and nearly bankrupt and 10 percent are doing pretty well and the rest are scraping by so if they got more these guys would benefit greatly. The 10 or 15 percent at the bottom, it would be a huge difference. They would collect a lot more money. A lot of those are the condos and they would be greatly enhanced.

What do you see happening in that regard to changing the law to allow for more collection of delinquency?

Bankers don’t like it, and they would fight it, as would the investment groups.

But aren’t collection companies overcharging?

We have seen some on the fringe some egregious stuff that shouldn’t happen. I think our company doesn’t engage in that.

Do you have any sympathy toward those who have to buy a foreclosure home and pay they collection fees when they want to spend the money on improving the property?

They only pay if you get it at the auction. I would bet there aren’t many homeowners at the auction because that is a shark tank and they need to stay out of that. These investors are making millions of dollars on these and they are not doing the neighborhood any favors. Many flip them as fast as they can and don’t go in and fix them up. The 10 percent are responsible and do a great job. But the vast majority are not. I don’t have any sympathy. They went in with their eyes wide open. That is the cost of doing business. They are doing very well. I think their biggest concern is that they have to pay it, but that there’s no predictability. They don’t now what that cost is going to be. I think if there were a cap on that, most of their concerns would go away.

What will HOAs look like in 10 years?

I still think we’ll have homeowners associations. There’s more good that bad that comes out of them. I think there will be more active adult associations as the population changes and more age-restricted communities are created. That’s a trend that’s still viable. I think some projects will evolve. Not all the condos may survive but it will be difficult to unwind.