DISPELLING THE MYTHS

1
DISPELLING THE MYTHS

• Facts regarding the GRF Trust, PCM, Self
  Management, B of A Loan Agreement
• and Direct Election.

2
Why this Presentation

• Publication 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.

3
The GRF Trust

• Consists 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).

4
The Inconvenient Truth

• From 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.

5
Contd.

• 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 HOAs 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? Dont laugh it could be
  possible!

6
Contd.

• Essentially we have four bodies orbiting around
  each other without any defined relationship other
  than GRF possessing sole power.
• GRFs business is not Uniteds business, which is
  not Thirds business, etc. etc. This is a recipe
  for continued strife over big decisions.
• While GRFs 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.

7
Contd.

• 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.

8
Removal of PCM

• To 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.

9
Contd.

• 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.

10
Contd.

• 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.

11
What is self-management?

• Basically large scale HOAs 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.

12
Contd.

• 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.

13
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.

14
Contd.

• 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.

15
Direct Election

• This 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.

16
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. Lets put this myth to bed.

17
SUMMARY

• The 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.