Article Courtesy of The Miami
Herald
By NANCY WEAR
Published June 13, 2009
A condominium association confronted by impending
foreclosures on one or more units may have few palatable choices: The
board can either increase the monthly assessment or impose special
assessments on the remaining owners in order to pay utility and other
bills. Even as the board is taking these unhappy actions, it is important
to recognize how this situation could have been avoided and to take steps
to see that it does not happen again.
First, conduct due diligence on potential owners.
The creditworthiness of each unit owner is of critical importance, yet
associations have historically relied on the prospective owner's mortgage
approval -- a strategy that we now know was fatally flawed. At a minimum,
associations must run a credit check on prospective owners; further
background checks are both advisable and appropriate.
Every association has a screening process for
proposed buyers. This is usually a ''meet and greet'' with board members.
The board often talks about how everyone is a ''family,'' an assertion
that should send a prospective buyer screaming for a refund of the
deposit. The condo association is a business. Use this interview to ask
and answer substantive questions.
Secondly, fully fund the association's reserves, as
is required by the condo statute. ''Reserves'' are a fund into which a sum
is supposed to be deposited each year of the remaining useful life of each
element of the building that will cost more than $10,000 to replace or
repair. Items like painting the building and replacing the roof must be
included in ``the reserves.''
The statute, unfortunately, permits unit owners to
vote each year to waive full funding of the reserves. Some boards
encourage an affirmative vote on such waivers. This was a bad idea before
Hurricane Andrew, which exposed the consequences of ''no reserves'' and
led to the statutory mandate.
Today, there is no principled argument that can be
made in favor of waiving full funding. Prospective buyers should be
reluctant to buy where reserves are not fully funded, because any
interference with the income stream from monthly assessments can cripple
an association.
Many associations are struggling because they failed
to recognize that it is not a question of whether there will be a
shortfall, but only when it will occur.
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