Article Courtesy of The Miami
Herald
By Monica Hatcher
Published August 4, 2009
After the race to convert as many rental
apartments as possible into condominiums came to an end, condo
associations were largely left to deal with the mess left behind.
Many conversion associations were
ill-equipped and underfunded from the start. Now, they are among the most
financially beset of the region's struggling associations.
Aging buildings, sometimes 20 or 30 years
old, and units abandoned to foreclosure by ruined investors who stop
paying monthly maintenance fees have shifted a far larger fiscal burden on
conversion associations than many can afford.
Part of the problem, condo association
attorneys said, has been flawed budgets submitted to associations by
developers after they turned control of a conversion over to unit owners.
A major culprit is deferred maintenance costs.
"Just like there was a lot of shoddy
appraising going on, there was a lot of shoddy budgeting going on,'' said
Constantine Scurtis, vice president of The Lynd Co.
Bill Quigley, who owns Cutters Edge
Professional Service, a lawn and property maintenance company, said he has
seen the problems firsthand.
SUPERFICIAL TACTICS
Developers, he said, often made
only minor improvements to major conversion infrastructure but poured
money into enhancing a project's curb appeal.
"The developers would have us plant
4,000 to 6,000 flowers around all the units, all the pathways. They would
have us change them out four or five times a year,'' Quigley said.
As the units began to sell to investors and
owners, residents grew accustomed to the Disney-like landscapes as well as
the presense of dozens of maintenance workers on the properties.
The emphasis on appearance made good
business sense, Quigley said. "The prettier the place looked, the
more they wanted to buy. It was a kind of mirage put out there.''
The fresh paint, hot tubs and
newly-thatched Tiki huts often concealed serious problems, such as aging
elevators that would soon need to be replaced, old plumbing and other
structural problems. Associations often had trouble collecting enough fees
from homeowners to cover replacement costs.
"Buyers didn't know who the converter
was or his history. They didn't read the condo documents to see what kind
of liabilities and responsibilities they had'' said Jack McCabe, president
of McCabe Research & Consulting in Deerfield Beach.
"When these things turned over, there
were tons of communities going after the developers hard and heavy for
problems with the roof, plumbing, electrical, whatever,'' said Robert
White, managing director with KW Property Management & Consulting.
Developer turnover lawsuits, as they are
called, are still common. But, because many developers formed LLCs or
single-purpose entities to execute short-term business plans, condo
associations are largely left chasing shell companies with no assets, said
Eric Glazer, a condo association attorney.
"The developer certainly has no
assets,'' he said. "That's the biggest problem we're seeing.''
OVERRUN BY RENTERS
Another problem that has come to
haunt conversions is the lack of rental restrictions in their governing
documents. That allows buildings to be overrun with speculator activity
and filled with renters, who often don't treat properties with the same
regard as owner-occupants.
"That's where things really went off
the tracks,'' said Grant Stern, a mortgage consultant in Bay Harbor
Islands. "The idea that a condo is owner-occupied is essential to the
form of ownership.''
Absentee landlords have become notorious
for abandoning maintenance fees while continuing to collect rent from
tenants. In a 12-unit building, for instance, with 12 different landlords
and 12 tenants, "there's no one running the asylum,'' Stern said.
Myriad problems, including bankrupt
developers who may still hold dozens of units in some complexes, have made
it nearly impossible for prospective buyers to get loans to buy units.
Jittery lenders typically shun making loans in distressed condos out of
fear that prices will fall even further and erode the value of their
collateral.
"There were a lot of buyers that
weren't extremely discriminating on product quality during the height of
the market. There were a lot of lower grade apartments that were converted
that probably shouldn't have been,'' said Adam Cappel, president of
Miami-based CondoReports.com.
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