Champlain Tower South in Surfside, Fla.,
was in dire need of repairs when the 40-year-old building
partially collapsed in June 2021, killing 98 people. In
2018, an engineer's report identified significant structural
damage, and a tentatively settled class action lawsuit
alleges that work on a nearby building destabilized the
Champlain structure. But there's another culprit: the
inadequate funding for essential repairs at aging condo
buildings -- a national problem.
More than half of an estimated 4.1 million condo units in
the U.S. were built before 1990, according to the U.S.
Census, and the reserve funds for a third of homeowner and
condo associations have insufficient cash, estimates
engineer and CEO Robert M. Nordlund. His firm, Association
Reserves, has conducted more than 60,000 reserve studies.
These detailed reports analyze the funding needed for condo
repairs and improvements. Association Reserves studied
Champlain Towers in 2020 and found both substantial deferred
maintenance and inadequate reserves.
All condo owners contribute to their association's reserve
fund through their condo fee, but when the reserve fund
isn't enough to cover urgent work, owners are handed a big
bill in the form of a special assessment, which is
especially painful for retirees on fixed incomes. At
Champlain Towers, homeowners had been hit with a $15 million
assessment when the structure failed. "Many owners were
shocked to face a huge special assessment and bank loan to
pay for repairs and replacements that were predictable,"
says Nordlund.
There's no reason for condo owners to be blindsided. If you
see something in your building that causes concern, say
something, says Dawn Bauman, a senior vice president of the
Community Associations Institute. Even better, she says, put
your questions, concerns or requests for information in
writing, addressed to the board.
If you're not attending board meetings, read the meeting
minutes, which are generally posted online or sent to
owners. "Be concerned if there are no meeting minutes, some
are missing, or the board has been preoccupied by minor
issues at the expense of important decisions that affect
home values," says Nordlund. He publishes a free guide, "7
Tips That Will Turn You Into an Informed Owner or Buyer" at
reservestudy.com/older-condos-resources.
Some of the same benchmarks that Nordlund tells buyers to
look for can also help condo owners determine if the
association is prepared for future repair bills. Condo fees,
for example, should have been raised at least three times in
the past five years, but condo owners often pressure the
board of directors to keep the fee low. Without adequate
funding, maintenance and repairs are deferred only to become
more expensive later, increasing the odds of a crisis and
the need for a special assessment. Eric Glazer, a lawyer in
Orlando, Fla., who specializes in condo law, says that
retirees often like to brag about who has the cheapest condo
fee. "The winner is actually the loser," he says.
Another benchmark can be found in the reserve study, which
should have been prepared by a credentialed specialist
within the past few years. Owners should ask for a copy and
check the percentage of anticipated needs met by current
savings. This percentage "is the only way to link a condo's
financial and physical health," says Nordlund. A condo is in
good shape when the needs are more than 70% funded.
What if you want to sell and know that something is amiss in
your building? By law, you need only disclose defects that
you know about within your unit, not those in the building
or common area. Still, if many of your neighbors also list
their units for sale, that can alert buyers that something's
up.
Fannie Mae and Freddie Mac have imposed new guidelines for
lenders to ferret out buildings that are too risky for
mortgage loans. Lenders who want to sell loans to Fannie and
Freddie must determine if a building has significant
deferred maintenance, special assessments that adversely
affect the condo association, insufficient reserve funding
or no reserve study. The guidelines are temporary and
subject to revision, but Bauman expects they will become
permanent, making it harder for sellers of units in troubled
buildings to get out.