Article Courtesy of The New York Times
By Mike Baker and Kimiko de Freytas-Tamura
Published July 9, 2021
Under pressure to keep costs down, many
condo boards around the country have little money set aside
for big repairs like the ones needed in Surfside, Fla. Some
are looking to force a change.
For years before the
partial collapse of the Champlain Towers South complex near
Miami, the condo board wrestled with how to come up with the
$15 million needed to fix the building’s dilapidated roof, a
poorly designed pool deck and crumbling support columns.
The problem: The homeowners’ association had just $800,000
in reserves, and getting the work done meant asking
residents to shoulder huge special assessments ranging from
$80,000 to $200,000 on each home. No one was eager to pay.
“The dirtiest words in the community-association industry
are ‘special assessment,’” Donna DiMaggio Berger, a lawyer
for the board, said of the effort to get 135 homeowners — of
varying means and of multiple nationalities — to agree on a
plan to do the repairs.
During the prolonged tumult over the needed renovations,
several members of the board had quit in frustration.
“People were quitting, and there were new people, and there
was all kinds of stuff that was going on that was not
pleasant,” said Max Friedman, a former member of the board.
“I guess part of it was because of the project. There might
have been personalities involved. There was all kinds of
ugly stuff.” |
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Before the Champlain Towers South collapsed, the
condo board was asking for $15 million to complete critical repairs.
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The deferred
maintenance and inadequate savings at the Champlain Towers
building are common dilemmas at condo associations across
the country, where volunteer board members, sometimes with
little expertise in financing or maintenance, find
themselves dealing with vicious infighting with their
neighbors and pressure to keep dues low.
Only about 10 states require associations of homeowners to
assess how much money they will need for big-ticket repairs
in the future, and a vast majority of states do not require
condo boards to maintain robust reserves to help pay for
those items when they come due.
About one-third of associations are far behind on their
savings, with 30 percent or less of the money needed to
prepare for future big-ticket projects, said Robert Nordlund,
whose company, Association Reserves, has studied tens of
thousands of condominium groups and other homeowners’
associations in all 50 states. He said some boards get stuck
focusing on regular maintenance costs — utilities, gardeners
and pool cleaning — but fail to think about the even bigger
bills that could arrive with sudden urgency.
“Just because the roof doesn’t send a bill every month
doesn’t mean that it doesn’t need to be paid,” Mr. Nordlund
said. “It’s deteriorating at a certain rate, a certain
number of dollars per month, so you need to be setting aside
that money every month.”
Investigators this week were trying to determine whether the
delayed maintenance, faulty design or construction or some
other unknown factor was responsible for the failure of the
13-story building in Surfside, Fla., where the death toll
rose on Wednesday to 18, with up to 145 still unaccounted
for.
City officials in Doral were reviewing the work of Ross
Prieto, the former chief building official in Surfside, who
had reassured homeowners at Champlain Towers South in 2018
that their building, despite the many problems that had been
identified in an engineering report, was safe.
Mr. Prieto, who did not respond to requests for comment, had
left Surfside before the collapse to work as a contract
building official in Doral, reviewing projects. City
officials there said he was on leave.
“In an abundance of caution, we are going to review
everything he did,” Rey Valdes, a spokesman for the city of
Doral, said on Wednesday. “We don’t suspect he did anything
wrong. Nevertheless, given the circumstances we are dealing
with, we are going to review everything he did to make sure
it’s in line with state law and municipal code.”
The debates over deferred maintenance, money management and
escalating homeowners’ association dues that unfolded in
Surfside are hardly unfamiliar to condo residents across the
country, who often find themselves caught up in political
dramas with their neighbors whose outcome can dictate
everything from the color of their garages to the resale
value of their homes.
In Burnsville, Minn.,
a sprawling condominium complex across the street from City
Hall has long been in need of what one City Council member
called a “big HGTV makeover.”
Built in 1970, the Ridgeview Condominiums site has crumbling
roadways, cracked siding and failing retaining walls. The
complex needs at least $12 million to do the repairs, which
means homeowners would be asked to pay about $30,000 per
unit — in a complex where the average condo sells for about
$100,000.
Coming up with the cash to get construction started is a
separate problem. With little money set aside for renovation
and two banks that have declined to extend loans, the
complex is turning to the city to help take out a loan that
would be paid back through tax dollars imposed as a special
assessment on the homeowners.
Elizabeth Kautz, Burnsville’s mayor, said the disaster in
Surfside had highlighted the need for city officials to pay
attention to such issues.
“It is in terrible need of repair,” Ms. Kautz said. “When
you look at what happened in Florida, we do want to help.”
Jennifer Macabeo, a member of a condo board in Seattle, said
the board had worked for years to build up the association’s
reserve fund from a paltry $200,000 to $1 million. But that
still was not enough to address a growing problem with
flawed siding on the buildings in the 104-unit complex,
built in 1979. |
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The Ridgeview Condominiums complex in Burnsville,
Minn., needs major repairs one consultant estimated would exceed $12
million.
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The board proposed a
$10 million plan that would require homeowners to pay about
$100,000 each, but there was a huge outcry, Ms. Macabeo
said. Some residents started a petition to recall the board.
“There was a lot of negative backlash,” she said. The recall
failed and the plan is now moving forward, she said, though
the delay probably will mean more costs added to the
project.
The debate in Surfside had clearly strained relations within
the complex, where residences have sold for $460,000 to more
than $2 million. As the effort toward a costly refurbishment
moved forward this year, Jean Wodnicki, the board chair,
wrote that leaders were hearing questions from residents
about why the work was needed, what financial oversight
would be in place, the size of contingency fees and more.
Ms. Wodnicki made the case that the assessments might not be
high enough.
“We have discussed, debated, and argued for years now, and
will continue to do so for years to come as different items
come into play,” Ms. Wodnicki wrote.
Roof repairs on the building had commenced in recent weeks,
and the remainder of the renovations had been slated to
start soon; they never got underway.
Industry leaders and some states have long pressed condos
and other homeowners’ associations to have robust reserve
funds in order to avoid consternation and procrastination
when a big bill is coming due. But with little voluntary
progress, a move to reshape state laws has gained momentum
in recent months, attracting support from some homeowners,
community managers and engineers in the industry.
A committee at the Community Associations Institute, which
advocates for homeowners’ associations, is looking at a
proposal to require homeowner communities to commission
expert studies to assess the amount they need in reserves.
Dawn M. Bauman, the institute’s senior vice president for
government and public affairs, said the committee was also
looking at minimum reserve requirements, although that
proposal was subject to more vigorous debate.
The committee has planned a special meeting this week to
move faster on the issue, Ms. Bauman said, in anticipation
that lawmakers nationwide would take a closer look in the
coming months.
“It will likely be our top priority,” she said.
Reviews of condo
properties around the country have revealed plenty of safety
concerns, Mr. Nordlund said, including roofs unable to
support any weight and pool equipment rooms with standing
water.
He said his group advised condo boards that spending now on
maintaining their communities would pay off later in better
property values.
In Florida, state law requires condo associations to include
reserve accounts for components that have a deferred expense
or replacement cost in excess of $10,000, which includes an
array of big-ticket items such as roofs or swimming pools.
The amount to be reserved is computed using a formula based
on a building’s remaining useful life and the estimated
replacement cost or deferred maintenance expense for each
item covered.
But there is a loophole. Associations can waive the
requirement to have those reserves on hand if a majority of
a quorum, which could be fewer than a third of the
homeowners, elects to do so. The law allows for some
flexibility, specifying that funds reserved for one purpose
can be used for an alternative project, or can be pooled. |
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Emergency workers searching for missing residents at
the Champlain Towers South collapse site on Wednesday.
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“While this
flexibility could help an association, it can be a
double-edged sword,” Jonathan Goldstein, a condo lawyer
based in Miami, said. “The problem comes where associations
have conflicting incentives. Association members always have
an incentive to kick the can down the road to some other
owner in the future, and so they’ll err on the side of
waiving or partially funding reserves, which will lead to a
large special assessment down the line.”
The next backstop is local government, which could determine
that a lack of repair is a code violation, which could
trigger enforcement proceedings to force compliance.
At the Champlain Towers South project, the condo association
had been working with an engineer in preparation for a
40-year recertification process required by the government.
A letter written in April by the condo president, Ms.
Wodnicki, showed that the association did not have enough
reserves or cash on hand to fund the $15 million in repairs
that residents were being asked to pay. And she warned that
conditions in the building had “gotten significantly worse”
since a 2018 engineering review highlighted millions of
dollars in problems.
“A lot of this work
could have been done or planned for in years gone by,” Ms.
Wodnicki wrote. “But this is where we are now.”
In 2020, financial records show, much of the roughly
$800,000 the association had on hand was earmarked for the
insurance deductible.
Brian McLean, who runs a company based in
Bellevue, Wash., that helps manage 80 homeowners’
associations, said that while some of the boards he worked
with have fully funded reserve accounts, others have
depleted savings. Last year, he said, his company
recommended that one community increase its fees by 40
percent.
“When we do something like that, we know it will be very
hard if not impossible to get that passed in the community,”
Mr. McLean said. “We are trying to force that conversation.”
He said the board eventually did agree to a 12 percent hike.
“It’s going to make some residents go ballistic,” he said. |
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Homeowners at Ridgeview Condominiums may have to pay
about $30,000 per unit.
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