Following the Florida condo collapse, the universal cure seems to be to fund the reserves. Making sure there are adequate funds for the necessary repairs is a no-brainer. I had long advocated funding the reserves but have always been surprised when homeowners quickly informed me that I was wrong. Some even claimed they would prefer a special assessment to take care of any problems. That approach never appealed to me. However, it is important to hear all the concerns.
Bill Davis joins us today. Bill, a Texas attorney and a frequent guest on On The Commons, sees the big picture and can explain what we are missing. While making sure we fund the reserves, that is only part of the solution. Please tune and take a look at the big picture. It is not always quite as simple as it sounds. Be sure to tune in.
Ever since the Surfside condo collapsed in Florida there has been much speculation as to what caused it and what needs to be done to prevent this from happening again. And predictably, the homeowners themselves were blamed for it. I have been involved with the policies and politics of HOAs and condos for well over 20 years, but this has always baffled me. Condos in particular have been sold as “care free living” so why blame the owners who were sold on the idea they didn’t have to do anything? And they are negligent for not having filled in cracks. What’s the rationale behind it or were they first in line without a lobby behind them to deflect the accusatory finger pointing at them? None of the reasons given for the tragedy made any sense to me at all. I thought we at least needed to know what caused the collapse before we could come up with a way to prevent it from happening again. Blaming the homeowners because they were not keen on funding repairs on something they no longer owned made no sense to me. As far as I am concerned it was just more evidence that the HOA and Condo concepts are flawed. That is a discussion for another time but one we definitely need to have.
In my experience we never had a vote as to whether we would fund the reserves. Silly me, I thought all HOAs and condos had to fund the reserves. Apparently that is not the case. Whoever dreamed this concept up should have ensured that the funds needed to maintain this terrific experiment were always available. Julio Robaina joins me On The Commons. Julio is a former Florida legislator who promised he would always work for the HOA and condo homeowners and he has kept his promise. Even though he is not currently a legislator he is very much involved with drafting legislation to protect the owners from another similar disaster. I am really excited and impressed with some of the legislation he talked about. Finally some sensible ideas. I would love to tell you about them but I suggest you tune in and hear Julio explain them.
The truth is that none of us has a crystal ball and can’t predict exactly what will happen, but life has taught us that certain pitfalls and dangers lurk around the corner and could cause a lot of problems. One of those problems is not having enough money set aside if the walls come tumbling down around us. In a condominium, it is mandatory that the board ensures that they fully fund the reserves unless they want to impose special assessments to make the necessary repairs to ensure that the buildings are safe and sound. It is inconceivable that the entire building will fail, right? Well, we have just witnessed one of the most horrific disasters that resulted from a condo that shrugged off their responsibility to fund the reserves and also to make the necessary repairs and replacements as they came due. Entire families lost everything they owned. If there is a lesson to be learned here, it is to make sure the condo collects the needed reserves and that we, the members, pay them when they are due. A special assessment will be a lot less convenient at a later date.
They built a condominium where a shared building is owned by a business, managed by a board of directors, and funded by the members. What can go wrong? This arrangement complicates things considerably. The owners are required to comply with decisions made by others whether they like it or not. Unlike a traditional form of ownership, where the buyer buys and owns the building and is solely responsible for the maintenance, the members of the condominium are stuck with the responsibility of paying for any problems. And those problems can be disastrous, as we saw when the Surfside condo collapsed, killing entire families.
Jan Bergemann joins us On The Commons. As many of you know, Jan is the founder and President of the Florida-based Cyber Citizens for Justice. Jan has done a fantastic job at CCFJ and is very knowledgeable about condos and HOAs. He has long advocated for fully funding association reserves. Following the catastrophe at Surfside, he took things one step further. Jan called a town hall meeting with legislators and leaders from all different Florida groups to look at ways to prevent this from happening again. Fortunately for all of us, they recorded the meeting on Youtube and for all to watch. I urge you to take the time to tune in and consider something similar in your state. Here is the link https://www.youtube.com/watch?v=0hotkUUlYqk
Sometimes it takes a tragedy to make us realize we have been ignoring the elephant sitting right in front of us in the middle of a tiny room. For years many of my guests On The Commons have warned us that we are not saving enough in our association reserve accounts. Having served on the board of directors of my HOA and having served briefly on the finance committee, I knew we had a reserve account that was healthy. I did not want to deal with a special assessment. Weren’t we like all other other residential associations across the country? I have always advocated making sure residential associations fund their reserves. Imagine my shock and surprise when my listeners let me know, in no uncertain terms, just how wrong I was. Their concern was that there was no one guarding the cookie jar. Too much money has been embezzled from HOAs. A very valid problem. Some industry members were unaware that this was going on and seemed genuinely shocked when I brought it up. How could they possibly not know?
Julio Robaina, a former Florida Legislator, joins us On The Commons. Julio had promised that he would always protect the rights of home and condo owners and he has kept his promise. When the Surfside condo collapsed, Julio’s former colleagues asked him if this is about what he was warning them? You shouldn’t have to lose so many people to prove you knew what you were talking about. Following the tragic collapse, Julio is working with the legislature, coming up with legislation that would prevent a repeat performance and allay any fears home and condo owners typically have about leaving bags of money on the table, unattended. Julio joins us and explains his new legislation. I LOVE it. I think he has covered all the bases. When Julio’s bill is enacted as written and not stripped of important points, it should serve as a model to be adopted and enacted throughout the rest of the country. Since we will not be able to clone him for every state, we, the home and condo owners, will have to do the heavy lifting. Tune in to today’s show, you will be inspired to have the same bill in your state.
Wikipedia describes The Tragedy of the Commons as “a situation in a shared-resource system where individual users acting independently according to their own self-interest behave contrary to the common good of all users by depleting or spoiling that resource through their collective action.” But isn’t that just human nature? Don’t we normally make choices and decisions based on our immediate needs and what benefits us? And isn’t that especially true for people who are generally struggling to make ends meet? Can the current model of HOAs and condos function properly for all?
Tyler Berding joins us On The Commons. Tyler is the principle attorney and founder of Berding-Weil, a California law firm. Tyler represents residential associations and has long been concerned about the lack of adequate reserve funding, construction defects, condo conversions and the flawed HOA and condo model. He is particularly concerned about the buildings as they near the end of their useful lifespans. What happens to the buildings that need to be refurbished? What happens to the owners and their assets? Who pays to make the units habitable if the reserves are inadequate to fund it all? Can retirees on fixed incomes and low income owners afford massive special assessments to cover the shortfall? What Tyler is talking about is the classic “tragedy of the commons”. Tyler shares with us his presentation for a summit next month. Tyler also has a blog called Condo Issues with lots of thought provoking blogs covering all things condo.
I often wonder what my life would be like if I had complete and total control over it. Would I be able to deflect all the curve balls life throws at me? Or would I still be floating on the sea of life like so much flotsam and jetsam, subject to all the vagaries lurking in the shadows, just waiting to trip me up? Happily we can take control of many things in our lives but unfortunately for those of us living in America’s ever growing number of residential associations, we seem to be losing the war. It is just a handful of people who make the major decisions that affect our lives and more importantly, our wallets.
Robert Nordlund joins us On The Commons. Robert is the founder and CEO of Association Reserves in California. In his professional life he studies the common elements in an association, be it a condo, HOA, Co-op, dockominium or parkominium to determine whether or not the corporate entity responsible for maintaining the common elements is adequately funded.
The news isn’t good. According to Robert, 70% of all associations are underfunded, which means only 30% are not in immediate danger of incurring special assessments. We’ll talk about the reasons for underfunded associations. Are artificially low assessments the (only) reason for this dilemma or could other common practices be responsible for this predicament? Could better business practices help? And is there a “quick and dirty” way for housing consumers to figure out what the financial health of the association they are considering buying into?
I have to wonder whether throwing more money at something that is broken is the only fix or is it simply the easiest short term solution for a problem? Are there other ways of dealing with it that we are overlooking.