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Articles Posted in Budgets and Reserves

berenice-m-mottin-berger-2021-300x300LTLehr-2018-Siegfried-Rivera-200x300An article authored by the firm’s Lindsey Thurswell Lehr and Berenice Mottin-Berger was featured as the guest commentary column in the online edition of today’s Daily Business Review, South Florida’s exclusive business daily and official court newspaper, and will soon appear in the print edition.  The article, which is titled “Funding Community Association Repairs and Renovations,” concentrates on how the funding of long-term condominium maintenance, repair and replacement projects has become a major focus at many communities across the country after the horrific tragedy of the collapse in Surfside, Fla.  It notes that many association board members who previously might have avoided increasing monthly assessments and implementing large special assessments are now looking to evaluate and address the inevitable deterioration of their buildings.  Lindsey and Berenice’s article reads:

. . . Rather than kicking the can down the road in hopes that future boards will address worsening maintenance concerns, association directors are coming to terms with the fact that delayed repairs and maintenance are likely to exacerbate structural problems and increase the eventual costs, in addition obviously to the potential life-safety risks, to be borne by the owners. dbr-logo-300x57As never before, association boards and unit owners have become keenly aware of the importance of maintaining adequate financial reserves to fund future construction projects.

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The recent tragedy in Surfside, Fla., has significantly impacted our firm and the communities we serve. Our heartfelt thoughts and prayers remain with the victims and families affected by the Champlain Towers South collapse.

In the aftermath of this horrific catastrophe, many condominium association directors, members and managers have raised various questions concerning the safety and stability of their own buildings. Our firm’s other South Florida community association attorneys and I have been responding to many of these inquiries regarding the process of assessing building structural and mechanical elements, and undergoing any repairs and restorations as needed.

constdefect1Because buildings age and mature differently, with possible conditions developing at different points of a building’s lifespan, associations must assess the structural integrity of their buildings and keep up with proper maintenance protocols, even in advance of the triggering of the 40/50-year recertification process. By doing so, associations can gather accurate snapshots of their buildings’ structural health, perform proactive repairs, and organize the funding necessary to move forward with large projects.

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As new spikes in Covid-19 cases continue to unfold and communities seek to maintain their mitigation measures, the financial trials and tribulations created by the pandemic in condominium association and HOA communities throughout the country become ever more apparent. The continued proliferation of Covid-19 cases underscores that while many may be letting their guard down and growing fatigued as to the measures to protect against the spread of the virus, community association stakeholders should remain proactive and forward-thinking in order to best position their associations for the consequences that may arise due to the pandemic.

Some community associations have begun to experience the burdens resulting from lower collections rates caused by strains on the job market due to the pandemic.  While the exact impact on the many types of community associations may be unknown, it has been suggested that delinquency rates could exponentially increase. Bank-owned-2-300x257 In response to such expectations, we continue to suggest that community association boards and managers should continue considering the development of acceptable uniform payment plans that may be offered to those who have lost jobs and businesses.

Similarly, some have proposed that community associations should also think about postponing discretionary improvements to community amenities until late 2021 or even 2022.

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RobertoBlanch_8016-200x300An article authored by firm shareholder Roberto C. Blanch was featured as the HOA View expert guest commentary column in the Business Monday section of today’s Miami Herald.  The article, which is titled “HOAs, Condo Boards Should Brace for a Slowdown in Dues and Tread Carefully,” focuses on the strategies that community associations should deploy in response to the financial strains created by unit owners who become unable to pay their monthly dues.  His article reads:

. . . As they begin to consider their options, some associations are now giving thought to relaxing their collections by waiving late fees and interest on delinquencies, and perhaps also foregoing entire monthly payments for those who become unable to pay due to the economic standstill. While this may appear to be a reasonable response, association directors must not lose sight of the fact that they are fiduciarily obligated to pursue the uniform collection of all payments and delinquencies, so they may be limited in their ability to offer any special considerations or concessions for those experiencing financial difficulties.

Payment waivers for the economic casualties of the COVID-19 pandemic could also open the door to future requests by unit owners for similar concessions related to other financial setbacks.

MHerald2015-300x72Instead, associations could borrow a page from the playbook of previous economic downturns and consider sanctioning a uniform payment plan to assist owners who become delinquent. With the help of qualified legal counsel and financial professionals, they could create a payment plan that is uniformly available to assist all the unit owners who suddenly become unemployed.

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RobertoBlanch_8016-200x300Firm shareholder Roberto C. Blanch was quoted extensively in an article today by The Real Deal South Florida on the looming financial strains for community associations due to the spike in unemployment caused by the COVID-19 economic standstill.  The article, which is titled “South Florida HOAs and Condo Associations Prepare for a Drop in Collections,” discusses the options that associations are considering in response to the expected delinquencies.  It reads:

. . . Attempting foreclosure is also an expensive process that some associations will want to avoid, and the temporary freeze on foreclosures and evictions until mid-May is expected to create a backlog of cases.

Plus, “the end game – foreclosure – may not necessarily be in the best interest of the condo [association],” said Siegfried Rivera attorney Roberto Blanch.

A number of associations he represents have been proactive about reducing operating expenses wherever possible. Blanch said associations are “anticipating they are going to have difficulty collecting payments from owners who have lost their jobs, who have been furloughed, or been laid off.”

TRDlogo-300x80Some are offering payment plans or waiving late fees to owners who have requested that, similar to what happened in 2008 and 2009. But the true impact has yet to be seen, he said. Payment plans could consist of lowering the portion of fees an owner has to pay for the first three months, and then spreading the rest out over the remaining set period of time.

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Laura-Manning-Hudson-Gort-photo-200x300Our firm’s South Florida community association attorneys are often called upon by journalists for their insights into the issues impacting condo communities and HOAs.  When The New York Times “Wealth Matters” columnist Paul Sullivan decided he needed to turn to a highly experienced community association attorney for input for a major article on association living, he called on shareholder Laura Manning-Hudson in our West Palm Beach office.

Paul’s article, which is titled “When Condo Boards and Residents Clash, Legal Bills Mount” and appeared in the Your Money section on Saturday, March 30, 2019, focuses on some of the most common issues that can cause disruptions and financial strains for community associations.  It reads:

My mother-in-law recently regaled me with a tale of intrigue, money and power in her South Florida homeowners association.

Seeking to raise about $6 million to refurbish the 20-year-old community, the association’s board had voted to assess each homeowner $7,000. But a group of vocal residents fought back, setting up a power struggle.

This conflict is nothing new to anyone who has dealt with a condominium board or homeowners association, which has well-defined obligations to the residents. As the overseer, it hires workers to cut the lawn, take out the trash, clean lobbies and common areas and maintain pools, tennis courts, golf courses and other amenities. If the elevator breaks or the roof leaks, the board gets it fixed.

But if it wants to do something cosmetic — renovate the lobby, add pickle ball courts or install a fitness center — the board needs to put its idea to a vote of the residents.

timslgo-300x46The article continues:

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A recent news report about excessive levels of radon gas in a Florida condominium raises some interesting questions about the proper response from a condominium association and its insurance carriers on this issue.

The report, which appeared in late November in the pages of the Venice Gondolier Sun, chronicled how the owners of a unit at the South Preserve II of Waterside Village Condominium were surprised to learn that tests conducted at the behest of their tenants found excessive levels of radon in their unit. The odorless and colorless gas, which comes from the radioactive breakdown of naturally occurring radium found in most Florida soils, rocks and groundwater, is the second leading cause of lung cancer overall and is the leading cause among non-smokers. In Florida, one in five homes tested has elevated radon levels above the limits set by the Environmental Protection Agency, and the gas can be found in homes, schools, offices and high-rise condominiums.

According to the newspaper’s article, the unit owners sent the test results to their association, which hired a different company to conduct its own tests that yielded similar results. The radon levels in the residence were more than five times the level considered safe by the EPA.

rn-300x196The owners obtained an estimate for $3,100 to mitigate their unit, but per EPA rules the company would be required to inform the neighbors of the mitigation process. It also requested that the owners sign an “inadvertent collateral mitigation form” stating the company would not be held responsible for any environmental impacts on adjoining units.

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A recent report by the Jacksonville, Fla., ABC network affiliate exemplifies the calamitous results that can ensue when condominium associations and HOAs are inadequately prepared to meet the long-term maintenance needs of their communities.  The station chronicled the battle that is taking place at the Fountain Gate Condominium, which is composed of a number of buildings that were originally built in the 1980s and now need their wood siding replaced.

According to the report, the association’s board of directors has approved the procurement of a bank loan for $1.5 million for the project.  It would be repaid by imposing a special assessment of approximately $20,000 per unit, to be paid monthly over seven years.

One of the directors on the association’s board, Jody Kilgore is against the special assessment proposal, which met with an immediate backlash by the unit owners.  She is quoted in the report saying that the owners, who are mainly retirees in their 70s and 80s on fixed incomes, “feel like we’re being railroaded.”

fgate-300x199She goes on to say that the unit owners are being left out of the decision-making process, explaining that Florida law requires the approval of 75 percent of the owners for material changes such as this repair project.  Instead, she notes that the board of directors alone voted to approve the changes.

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Michael-Hyman-srhl-lawThe firm’s Michael L. Hyman authored an article that appeared as a “Board of Contributors” guest column in today’s edition of the Daily Business Review, South Florida’s exclusive business daily and official court newspaper.  The article, which is titled “Association Deficits Don’t Excuse Developer From Funding HOA Reserves,” focuses on a recent decision by the Florida Fifth District Court of Appeal that found a developer was not excused from funding reserves while it remained in control of the association and was funding deficits in the operating expenses.  Michael’s article reads:

For the developer of the Sullivan Ranch community in Mount Dora north of Orlando, it appears that its decision to stop funding reserves after it established the account and began funding it in 2007 has significantly backfired. The Fifth District Court of Appeal recently overturned a lower court’s summary judgment, which concluded that the developer was excused from funding reserves while it remained in control of the association and was funding deficits in its operating expenses.

The Fifth DCA’s decision in Sara R. Mackenzie and Ralph Mackenzie v. Centex Homes et al. illustrates the importance for developers of HOA communities to tread carefully whenever they attempt to avoid funding for association reserves. Condominium developers are provided with a statutory mechanism to avoid funding for reserves if they guarantee a set minimum level for the association’s entire annual budget during its first two years of existence, but the laws governing HOAs do not include this exemption.

dbr-logo-300x57Based on the circumstances in this case, it appears that the developer of the community was either unaware of its statutory requirements governing the funding of reserves or it failed to adequately think through its actions. After establishing the account for the association’s reserves and funding it in 2007, the developer opted to pay Sullivan Ranch’s operating expenses in lieu of making any contributions to the reserve account in the following years, claiming that it had made no guarantee to fund the reserves.

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While maintaining an adequate level of reserve funds for deferred maintenance, capital improvements and other major expenses is always recommended, community associations that find their reserves do not cover all of their needs have a worthwhile option other than special assessments that they should explore and consider.

Bank loans and lines of credit for associations were very difficult to obtain during the height of the foreclosure crisis, but happily for many Florida communities those days are long gone.  Now, there are a number of lenders that focus on loans for associations and offer highly competitive rates and terms.

Special assessments are typically the first option that associations consider to cover shortfalls in their reserves and take on important renovations or other unforeseen expenses.  However, it may not be the preferred choice for many communities.  Millions of U.S. homeowners are still recovering from the crash of the housing market and do not have the ability to secure a home equity line of credit in order to pay a special assessment.  In addition, the implementation of a special assessment is viewed as a sign of financial distress in an association by lenders considering FHA-backed home loans for buyers ipool-deck-renovation-300x224n a community, and this can ultimately take a significant toll on sales and property values.

Most associations will begin their research into their financing options by first turning to the bank that maintains their operating and/or reserve accounts.  While this is the obvious place to start, in the majority of cases they are also going to need to shop around.

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