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Find Blog Articles for Florida’s Condo, HOA and the Management Industry.
The age of a CommunityAssociation opting not to fund reserves is coming to an end, and some homeowners could be facing a steep rise in assessments. Becker Shareholder Howard Perl surveys the landscape and offers a few suggestions of how to prepare.
After the Surfside tragedy, everyone wanted to know how such a tragedy could happen and what steps could be taken to avoid similar incidents in the future. What caused the collapse? Could it have been avoided? Why were repairs not made? Why did local governments allow repairs to drag on? Why were repairs not made in a timely fashion? Unfortunately, none of these questions can be answered quickly, and proper answers will require years of study and analysis.
The above questions, and attempts to enact legislative reform to address some of these questions, were a hot topic for the Florida legislature this year. Several counties and the Florida Bar convened task forces in the aftermath of the Surfside tragedy. Primary among the suggested legislative changes for multifamily buildings were periodic engineering inspections, reserve studies, and reserve funding mandates. While all agreed generally in regard to these reforms, at the end of the day, the Senate and House could not agree on the reserve funding issue and, as a result, nothing passed. Currently Florida law can allow for owners to opt to fund less than required reserves, or no reserves. Most legislative proposals included mandatory reserve funding of one type or another. The sticking point was how quickly to implement such mandatory reserves, without the option of owners being able to waive such requirements. Whether to implement immediately, effective in 2022, or over the next three or five years, to allow a gradual implementation, is ultimately what led to nothing being passed. Rather than compromise, which seems to be a forgotten word in Tallahassee these days, legislators could not, or refused, to come to an agreement for the benefit of all condominium and cooperative residents in Florida.
These issues are certain to be re-examined next year. As such, your association should begin recognizing what is most likely coming down the pike and preparing the association and its residents now. Most likely the days are gone when owners will have an opportunity to fully waive reserves. I anticipate mandatory reserve funding of some type will be implemented. Whatever version is implemented, the result will be an increase in annual maintenance assessments. Depending on what is implemented and your association’s current reserve funding situation, some owners may be looking at a significant increase in your 2024 assessments (as the laws I am discussing would be passed in 2023, and most likely effective for the 2024 association budget).
The association should be anticipating and working on these items now. For example, some sort of reserve study requirement is most likely coming. Budget for one now. Get proposals now. Have the study done now. Once mandated by statute, demand will go up, availability will go down, and of course prices will go up. We are seeing exactly that scenario now in regard to structural engineers and 40/50-year recertifications.
In regard to reserve funding, take a good look at your reserve schedules. Get updated estimates of repair costs. Factor in inflation when projecting 10 and 20 year replacement items such as painting, roofing, etc. Any effort to increase your 2023 reserve balances will help lessen any blow of 2024 mandated reserves. Explain these issues to your residents now. Many associations are understandably involved with 40/50-year recertification requirements and other life-safety related issues. Obviously these issues need to be addressed immediately and on an expedited basis. But associations and their members should keep their eye on long-term remedial requirements as well. More oversight; more required inspections; more required repairs; and more required reserves. All of these are good things for 40–50-year-old buildings in a saltwater environment in Florida.
The outcome of the 2022 legislative session once again underscores the inherent problem when all community association ideas are placed in only one omnibus bill. Until our legislators acknowledge this problem and start using stand-alone bills for important proposals, there is always the risk that needed reforms will not pass.
Contact your legislators, tell them you welcome these types of reforms, but they need to be addressed as needed, not all under one take it or leave it omnibus bill. Work with your association leaders on the above discussed items. Don’t be surprised by increased annual assessments, special assessments, and other upcoming expenses. They are coming. Prepare now.
Howard Perl is a Shareholder in Becker’s Community Association practice and has been involved in all aspects of community association law, including transactional, collections, mediation, arbitration, construction defects and litigation. He is also Florida Bar Board Certified in Condominium & Planned Development Law.
Clif brings 20+ years of experience in progressive leadership roles, including serving as CFO of a major provider of advanced technology solutions across the federal, state, municipal, commercial, and petrochemical refinery markets, and extensive experience with A/E firms. He has a wide technical accounting foundation with experience in public accounting, US GAAP, controls, reporting, systems, FP&A, corporate development, and treasury and strong penchant for building consensus, creating effective relationships, and negotiation skills.
Clif is passionate about solving dynamic problems with creative solutions and will be responsible for driving the company’s overall financial strategy, including growth plans as we continue to expand our footprint. He will be playing an important role building a strong finance team with deep expertise and assisting with all 10 of Falcon’s offices. The dedication he’s shown throughout his career in unlocking business potential is invaluable to this next chapter with the Falcon Team.
Welcome to the team Clif!
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Self-Managed condominium associations and HOAs are governed by well-meaning volunteer leaders who keep a close eye on the association’s finances. When home and unit owners don’t pay their association fees and dues, the Board is challenged with handling the collection of those delinquent funds. Running a tight ship often leads to no available cash for unforeseen problems. Hiring an attorney to handle a collection matter is expensive and just doesn’t make sense. Axela Technologies collection solution offers the self-managed association Board a collection solution at no cost or risk to the association. Licensed and insured collection services from Axela Technologies lets the self-managed association keep their budget intact while collecting the delinquent funds they are owed and need to run the association. That’s just smart!
Attorneys can be very useful to self-managed condominium associations and HOAs when they need legal assistance. However, using an attorney when a homeowner has fallen behind in their dues and assessments is not a frugal choice. Whether successful or not at resolving the problem, the attorney will require payment. After all, they are providing legal services at a billable hourly rate. Smart self-managed condominium and HOA Boards know that they have a collection problem, not a legal problem. Employing Axela Technologies to solve the collection problem makes sense. Unlike an attorney, there are no hourly fees and the low reasonable fees that are charged by the collection agency are passed through to the delinquent homeowner, where they belong. After all, it was their failure to produce timely payment of their fees and assessments that put the association in this predicament to begin with. It wouldn’t be fair to force the good-paying home and unit owners within the self-managed association to foot the bill for the association to collect the monies it is owed.
Using an outsourced collection agency like Axela Technologies is in the best interest of all involved. Forward thinking Board members of self-managed condominium associations and HOAs know that spending as little money as possible is in the best interests of all association members. That is one of the reasons they chose to self-manage in the first place. Axela Technologies provides a perfect solution to a potentially expensive problem. The collection fees passed through to homeowners from Axela are far less than those of an expensive attorney who charges by the hour. Not only does the self-managed association save money, their homeowners also benefit from a less expensive solution to correcting their indebtedness.
Axela Technologies handles all collections on a merit-based system. Visit our website at https://www.axela-tech.com today and ask to speak to one of our delinquency collection experts.
A reserve fund is a special account for the long-term repair and replacement of commonly-owned property in a community association.
A good example of this is the roof of a condominium building. All of the unit owners in the building share ownership of the roof. Every 50 or so years, the singles and other items will need to be replaced. The condo association will set aside a specific amount of money each year to go towards replacing/repairing the roof.
When an association plans for a reserve fund, they call on trained experts known as reserve specialists. These assess examine every detail of the association’s common areas to determine their lifespan and condition. They also include factors such as inflation to determine the cost of replacement at the end of the item’s lifespan.
Finally, the last step is to determine how much money the association needs to set aside each year. There are three basic plans for reserve funding: baseline, threshold, and full funding. These determine how prepared the HOA or condo will be when the item’s lifespan is up.
Full funding offers the least amount of risk for owners. With full funding, the replacement item in question will be fully funded by the end of its lifespan. With threshold funding, the association plans to have a certain limit, say 50%, of the item paid for by the end of its lifespan. The up-side to this is cheaper dues. The down-side is that is puts the owners at a greater risk of reaching the end of the item’s lifespan without having the proper funds available to repair or replace it. Finally, baseline funding aims to keep the reserve fund above a $0 balance at the end of the item’s lifespan.
Whichever path the association decides to take, the funds needed are figured in the budget. A portion of the regular assessments paid by homeowners or unit owners goes towards the reserve fund. Some states require associations to maintain a reserve fund by law. Most of the mortgage loans on condos are underwritten by the Federal Housing Administration. The FHA requires that a minimum of 10% of the association’s budget be designated for the reserves. If an association is not allocating at least 10% of its budget, it loses it’s FHA certification. This will almost always have negative consequences for the unit/home values.
Aside from that, who really wants to buy into an association that isn’t planning ahead? That isn’t executing good judgement, and should be a red flag to potential buyers. Adequately maintaining a reserve fund will mean higher assessments over the course of time. However, this is much better than the alternative of a large special assessment. If you community association needs guidance when it comes to reserve funding, trust the financial experts at Clark Simson Miller. We’re not reserve specialists, but we have over 100 years of combined experience in the association management industry. We’ll be glad to schedule a consultation and assess your community’s overall financial health.
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Royale Management Services, Inc.
Your maintenance fees cover many of the same things you would need to pay for as a homeowner.
What’s included? As a condo owner, it’s useful to know how your maintenance fees are determined. No one is profiting from these fees. They are determined by the board of directors who are elected by the owners and charged with responsibility for operating the association. They represent your share of the common expenses as agreed to in the governing documents.
What you pay is determined by estimating the costs for operation and maintenance for the budget year. These costs include controllable costs — those over which the board can exercise control, e.g., wages of association employees, improvements, along with the cost services offered to owners and residents — as well as non-controllable costs, e.g. insurance, water, garbage collection, electricity, repairs, and existing long-term contracts such as bulk cable agreements.
Each year the board and management review the prior year’s costs and do everything in their power to project the cost for the coming year. These costs become the budget’s expense line items; and once they are calculated, any income from other sources (such as laundry and outside rental income) is taken into account. The total projected expenses are then reduced by the outside income, and whatever is left becomes the maintenance for the coming year. After that, it’s a simple matter of calculating each unit owner’s share of this amount based on the formula set forth in the governing documents.
In many associations, non-controllable expenses make up the majority of the expenses, with insurance often being more than a quarter of the total expenses. Add to this, utilities (which varies), long-term contracts, and required repairs and upkeep, and you can see that the expenses the board can control can be limited often to less than 20% of the total expenses.
The board must also fully fund reserves based on the current replacement cost of reserve items. Reserves may not be waived or reduced by the board. They can, however, be reduced or waived by a vote of the owners. Reserve funding is added to the cost of the maintenance fees already calculated and becomes part of the regular maintenance payment. Reserves cover the wear and tear on items with a useful life of more than one year, such as roofs, painting, and paving, along with other major items that will wear out over time.
Each association’s budget is different. Accordingly, maintenance fees generally reflect things that are unique to each association. For example, associations with 24-hour security personnel, bulk cable contracts that include the internet, and expensive-to-maintain lobbies will have higher maintenance fees than those that provide fewer services and amenities.
Tags: Board of Directors, Budgets, Building Maintenance, condo maintenance fees, Condo Reserves, Finance and Collections, Royale Management Services
1- The absence of uniform maintenance standards outside of boards should be established.
2- Efforts to make condo repairs of life safety issues should no longer require a full vote of the association membership.
3- Thorough and consistent inspections should be required.
4- Boards should be empowered to borrow money to pay for life safety repairs.
5- Local governments can no longer rely upon sovereign immunity to protect themselves from civil claims.
6- The Florida legislature can no longer raid the $4 door tax trust fund by diverting that money to the general fund.
7- Thirty percent of that money should go towards educating boards and owners about repairs to make buildings safe
A task force report prepared by a section of the Florida Bar recommended that lawmakers overhaul the state’s condominium laws following the Surfside building tragedy that killed 98 people, urging a process to address inspections and ensure proper reserves are in place to make major safety repairs, among other issues.
The task force was formed by The Real Property, Probate and Trust Law Section of the bar, convening lawyers who deal with condominium and association laws. Its purpose was to recommend ways to prevent future failures, not to investigate or place blame for the 12-story building collapse.
“The lack of uniform maintenance standards or protocols, and the unguided discretion given to boards of directors to determine when, how, and if life safety inspections should be performed, requires legislative intervention,” concluded the 179-page report that was released earlier this week.
Champlain Towers was 40 years old and in need of major repairs when it collapsed on June 24. It’s led to officials looking at the need to ensure other aging structures are safe. The task force said 912,376 Florida condo units housing more than 2 million people are at least 30 years old, including more than 105,000 older than 50 years and nearly 328,000 built between 40 and 50 years ago.
Overall, Florida has more than 1.5 million condo units operated by 27,599 condo associations, the report said.
Among recommendations are giving association boards the right to make special assessments for major repairs to protect resident safety without a full association vote. It also requires associations to build up reserves for such projects as recommended by engineers in order to be able to pay for repairs. Those would be in addition to accounts in place for routine maintenance.
While the report said the vast majority of condominium associations are operating in a reasonably safe manner, there needs to be more consistency with inspections and the information provided in them needs to be available to residents.
“Unit owners and boards may also resist such maintenance because of cost, lack of reserves, disruption and inconvenience,” the report said.
The report also recommended allowing condominium boards to borrow money to pay for life safety repairs so the cost could be spread out over years.
Local governments should also have a higher level of accountability for inspection reports, including stripping them of sovereign immunity protections, which limit civil claims against government agencies to $200,000.
“Condominium residents should be entitled to rely on the inspections and reports performed by or on behalf of local governments, and local governments should not be able to avoid responsibility for the content and conclusion of building inspection reports,” it said.
Current law has limitations on associations and unit owners to take civil action against developers for design and construction flaws. Those limitations should be lifted, the report said.
The state division that oversees condominium education and compliance is largely funded by a trust fund built on a $4 per unit fee. The task force recommends the Legislature not be able to “sweep” the trust fund for other state budget purposes.
It also recommends that 30 percent of the trust fund be used to educate association boards and residents about obligations to make repairs to ensure buildings are safe.
Thank You, for the Article:
Tags: Assessments, Board of Directors, Management News, Reserves
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We have worked with associations in chapter 11 Bankruptcy that needed financing to exit the Bankruptcy or settle lawsuits, from vendors, neighbors, or previous lenders. When an association needs cash, often it stops doing the routine preventative maintenance and capital improvements to the property, so things can spiral out of control very fast.
Gelt Financial, LLC has been working with business, investors, and condo associations in distress for years, providing the capital they need to solve their problems. We can provide financing and structure it to meet the cash flow needs of our borrowers quickly.
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Tags: Budgets, Condo and HOA, Management News, Reserves
Axela Technologies / Bob Gourley
If your condominium or homeowners’ association is facing a purely legal issue – a lawsuit, construction defect, governing documents updates, and such, having an experienced and qualified community association attorney is mandatory. But should you contact your lawyer for HOA collections?
Community associations are creatures of statute and attorneys are important to maintain proper governance. These experienced legal professionals deliver the expertise and legal finesse the community association will need to stay compliant with state statutes and their own bylaws. This avoids missteps and potential future lawsuits brought on by inappropriate actions.
Since attorney fees are generally significant, condominium associations and HOA boards should be judicious when engaging an attorney as it will cost the association a good bit of money. With that in mind, there are times when the cost and risk of using an attorney are wisely avoided.
When home and unit owners in condominiums and HOAs fall behind in their common fees and assessments, it can feel like very few options are available to collect on those missed payments. Communities generally turn to the usual suspects — an endless string of reminders and warning letters requesting payment, or referring the delinquent owner to a lawyer for HOA collections. But those are actually steps 1 and 3 (the warning and the foreclosure) of the full collections process. Step 2 is your opportunity to recover those debts without expending any additional energy or paying outrageous fees to an attorney on retainer: a collections solution, rather than legal enforcement.
A community association foreclosure should always be a last resort. It’s like fishing with a shotgun–sometimes it’ll get the job done, but it’s more costly, less efficient, and you don’t gain as much as you could with other collection methods. Wise associations seek a non-attorney remedy.
When you retain an attorney for collections, the end game of the attorney is foreclosure on the property. This isn’t collections, but rather “a security interest enforcement” action. In the Supreme Court case, Obduskey v. McCarthy & Holthus LLP, 139 S. Ct. 1029 (2019), the court ruled that in states that use non-judicial foreclosures, law firms are subject only to the requirements and prohibitions of one narrow section (1692f(6)) of the FDCPA. In essence, the United States Supreme Court is advising community associations that attorneys foreclosing in non-judicial states are by no means a “collections entity.” More to the point, it’s expensive and can take years before the association sees a dime of what they’re owed, leaving communities in a lurch for funds.
Let’s say you followed the legal process to its desired conclusion of foreclosure. The previous owner (as in many cases) becomes overwhelmed with the costs of legal fees and they lose their property.
The best result for a community association lien foreclosure on a property is getting an encumbered title. That means that the association takes the title, but the title is encumbered by the mortgage, which is still attached. The first mortgage can still be foreclosed upon and it will be eventually, at which time the community will lose access to that title.
…But what happens after the community takes the title? How do you monetize an association lien/foreclosure? Perhaps an investor will pick it up and now your community becomes a plaything of real estate investors. Or perhaps the association will rehabilitate the property and rent it out to recover delinquent fees and costs. Does the community association really want to get into the business of managing rentals? That’s a lot of work and liability to take on!
It’s a shame on many levels.
Take a look at this example of fees charged to one delinquent homeowner:
This is a real-world example. A condominium unit owner had fallen behind in their common fees in the amount of $1,830.00. The Board of Directors referred the matter to their attorney. As you can see, the legal fees mounted quickly, and by the time of this invoice, the association has already laid out $17,193.68 in legal fees due to the attorney. Even worse, these fees were going to be assessed to the delinquent unit owner by the association.
The total owed by the homeowner was now nearly 10 times what was owed to the association! This is completely unfair and unnecessary.
The final insult to the community is that this case is yet to be concluded and the delinquent unit owner may never be able to afford to pay for this issue, leaving the owner homeless, and the community on the hook for the legal fees. It does not have to be this way.
We wish we could say that is the only example of homeowner debt spiraling out of control, but it isn’t. In the community association management industry, it’s heartbreakingly common to hear of homeowners who ultimately lose their homes through foreclosure. Enormous legal fees amassed during long, drawn-out legal processes take away any chance of paying back what they owe. It can ruin lives and is why we at Axela always insist that foreclosure be viewed as a last resort.
A specialized collections process is a far simpler, cost-effective, and humane solution to attempt before considering going through a lawyer for HOA collections. From coast to coast, we hear similar stories where a collection process would have allowed the owner to remain in their home, and just as important, the association wouldn’t have had to pay an attorney only to have to “write off” the loss when no collection event occurred.
Some associations engage collection agencies that offer to buy the association’s debt, but those are also ripe for abuse of the homeowners. Collection agencies that perform at no cost or risk to the association like Axela Technologies are a preferred collection remedy because they are an effective solution that follows the collection regulations set forth in the community’s governing documents and costs the association nothing. Collection fees, which are quite modest compared to attorney fees, are passed through to the delinquent homeowner. This benefits the association as well as the delinquent homeowner because of the huge discrepancy between collection fees and legal fees charged by an attorney.
Axela Technologies offers a far better solution. Instead of burying the homeowner in tremendous legal fees, we work with them to figure out how best to pay off their indebtedness to their association and return them to good-paying status. Instead of charging by the hour for our work, as attorneys do, our fees are set at the onset (hard set fees with no hidden or junk fees) and passed through to the delinquent homeowner. We work diligently to explain the benefit of keeping the equity in their home and provide a solution to their problem. There is no need to put the association or the homeowner at risk of losing additional money.
In fact, since the Axela Technologies collection solution is 100% merit-based, our interests are perfectly aligned with the association. If we don’t collect from the homeowner, we don’t get paid. We collect 100% of what is owed to the association 19 out of 20 times without the need for the association to move the matter to an attorney for foreclosure.
Even when the matter does go to foreclosure, we stand with the association until the conclusion, which often yields a successful collection event for the association. If a lender forecloses on a unit we will not advise the association to write off the loss. We will follow the ownership of that unit and if the bank sells it with a surplus we will petition the court for the benefit of the association to recover that surplus. We don’t like write-offs and neither should you.
If your association gets sued, or if you need to change the language in your bylaws, you should absolutely be consulting with or employing an attorney. But, if your association is experiencing delinquency at any level, don’t get a lawyer for HOA collections. Skip the high legal fees and partner with Axela Technologies. Get in touch today and learn how Axela Technologies can help. Axela Technologies handles all collections on a merit-based system. Get your free collections analysis today.
Tags: Board of Directors, Collections, Management News, Reserves
Many of the old condo buildings in the State of Florida are facing serious structural repairs that will cost millions of dollars. And – from what I hear from many owners – most of these buildings have no reserve funds that will cover even most of the cost of these structural repairs.
But these repairs have to be done if the building doesn’t want to face the same fate as the Champlain Towers South in Surfside. And you can be sure that building departments will now push the issue of certification requirements.
That begs the question: How are these associations are paying for these very costly repairs?
The smart associations took care of fully funded reserves, but as we have seen, most of these associations are not really “smart!”
But having reserve funds may cause another problem: Big amounts of money are very tempting – and we have seen in the past that board members and CAMs can’t resist the temptation – and the money is gone when needed.
Asking for fully funded reserves require laws that protect these reserve funds and answers any scams and/or embezzlement with harsh punishments, not just a slap on the wrist. And that should go as well for board members who buy nice palm trees with the money that was in the roof reserve fund!
The other option to pay for these repairs are bank loans, an option available to most of these associations if properly done. But don’t forget: Owners will have to pay in the future monthly quite a lot of money to service this loan. Now owners are paying the money they didn’t pay in the reserve funds earlier – but now with lots of interest added. Smart move? Definitely not!
But the only other option to pay for these repairs is to levy a special assessment. That’s the worst of all options because these special assessments can be very huge, in the tens of thousands of dollars. Amounts many families living in these condos don’t have available – and the worst scenario will happen: FORECLOSURE! Families will be losing their homes. Is that the option you want to go?
CAMs – a CAM has no part in a board decision regarding the use of the reserve funds.
How about the responsibility of owners to look after their investment? It’s easy to point fingers at usually well-meaning but inexperienced boards.
Rather than pointing fingers left and right, how about encouraging owners to participate in a constructive manner?
And last not least – the people coming to Florida to buy a condo with the proceeds of their home sale should be aware that you get what you pay for. You pay 500 K for a waterfront two bedroom condo built in the 60’s and expect that is all it will cost you?
Tags: Board of Directors, Condo and HOA, Management News, Reserves
In May of 2018, at about the same time the engineer was advising Champlain Towers South that their building need millions and millions of dollars in repairs, I wrote about the dangers facing condominiums all over the state because of the ability for owners to opt out of funding reserve accounts. I implored The Florida Legislature to get tough when it comes to reserves and make them at least partially mandatory. We know that as a result of the tragedy in Surfside, now The Florida Legislature will be forced to look long and hard for the first time at making condominium residents across our state put money away for major expensive repairs, or continue to allow many associations to ignore the necessary repairs and keep kicking the can down the road.
I can tell you right now that lobbyists who represent developers and contractors will try to prevent new laws requiring developers to fund reserve accounts before turnover, and even the residents after turnover. Why? Because it will make it harder to sell condominium units if reserves are mandatory. That means monthly assessments will be higher and units may not sell so quickly. They will make arguments like the government should be less intrusive into the lives of our Florida condominium residents and If the residents don’t want to fund reserves they know the risk. Right. And cigarettes don’t cause cancer.
Today, I’m simply going to reprint, verbatim, my blog written in May, 2018 below. Your thoughts are welcome.
I hate beating around the bush, so I want to get to the point. A financial crisis is coming and it’s going to be a big one. It’s also going to hit those that can least afford it. It’s going to result in massive amounts of foreclosures. It’s going to result in countless cases of elderly persons being displaced from their homes. The worst part is, it’s absolutely avoidable but I don’t believe any legislator would ever have the courage to float a bill to save the pending disaster.
My last 24 hours made it clear to me what’s on the way. I was at a meeting last night in a 55 and over condominium that is about 40 years old. Elderly unit owners were complaining that the pipes are getting old, there are occasional leaks, and they sometimes have to come out of pocket a few hundred bucks in order to clean up the mess in their unit and/or repair that broken pipe. They are complaining about bills for a few hundred bucks and find it difficult to pay them because their sole income is social security.
To state the obvious, there is no reserve account. There never will be. Generally, senior citizens don’t believe in reserving funds for repairs that may be necessary a decade or two from now because they believe they won’t be here anyway. So, year after year goes by, decade after decade goes by and there is never a reserve fund to fall back on should a major repair become necessary. As I write this column, the season’s first storm is forming in the Gulf, and it’s still May. We all know what just one storm can do to the community’s finances. Even if we are lucky to escape this year, next year and the next five years without a hurricane or tropical storm coming, there is another storm coming that is simply unavoidable and definitely on its way.
Think of how much building has gone on in the past 50 years. It is staggering. But the buildings are getting older. As the buildings start to approach the 40 year mark or more, things start to break down and repairs become unavoidable. Concrete restoration is incredibly expensive, and unavoidable. Replacement of pipes is incredibly expensive, and unavoidable. And the same goes for electrical renovations and roof replacements. All unavoidable. Yet, so many people, especially seniors, are rolling the dice thinking that none of these repairs will be necessary while they own the property. That may be true for now, but eventually, everyone rolls a 7.
If you roll a 7 at the craps table however, you get up and go home. If you roll a 7 at the condo and all these repairs are necessary while you’re the owner, you may lose your home because year after year after year you decided to waive the funding of reserves and now you have nothing to fall back on.
So what’s the answer? I know this is going to sound unpopular, but if action is not taken now it’s going to result in much bigger problems of people losing their homes later on. So, like it or not, some form of reserves should be mandatory and not subject to being waived. There, I said it. Let’s streamline the way reserves are calculated. Let’s get rid of the “life expectancy” formula the state says you should follow but nobody does. It’s a joke anyway. We all know the truth that the life expectancy of the roof somehow gets longer, the closer you get to the original estimate of how long it was going to last. Five years ago it had a five year life expectancy. Money is tight, so today it has a new 10 year life expectancy. Somehow, like fine wine, the roof got better with age. We all know that happens, and it happens every day. So how about we make things simple. Let’s just say every condominium must contribute 10% of its annual budget to reserves for roof, plumbing, electrical, structural and painting. It all goes into one pot and it can be used for any repair necessary for those categories. It can’t be waived. If however an association wants to contribute more, they can.
If we implemented this, I’m guessing the average monthly increase for most condominiums that are not already reserving funds would be anywhere from $25.00 to $75.00 per month. I know that for some that increase is not easy. However, it’s going to be a lot more expensive if any one of these inevitable repairs become necessary and it’s time to pass a special assessment because there are no reserve funds. God forbid two of these items need repair. Sorry, but it’s still easier for a person on a fixed income to pay an extra 30 or 40 dollars per month than it is to come up with a special assessment of a few grand.
Mandatory reserves, for even modest amounts, is a necessary evil. I say so because I see the hand writing on the wall. I see buildings getting older and unavoidable repairs coming on strong. I also see hurricane seasons becoming active with the potential to cause catastrophic results to our communities. I see fear in the faces of senior citizens now when faced with small special assessments. What I don’t see is sound financial planning for the inevitable, and I don’t want to see people, especially the elderly, losing their homes when they don’t have the money to pony up and fix up their homes when a special assessment comes their way.
This year The Florida Legislature looked into the future and envisioned that in the next decade or so, we will all be driving electric cars. So, they bravely passed an electric vehicle statute to deal with that issue right now, before the issue got out of hand a decade from now. I’m asking them to do the same thing now and protect people from losing their homes over the next decade or two by ensuring the condo has a piggy bank to shake lose when massive expensive repairs become unavoidably necessary. Mandatory reserves are needed now.
Tags: Reserves
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