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SFPMA’s Reserve Funding for your Communities

SFPMA’s Reserve Funding for your Communities

  • Posted: Oct 29, 2021
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Reserve Funding 101

Reserve Funding for your Communities

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.

 

Private money loans from Gelt Financial can be the ideal solution when you are financing an “out of the box” real estate transaction. Whether you need to close fast, have a distressed asset, or need a non recourse loan, Gelt Financial can offer a competitive loan program just for you. Gelt Financial is a nationwide lender on all types of existing real estate including office, retail, multifamily, self storage, industrial, NNN, mobile home parks and more

Gelt Financial is a commercial non-bank mortgage lender, focusing on mortgages between $50K and $5MM.
Since 1989, Gelt has closed over 10,000 loans

BRIDGE & SHORT TERM LOANS

Whether historic cash-flow or a distressed value-add property, we can secure bridge loans at competitive rates.

HARD MONEY LOANS

Need a quick boost of cash flow?
Gelt can secure you financing on numerous types of collateral.

 

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The more trouble your condo is in, the more developers may be interested in buying you out.

The more trouble your condo is in, the more developers may be interested in buying you out.

  • Posted: Oct 26, 2021
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The more trouble your condo is in, the more developers may be interested in buying you out.

 

DEVELOPERS ARE ON THE PROWL

By Eric Glazer, Esq.

I got a call this week from The Miami Herald.  They asked if I had heard about the prominent developer who approached the owners of the other Champlain Towers buildings that are still standing, offering to buy out all of their units.  I had not, but I’m not surprised in the least about it.  In fact, it’s going to be happening more and more.  Developers are going to be approaching lots of owners in condominiums that are distressed.

 

Why approach the owners in the remaining Champlain Towers condominiums?  I’m sure the developer is thinking that these owners may now have a hard time selling their condo units on the open market because there may not be many buyers interested in purchasing a unit in a condominium by that name.  The Champlain Towers will forever be remembered as the building that collapsed and where nearly a hundred innocent people died.  I think the developer is right.  It will be tough to sell your units in the remaining Champlain Towers condominiums.

 

The truth is……if that’s the case…and it is next to impossible to now sell your condo unit in these buildings, the developer can look like a knight in shining armor, if the price they offer is fair and reasonable.  It may very well make sense for the owners to seriously consider the developer’s offer.  At the remaining Champlain Towers buildings, the developer’s offer is contingent upon 95% of the owners agreeing to sell to the developer.  If less than 95% of the owners agree to sell, the deal is off the table.  That’s because if at least 5% of the owners vote against a plan of “termination” the developer’s plan to “terminate” the condominium, knock it down and build a more expensive one fails.  So, the developer needs to acquire at least 95% to ensure their plan succeeds.

 

We know that it’s about to get more expensive to live in a condominium because it looks like it will become more difficult to waive reserves and buildings will be undergoing more frequent inspections.  Repairs will be needed more than ever before which means money will be needed like never before.  When unit owners don’t have the money or don’t want to spend the money on a building that’s already old, rest assured that developers will be there ready to make an offer to everyone so that the property can be bought, knocked down, rebuilt and sold.

 

Over the last few years the law has made it more difficult to terminate a condominium.  As a result of the tragedy at The Champlain Towers I certainly expect the pendulum to swing back the other way.  Terminations will become easier.  Developers will use their eyes and airs searching for the most vulnerable properties, meaning the ones that will require the greatest cost to repair.  The laws regarding termination continue to evolve, but if I am a developer I may want to be cautious about buying units in a condominium that requires 100% of the owners to agree to termination and that does not have Kaufman language or “as amended from time to time” language.  In these types of condominiums, one owner who refuses to sell may wind up screwing up the developer’s grand plans.

 

 

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THANK YOU SENATOR ANNA MARIA RODRIGUEZ!  By Eric Glazer, Esq.

THANK YOU SENATOR ANNA MARIA RODRIGUEZ! By Eric Glazer, Esq.

  • Posted: Oct 22, 2021
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THANK YOU SENATOR ANNA MARIA RODRIGUEZ!

By Eric Glazer, Esq.

A few weeks ago, I wrote a blog called  It’s Time To Stop A True Florida Farce.  The blog spoke about the fact that members of community association boards of directors can still get certified without taking an educational class.  Instead, they can sign a rather silly piece of paper that states they have read their governing documents and promise to enforce them.  What a joke.

I sent the column by e-mail to all Florida legislators, urging them to change the law and make certification through education mandatory.  Senator Anna Maria Rodriguez asked me to send her my proposed legislation.  I did.  I am happy and so proud to report that Senator Rodriguez filed Senate Bill 394 mirroring my proposed legislation.

 

There is no doubt that mandatory education will save the lives, properties and money of the millions of people who live in condominiums throughout the state.  Florida would be the first and only state to require a board member to take an educational course.  That would be an amazing bright spot for our state and no doubt would lead other states to eventually adopt similar requirements.

 

I had the pleasure of teaching my Condo Craze and HOAs Board Certification class last week in Miami and Palm Beach to so many people.  I taught the importance of having reserve accounts, having reserve studies done by qualified people and the danger in completely waiving the funding of reserve accounts year after year after year.  Interestingly enough, when I asked the crowd if the law should be changed to requiring at least some form of reserves and having the reserve study done by experts, EVERYONE RAISED THEIR HAND.  People want to be safe.  We learned a lot after the Champlain Towers disaster.

 

Think about this.  The Florida Legislature will no doubt make some massive changes to Florida law in this regard.  But if members of the Board are not required to attend an educational class, how in the world can they be expected to learn the new laws.  And by the way….I don’t want to hear the excused that these classes are burdensome.  They are offered on-line and they are offered for free.  Anyone who won’t devote a few hours a year to learning the new condo laws does not deserve to be on the board in the first place.

 

In any event, we owe a debt of gratitude to Senator Rodriguez for her efforts in taking this matter seriously.  Keep track of Senate Bill 394 and urge your local House Member and Senator to please support it.  If I never get another piece of legislation passed, this is the one that is nearest and dearest to my heart.  Education is the key to running a safe community.

 

Over a decade ago The Florida Legislature thought it was a good idea for members of condo and HOA boards to become “certified.”  Sounds like a good idea.  The problem is that the legislators  allowed for two ways to become certified. One way is by going over to your computer and printing a form that is on the DBPR’s website that basically says I read my governing documents and promise to enforce them.  You sign the form and you are now certified.  That’s it.  That’s all you have to do.  If you are a director of a condo, the form does not require you to acknowledge the existence of Florida Statute 718.  If you are a member of an HOA board the form does not require you to acknowledge the existence of Florida Statute 720.  The form is a joke.  The procedure is a joke and an embarrassment to The State of Florida.  In fact, many associations still have illegal provisions in their governing documents.  The current law actually allows you to become certified if you promise to enforce the illegal provisions in your governing documents.

 

As my kids go back to school today, I’m proud to say that the second way of becoming certified is by taking a course approved by the DBPR.  As so many of you now, I am most proud of the fact that I have certified over 20,000 board members throughout the state. Better yet, the attendees love it.  They learn about the requirement to fund reserves, Kaufman language, access to records, mandatory financial reporting, the role of the community association manager, legal ways for the board members to vote and hold meetings, preparation of budgets, the importance and hierarchy of your governing documents, rule making, actions of board members that constitute criminal conduct, ways directors can be removed from the board, the Marketable Record Title Act and the importance of preserving your governing documents in an HOA, obligations to maintain insurance, mandatory websites, material alterations, screening, approval and denial of occupants AND SO MUCH MORE.

 

It is an insult to every director who has been certified by taking a course to allow other directors the ability to get certified by signing a stupid self-serving form.  We are now repeatedly learning the hard way throughout our state that lack of knowledge can lead to catastrophic consequences in our communities.

 

MANDATORY EDUCATION FOR BOARD MEMBERS CAN SAVE LIVES. Florida has always led the way when it came to making community association laws that the rest of the country follows.  The State of Florida has the opportunity to become the first state in the country to require that directors become educated before assuming the incredible responsibilities that come with being in charge of our communities.  There is no excuse any longer for a Board member not to take an educational class.  Many law firms, like mine, teach the class on-line.  A board member never even has to leave his or her home in order to become certified.

 

I urge the members of The Florida Legislature to amend the condominium, co-op and HOA statutes to remove the ability to become “certified” by signing a form and instead require attendance at an educational course.  I already drafted the proposed legislation and it’s ready to be filed.  With all my heart, I believe lives can be saved, financial disasters can be avoided and it is in the best interest of the millions of Floridians who live in a community association.  Readers: please contact your legislators if you agree.

 

 

 

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The Property Manager’s Partner Since 1989 – LAW OFFICES OF HEIST, WEISSE, & WOLK, P.A.

The Property Manager’s Partner Since 1989 – LAW OFFICES OF HEIST, WEISSE, & WOLK, P.A.

  • Posted: Oct 15, 2021
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LAW OFFICES OF

HEIST, WEISSE, & WOLK, P.A.

The Property Manager’s Partner Since 1989

EVICTIONS · LEASES · SOLID LEGAL ADVICE

 

Residential Managers

 

IF WE PREPARED THE LEASE FOR YOU, the attorneys’ fees for a residential eviction filing from the beginning until the Sheriff’s Deputy removes the tenant are $125 for conventional uncontested non-government subsidized evictions for non-payment of rent.

IF WE DID NOT PREPARE THE LEASE FOR YOU, the attorneys’ fees for a residential eviction filing from the beginning until the Sheriff’s Deputy removes the tenant are $250 for conventional uncontested non-government subsidized evictions for non-payment of rent.

We classify residential property managers as property management companies that manage single-family homes, duplexes and very small apartment communities.

Costs are additional and vary by county. Costs consist of the county filing fees, the costs of the sheriff or private process server to serve the summons and complaint and if necessary, the cost for the Sheriff’s deputy to remove the tenant from the premises.

FeesIn the event the case is contested or the tenant files a counter claim, the attorney’s fees and costs may increase.

The Law Offices of Heist, Weisse and Wolk strives to keep your costs to a bare minimum and no additional charges will be incurred by the client unless the client is advised and agrees to authorize further legal work. The vast majority of evictions are uncontested.

Occasionally a routine court appearance is required for which we typically charge an additional $150.00. Phone, office consultations and advice by email is always at no charge.

There is never a charge for postage or copies.

 

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WE’RE BACK LIVE AND IN THE STUDIO, AND WE’RE BACK TEACHING LIVE. by Eric Glazer

WE’RE BACK LIVE AND IN THE STUDIO, AND WE’RE BACK TEACHING LIVE. by Eric Glazer

  • Posted: Oct 15, 2021
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WE’RE BACK LIVE AND IN THE STUDIO. AND WE’RE BACK TEACHING LIVE.

This weeks topics: 

THE IMPORTANCE OF A WEBSITE FOR YOUR ASSOCIATION

EMOTIONAL SUPPORT ANIMALS IN A NO PET COMMUNITY. WHAT IS AN ASSOCIATION TO DO?

 

TAKING YOUR CALLS ON WHATEVER TOPIC YOU NEED ANSWERS TO OR WHATEVER YOU NEED TO GET OFF YOUR CHEST.

WE WILL TAKE YOUR CALLS AND ANSWER YOUR CONDO AND HOA QUESTIONS THROUGHOUT THE HOUR. CALL US AT 877-850-8585 DURING THE SHOW.
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Condo & Hoa Expos – Get legal insights, financial advice, communication tips, management solutions and much more from top professionals.

Condo & Hoa Expos – Get legal insights, financial advice, communication tips, management solutions and much more from top professionals.

  • Posted: Oct 10, 2021
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OCTOBER 12TH : 9:00 A.M. IN MIAMI

AT THE MIAMI BEACH CONVENTION CENTER.

Join Us on October 12th! Seminars and Professional Development. Condo & HOA Expo offers a full day of seminars and talks led by the regional and national experts who will offer insights into trends and best practices in legal oversight, financing, maintenance, renovations, administration and much more.

Sign up for the networking and educational event of the year! Get face-time with the industry experts, browse the latest products and services and learn how to save thousands of the management and maintenance of your condo or HOA.

Registration is FREE for association managers, board members. Don’t delay!

Register NOW! 

 

 


OCTOBER 14TH: 9:00 A.M. IN PALM BEACH

AT THE PALM BEACH CONVENTION CENTER

For one day only, the Palm Beach Convention Center will be packed with the latest products and services as well as an array of industry experts. It’s an unparalleled opportunity to make valuable connections and speak directly with local and national experts about the topics that are relevant to you and your property.

Get legal insights, financial advice, communication tips, proactive management solutions and much more from some of the region’s top professionals. This one-day event will also give you a sneak peek at the latest design trends gracing today’s most prestigious developments, plus innovations in building and remodeling and the newest energy efficiency options.

Register Now!

 

 

 

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HOMEOWNERS ASSOCIATIONS

HOMEOWNERS ASSOCIATIONS

  • Posted: Sep 29, 2021
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HOMEOWNERS ASSOCIATIONS

 

Keep up to date with Legal, Board Member and Advances with Florida’s HOA Industry.

When you purchase a condominium, townhouse or another type of property in a planned development such as a leased land property or a gated community, you are obligated to join that community’s homeowners’ association (HOA) and pay monthly or annual HOA fees for the upkeep of common areas  and the building. If you are considering purchasing one of these types of properties, you should be aware of the following things about homeowners’ associations and how they work before you buy. These communities are governed by a Board that governs many aspects of the HOA, Learn the rolls of these board members and how they govern an HOA.

What Is a Homeowners Association?

A homeowners association is a membership organization run by a board of directors–usually neighborhood volunteers–that regulates and manages a building, set of attached homes or a single-family neighborhood.

The HOA will set regulations governing a variety of issues, and assess HOA fees–to be paid annually, quarterly or monthly, and sometimes through special assessment–that go toward the upkeep of a neighborhood.

In many cases, an HOA is started by a real estate developer, and the company might hire a community association manager to assist the board in its duties.

 

Inner workings of an HOA

If you’re looking to buy a home in a neighborhood with an HOA, make sure to review the rules and regulations as soon as possible because once you purchase the home, you will be a member.

The rules, also known as covenants, conditions and restrictions (CC&R), can range from the common to the arcane, and will often set the tone for the neighborhood.

For example, an HOA can set strict rules on the type of changes you can make to the exterior of your home. Here are some other common things an HOA may regulate:

  • Common areas/land: It’s likely your HOA fees will primarily cover upkeep for common outdoor areas, snow removal, building upkeep and–if your neighborhood has them–community fitness and gathering areas.
  • Pet ownership: An HOA could specify whether you can own pets, how many and how big they can be.
  • Parking: You might have rules that govern the types of vehicles that can be parked in a driveway or parking lot–for example, RVs might not be permitted–and if overnight street parking is allowed.
  • Renting: An HOA might take a hard line on renting regulations to prevent the neighborhood from having too many temporary residents.

 

GOOD LEADERSHIP AND GOVERNANCE of BOARD MEMBERS

 


LOOKING FOR A PROPERTY MANAGEMENT COMPANY OR A CAM MANAGER TO MANAGE YOUR PROPERTY

“We give clients information to make an informed decision about which property management company to use”

Find Top Companies ready to help on the Florida Members Directory

Find property managers for your investements

  • Clients learn about how hiring a professional management company helps them.
  • Clients can learn what fees are associated with management.
  • Clients can read and learn about maintenance issues and repairs for their property.
  • Along with other information including: Questions to ask potential management companies. ie: collecting rents, vacant units, inspections, contracts and leases, payment and your monthly money, evictions and fees…
  • When Property Owners need Legal Services our members can help with this.

 

Addressing these questions with a Property Manager helps them to understand what a manager does and how important it is to take the time to find the right company that will care for their properties.

 

 

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Seacrest Services – Can tailor a specific service plan for your commercial property or community association.

Seacrest Services – Can tailor a specific service plan for your commercial property or community association.

  • Posted: Sep 29, 2021
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Seacrest Services

561.697.4990

From full-service property management services and professional accounting services to complete landscaping and property maintenance needs, Seacrest Services can tailor a specific service plan for your commercial property or community association. We take great pride in the longevity of our client relationships and our customers’ continued satisfaction with our quality property management services. We maintain one of the highest levels of experienced employees in our industry, ensuring that your property gets the professionalism and knowledge you deserve.

When you submit a request to Seacrest Services, one of our representatives will call you to set up a time to meet. We will then walk your property or the job area with you. A site walkthrough is important because no two properties are the same. A variety of variables, such as square footage, the scope of work, and condition of the property, makes each situation unique. Our representatives will work with you to design a custom-tailored solution to fit your property’s individual needs.

We now have offices in West Palm Beach, Delray Beach, Pompano, Miramar, and Naples, Seacrest is uniquely positioned to handle the needs of South Florida’s community associations, commercial properties and businesses. Since 1975 we have been a leader in community association management including property managementaccountinglandscape servicesmaintenance servicescommercial property services and even construction. To see how Seacrest can lead your community into the future, call us today at 888-828-6464.

 


SERVICES WE OFFER

We have your property management needs covered – inside and out.

Property Management – All of our property management personnel are state licensed community association managers and undergo Seacrest’s extensive in-house training program. Quality service is of utmost importance and the basic expectation of the Seacrest Management Team.

Maintenance and Janitorial Services – Seacrest Services is proud to offer our customers an experienced and capable management team utilizing the latest building maintenance equipment, cleaning techniques, and commercial janitorial supplies. We aim to meet and exceed all of your standards of cleanliness and enhance your facility’s appearance.

Customer Service – We understand that your residents are the lifeblood of your community, providing quality customer service to each of them is our privilege. Our interactive Live Operator Customer Service Program is tailored to fit the unique needs of each association we oversee. This approach helps to promote a harmonious living environment all while reducing the need for direct Board involvement in day-to-day issues.

Accounting & Financial Services – Since no one accounting system works for everyone, we customize your system to meet the specific requirements of your association. Our state-of-the-art technology gives you the information you need at the touch of a button while our skilled accounting team provides support and assistance.

Landscape Services – With a dedicated team of experienced and knowledgeable landscape professionals, we have the expertise to create and maintain a lush, healthy landscape for your property. Our comprehensive landscape services eliminate the hassle of hiring multiple vendors and ensure you receive the highest quality services from one easy source.

 

 

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Jilsa Management LLC – Changing the way you think about property management one client at a time.

Jilsa Management LLC – Changing the way you think about property management one client at a time.

  • Posted: Sep 29, 2021
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Jilsa Management LLC

888-863-1811

“Changing the way you think about property management one client at a time.”

Jilsa Management is an experienced and established family – owned enterprise providing HOA/Condominium association management, Multi-family   management, and Grounds maintenance services to our communities in South Florida.

Our approach to property management is different from other companies. We are a family oriented and technology focused company. From enhanced customer service to new technologies that are available, we want to offer the best for our communities.

Every month is a new beginning with Jilsa Management. We want to earn your business and prove our worth. With easy to understand contracts with no cancelation fees. If you are not happy with our service there is nothing to hold you back.

We put a face behind the company. Our property managers are known by the residents that they serve in every community that we manage. Our property managers are always available for conversation and aim to provide the personalized service that every community deserves.

 

SFPMA Members: View and Contact us today! 

 


Jilsa Management takes our personal management approach to new levels. We provide our board members and communities with unprecedented access to our property managers and staff. Our support for our communities is never limited to just Monday to Friday 9-5pm. We are big enough to handle the day to day operations of most mid-sized communities. While our business focus aims to provide the personal touch that our communities and boards have come to appreciate.

 

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THE SITE OF THE CHAMPLAIN TOWERS — NOT AN EASY TASK TO DECIDE WHAT TO DO  By Eric Glazer, Esq.

THE SITE OF THE CHAMPLAIN TOWERS — NOT AN EASY TASK TO DECIDE WHAT TO DO By Eric Glazer, Esq.

  • Posted: Sep 29, 2021
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THE SITE OF THE CHAMPLAIN TOWERS — NOT AN EASY TASK TO DECIDE WHAT TO DO

By Eric Glazer, Esq.

I don’t envy Judge Michael Hanzman, the judge who is assigned to decide the fate of the property where The Champlain Towers South Condominium once stood. The question of what to do at this sacred site is not easy. Some families want no re-development and only a memorial. The City of Surfside needs to see residential redevelopment at that site or lose an incredible about of annual real estate tax dollars.

At present, there is an offer to buy the land for $120 million dollars. But that offer doesn’t promise to even put up a memorable plaque marking the spot of the tragedy. Suggestions of rebuilding on the site and forming a memorable tribute somewhere else in Surfside have also not progressed.

According to The Daily Business Review, Hanzman said he is sympathetic to those who want a memorial, but his job is to get the most money for all families of those who died and the approximately 35 families who survived but lost their homes. He has scheduled the auction for late February or early March and said that date is firm because many of the survivors need money to buy new homes.

Judge Hanzman is right, his job is to get the most money for the victims. And, while 120 million sounds like a lot of money, it isn’t when we consider the fact that there were 140 units. There’s another 50 million or so in insurance and this still isn’t even close to being able to compensate the victims and their families all that they are rightfully entitled to.

Then comes an even harder part. How does the court decide who gets what from the limited pot? Does the court allow the family of a 30 year victim to collect more that the family of an 80 year old victim? What about people who survived but were injured? Do they get anything? Of course, everyone needs to get reimbursed for the loss of their unit as well. These are Solomon like decisions the court will ultimately be faced with and they are not easy tasks. Of course, whatever decisions are made there will be people that agree with the court’s conclusions and method of pay-out and those who do not. There is simply no way to make everyone whole financially. And in the end……it’s only money anyway.

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Should Condominium Associations Be Permitted to Invest Operating & Reserve Funds? SB 1490 Says Yes!

Should Condominium Associations Be Permitted to Invest Operating & Reserve Funds? SB 1490 Says Yes!

  • Posted: Sep 27, 2021
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Should Condominium Associations Be Permitted to Invest Operating & Reserve Funds? SB 1490 Says Yes!

For years there have been significant legal constraints on a condominium association’s ability to use reserve funds. In addition to the statutory requirement to obtain membership approval for non-designated reserve usage, the prevailing school of thought was that association funds could not be invested since investments can and do fail.

A newly filed bill by Senator Jason Pizzo, SB 1490, could create a significant change in terms of an association’s ability to invest the community’s operating and reserve funds in depositories other than a traditional bank or savings and loan.

The bill provides as follows:

“Unless otherwise prohibited in the declaration, and in accordance with s. 718.112(2)(f), an association, including a multicondominium association, may invest any funds in one or any combination of investment products described in this subsection.”

If this bill passes and an association invests funds in any type of investment product other than a depository account, the association must meet all of the following requirements:

The board shall annually develop and adopt a written investment policy statement and select an investment adviser who is registered under s. 517.12, F.S. and who is not related by affinity or consanguinity to any board member or unit owner. Any investment fees and commissions may be paid from the invested reserve funds or operating funds.

The investment adviser selected by the board shall invest any funds not deposited into a depository account in compliance with the prudent investor rule in s. 518.11, F.S. It is important to note that the statutory prudent investor rule is a test of conduct and not resulting performance. Under this statute, no specific investment or course of action is, taken alone, considered prudent or imprudent. Instead, the investment adviser is deemed to be acting as a fiduciary and he or she may invest in every kind of property and type of investment, subject to that statute.

The fiduciary’s investment decisions are evaluated on the basis of whether he or she exercised reasonable business judgment regarding the anticipated effect on the investment portfolio as a whole under the facts and circumstances prevailing at the time of the decision or action. Although the proposed statute requires that funds invested be subject to insurance under the Securities Investor Protection Corporation, it is important to note that this insurance is only there if the brokerage firm fails, not if the investment turns out to be ill-advised and loses the association’s money.

The investment adviser shall act as a fiduciary to the association in compliance with the standards set forth in the Employee Retirement Income Security Act of 1974 at 29 U.S.C. s. 1104(a)(1)(A)-(C).

At least once each calendar year, the association shall provide the investment adviser with the association’s investment policy statement, the most recent reserve study report or a good faith estimate disclosing the annual amount of reserve funds which would be necessary for the association to fully fund reserves for each reserve item, and the financial reports.

The investment adviser shall annually review these documents and provide the association with a portfolio allocation model that is suitably structured to match projected reserve fund and liability liquidity requirements. There must be at least thirty-six (36) months of projected reserves in cash or cash equivalents available to the association at all times.

Portfolios managed by the investment adviser may contain any type of investment necessary to meet the objectives in the investment policy statement; however, portfolios may not contain stocks, securities, or other obligations that the State Board of Administration is prohibited from investing in under ss. 215.471, 215.4725, and 215.473, F.S. or that state agencies are prohibited from investing in under s. 215.472.

Lastly, the bill would exempt registered investment advisors from having their bids subjected to the competitive bidding requirements found in Section 718.3026, F.S. The companion bill to SB 1490 is HB 1005 (Killebrew/Fine).

As more associations change their old habits and begin to fund reserves, the allure of more aggressive investment vehicles for these funds, which can be substantial amounts, is undeniable. However, the risk is also undeniable. As such, if this bill becomes law and the investment of reserves becomes available, boards are strongly encouraged to take an extremely cautious, measured approach with reserves.

While investment of your association’s operating and reserve funds might result in a substantially better return than a savings account, you might also see significant losses. The investment of association funds must be done with careful consideration of the demographic in your community, the age of your buildings and facilities, the required liquidity of your funds and, most importantly, the sensitivities and risk tolerance of your membership all taken into account. If your members fuss about your board’s landscaping decisions imagine the potential fallout if you make the wrong investment decisions!

 

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