After extensive research, it is apparent to me that 15 years after construction, condominium complexes enter a phase where major elements begin to give way. In many cases, they will require expenses that may not be covered by your fiscal budgets or reserve funds.
This is where the condominium owner may face the dangers of unexpected and substantial demands for special assessments to replenish depleted budgets and reserve funds. Such situations can quickly turn into nightmare scenarios. Unable to collect special assessments from the owners of their units, the HOA borrows the money from outside sources, a common loan secured by the complex’s receivables. Such a complex becomes prone to liquidation, unable to meet its financial obligations to make or otherwise obtain such a loan.
I recently spoke with Jack McCabe of McCabe Research and Consulting, based in Deerfield Beach, Florida, and he is not aware of any records tracking how many condominium corporations have been liquidated (terminated). His own research shows that since the last accident in 2007, there may be more than 400 condo complexes that have ceased to exist in the state of Florida alone. Many of these were conversions of existing rental buildings into condominiums. Conversion complexes with many unsold units become undesirable. Its value decreases over time. McCabe pointed to many examples where units originally selling for $250,000 lost 75% or more in value, with some now in the $50,000 range with no appreciation prospects anytime soon.
Searching records of defunct condominium complexes in a few other states yielded no results. It seems as if the relevant authorities who (should) track such failures do not want to publish them for fear of scaring away potential buyers. But the records should be available, in any case, to examine the exact reasons for their disappearance.
Here is my list of the most pressing changes or rules that regulatory authorities and condo corporations must adopt or implement to preserve the value of their condo units.
1. One power, one vote.
This should become standard and the law. The biggest problem with not being able to remove undesirable HOA board members is the fact that such members make arrangements with unit owners who may be absent or otherwise uninterested in the day-to-day operation of the complex. , to vote for them. through proxies. Harnessing a multitude of such powers over extended periods, they are elected by majority and remain on the board “forever.” Under current rules, this makes genuinely concerned unit owners who wish to remove dysfunctional board members hopeless. Board members, or any other unit owners who wish to be elected, must be restricted to a single proxy vote.
two. Forum assembly to convoke general assemblies of condominium owners
Laws regulating the condominium industry need to be changed, allowing only 25% of unit owners in a complex to form the necessary forums to call the general assembly of all unit owners at any given time. The current rule of requiring 85% of unit owners for quick general meetings is virtually unachievable.
3. Licensing and Property Bond Managers
In addition to forcing them to obtain licences, warranties and audits, the property manager’s decisions on replacements, repairs, selection of contractors and suppliers must be regularly scrutinized in the most rigorous way, preferably by forensic accountants. Making self-serving decisions, many dishonest property managers choose more expensive exchanges and employ other unfair business practices, draining HOA budgets in the process.
Four. Common Loan Limitation
Common loans must be capped at 25% of the annual budget. Anything above that can lead to excessive debt, which can have serious consequences. Many homeowners are unaware of the dire consequences that defaulting on a common loan can cause. In troubled complexes, where unit owners fall behind on monthly maintenance payments, a common loan can easily default as well. The lender can step in and start insolvency proceedings. This is a precursor to the eventual liquidation of the complex.
5. money back guarantee
Any new or converted condominium complex that has not sold at least 90% of its units should not be able to collect the proceeds from units already sold. After the sale, the individual deed for the unit must be kept in escrow until 90% of the units are sold. If the complex is not 90% sold within two years of occupancy permits being issued, the money must be returned to buyers upon request. In the meantime, buyers can move in by paying the monthly maintenance fees, plus the occupancy payment fee (equivalent to the anticipated mortgage payment) for the balance of the sale price.
6. Rental units.
Unit rental must be capped at 10% for each complex, except for complexes that are located in exceptionally desirable tourist areas, often used as hotel/condo residences. A heavily rented complex becomes undesirable to potential buyers. Units lose value and banks often refuse to approve mortgages to new buyers.
