tag:blogger.com,1999:blog-67394429291599859352024-03-12T23:53:38.219-07:00Condo Issues.comA DISCUSSION OF PROBLEMS AND ISSUES WITH CONDOMINIUMS,
HOMEOWNERS' ASSOCIATIONS,
AND THE HOUSING INDUSTRYTyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.comBlogger136125tag:blogger.com,1999:blog-6739442929159985935.post-82045774627220951092024-03-06T22:29:00.000-08:002024-03-06T22:32:15.486-08:00When Time Runs Out<p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif" style="font-size: 16pt;">Part IV<o:p></o:p></span></b></span></p><p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif" style="font-size: 16pt;"><span style="color: #38761d;">What Happens to Owner Equity?</span><o:p></o:p></span></b></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif" style="font-size: 16pt;"> </span></b></span><span class="eop"><span face="Calibri, sans-serif">In past installments, we discussed why condominium projects are especially prone to a shortened service life. We analyzed why the condominium “business model” allows inadequate maintenance, leading to early deterioration. Finally, we listed the signs of failure—some obvious, some hidden—that will lead to a project’s obsolescence. In this installment, we will review what can be done with a failed or destroyed condominium project and what moves by the owners could go a long way to protecting their remaining equity.<o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"> There are two “end-of-life” scenarios for condominium projects. The first is obvious—destruction due to natural or man-made disasters—fires, hurricanes, or earthquakes. The second is more insidious but can be just as fatal—long-term deterioration of structural components, unaddressed or undiscovered for many years—that eventually renders the buildings uninhabitable. <o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"> We’ll take the less obvious condition first. While AOAOs are generally responsible for maintaining and repairing all the structural parts of a condominium building, that doesn’t always happen as it should. Conditions that cause long-term damage can be hidden, even during investigations to determine the reserve budget. Even if symptoms are noticed, they may not be thoroughly analyzed, so repairs can be funded and addressed before the damage does serious harm. <o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif">Conditions like these may not completely destroy a building, but they can be harmful enough to make it unsafe and uninhabitable for its occupants. Further, the economic cost to address hidden conditions can reach the point where necessary funding is unavailable from owners or lenders. Safety is always a consideration, and if it is discovered that the means of access to the building—stairways, landings, elevated walkways—are compromised by rot or where some have collapsed, injuries to occupants or not, building departments will not hesitate to condemn the affected parts of the building. And, if, upon further examination, similar conditions are discovered elsewhere, the entire project could be shut down. If repair funding is unavailable, the building may have reached the end of its service life.<span></span></span></span></p><a name='more'></a><o:p></o:p><p></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif">Where the buildings still stand but require extensive rehab to become usable again, funding can only come from the owners or through lenders. Insurance provides no relief for gradual deterioration damage. Insurance for “collapse” is sometimes considered a remedy, but collapse insurance only applies to “sudden” collapse, as with wind damage. But other causes of collapse—earthquakes, structural rot, landslides—are usually excluded from typical condo policies.<o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif">The fire scenario is a little different. Most AOAOs carry fire insurance. We are examining the policies of our Lahaina clients to find coverage. Unfortunately, the limits of most condo fire policies do not expect the total destruction of a multi-building condominium project. There may be enough insurance to rebuild one or two buildings or parts of buildings that were not destroyed, but the limits we’re seeing are not enough to reconstruct an entire project. There may be several reasons limits are inadequate. Underwriters don’t expect the whole project's destruction; boards may want to keep their insurance outlay low in an era of increasing premiums, or policy limits may not be adjusted every year to stay even with the annual increase in the cost of construction. Whatever the reason, destroyed projects are often underinsured.<o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif">Whether due to long-term deterioration or catastrophic loss, owner equity is affected. When assessments are levied to rehab or rebuild these projects, they will astound the unsuspecting owners, many of whom cannot pay them. Add that to the lack of insurance and the difficulty in getting lenders interested, especially when the cost to rebuild might exceed the prior market value of the units, and you have a potential dead end. So, what can be done?<o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif">Options include selling the land outright and distributing the proceeds to the owners, but it is doubtful that the raw land would bring enough to cover the loss of all owner equity. Lenders could also step in and lien what is left of the property, further eroding the return to the owners. A unit in one destroyed condominium project valued over $800,000.00 before the fire was reportedly sold for only $140,000 afterward, reflecting the land's value alone.<o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif">What is rarely considered is the value of the land as part of a new project. An AOAO with, say, a $50 million shortfall in the cost of rebuilding must look for another approach. Many condominium projects, especially those built years ago, are low-density, considering the parcel size. We are discussing a partnership between the association and a builder to rebuild while increasing the parcel's density. This will require government approval and possibly a change in zoning. The AOAO and its development partner could cover a large portion of the funding gap by building more units on the same parcel, perhaps adding more affordable units. By taking command of the project in partnership with someone capable of rebuilding it, the owners likely have the best chance of recouping their lost equity.<o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif">The same approach can be taken in the first scenario—long-term deterioration. If the AOAO controls a large enough parcel to add more units to the project, the value of the land would be maximized. While the buildings may be destroyed or damaged, the owners, through their AOAO, still own the land, so why shouldn’t they benefit from that ownership?<o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif">Redevelopment of the property will inevitably occur where destroyed condominium complexes once stood. Will the association and the present owners redevelop to recapture their equity, or will they walk away, leaving redevelopment to lenders and outside interests? Will the government recognize the benefits of re-development—protecting owner equity and perhaps adding more affordable housing—and help with this approach? These questions are being asked on Maui now and will likely be asked elsewhere in the future. <o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"> </span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"> </span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"> </span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif" style="font-size: 16pt;"> </span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"> </span></span></p>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-61492703867343711932024-02-28T16:28:00.000-08:002024-02-28T17:02:40.030-08:00When Time Runs Out<p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><br /></p><p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span style="font-size: x-large;"><span style="caret-color: rgb(56, 118, 29);"><b>Part III</b></span></span></p><p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif" style="color: #38761d; font-size: x-large;">When has a Condominium Building </span></b></span></p><p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif"><span style="color: #38761d; font-size: x-large;">Reached the End of its Service Life?</span><o:p style="font-size: 16pt;"></o:p></span></b></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif" style="font-size: 16pt;"> </span><span face="Calibri, sans-serif" style="font-size: medium;"> </span></b></span><span class="eop"><span face="Calibri, sans-serif" style="font-size: medium;">If you read the earlier installments of this series, you know that the service lives of condominium buildings are shortened by inspection, maintenance, and funding failures. Recognizing when a building may begin to reach the end of its service life may be easy or hard, depending on the type of failure. A catastrophic failure by fire, hurricane, or earthquake is instantaneous and needs little to recognize that its life is over. In these instances, we look to insurance, if available, significant owner funding, rarely available, and the value of any remaining assets, principally the land. <o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif" style="font-size: medium;"> However, many building failures that result in an early death are not necessarily visible. The collapse of the Champlain Towers condo complex in Surfside, Florida, that killed 98 residents was not due to apparent conditions. Investigations are continuing, but it was probably due to a failure of the waterproofing that promoted corrosion of the reinforcing bar embedded in the concrete structure, over many decades. Less spectacular failures arise when moisture lives in the interior of wood-framed walls or roof sheathing and slowly rots its host until costly repairs are necessary. The problem is often discovered when work is undertaken to re-paint or re-side the exterior, exposing the underlying rot. When failing components are not intended to carry an occupant load, deterioration may continue for decades until discovered. But in parts such as balconies, elevated walkways, and staircases, a rotted structural part can fail and cause injuries, such as the collapse of a balcony in 2015 in Berkeley, California, which killed six students.<o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif" style="font-size: medium;"> This suggests that more intrusive inspections should be considered even when, visually, the building does not show signs of failure. Inspections that go along with reserve studies are rarely the type that would discover hidden structural damage, for example. California now requires that every exterior load-bearing structural component in new condominium buildings be inspected within its first six years and that defects that impact the safety of those parts be reported to the local building inspector. Other states are considering similar statutes. If defects are discovered in the first ten years of a building’s life, a claim can be made for the cost of repairing the defect. After that, the association, or AOAO, is on its own.<span></span></span></span></p><a name='more'></a><span class="eop"><span face="Calibri, sans-serif" style="font-size: medium;"><o:p></o:p></span></span><p></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif" style="font-size: medium;"> Damage, when discovered, will trigger a reaction from boards of directors and owners. The board and its professional managers will look to a developer claim, insurance, and owner resources to rebuild or restore. Insurance is inadequate in many cases of catastrophic loss of entire buildings. Insurance will also rarely cover the cost of reconstructing parts of the building that failed gradually, not suddenly. Reserve accounts, intended for known and predictable repairs such as re-roofing or painting, are inadequate to deal with most hidden damage or catastrophic failure. A developer claim for hidden damage is only viable if asserted within the applicable statutes of limitation or repose. Shorter periods may also apply depending on the claim. Discuss this with the association’s general counsel right away if a problem appears.<o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif" style="font-size: medium;"> A shortfall in repair funding will lead to proposed assessments that owners can accept or reject—a circumstance that can hamstring a manager when new funding sources are needed quickly. Owners, if given the opportunity, and for various reasons, will often push back on or reject large new assessments, leaving the project unable to perform adequate repairs. Failing to repair the damage, as the project’s experts recommend, must be reflected in disclosures passed on to prospective buyers. The impact on the service life, and hence, the property’s value, becomes apparent. We’ll discuss what more can be done in the next installment.<o:p></o:p></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif" style="font-size: medium;"> </span></span></p>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-28216316494206937992024-02-03T11:35:00.000-08:002024-02-28T16:59:19.581-08:00When Time Runs Out<p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><br /></p><p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif" style="font-size: 16pt;">Part II</span></b></span></p><p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif" style="color: #38761d; font-size: 16pt;">The Typical Condominium “Business Model” will Not<o:p></o:p></span></b></span></p><p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif" style="font-size: 16pt;"><span style="color: #38761d;"> Sustain the Buildings</span><o:p></o:p></span></b></span></p><p class="paragraph" style="margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif" style="font-size: 16pt;"><span style="font-family: Times New Roman, serif;"> </span><span style="font-family: arial;"> </span></span></b></span><span class="eop"><span style="font-family: arial; font-size: medium;">Condominium buildings are like rental apartments in their aesthetics and construction, with one significant difference—condominiums are mapped and built to be sold to individual unit owners. The ownership of rental apartments remains with one owner. Apartments are rented for a fixed period. Title to a condominium project, including individual units, is held by the unit owners, who each own an undivided percentage of the entire project in addition to their title to a specific unit.<o:p></o:p></span></span></p><p class="paragraph" style="margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span style="font-family: arial; font-size: medium;">An apartment building owner is solely responsible for the condition of the building and can set rents accordingly. The multi-party ownership of a condominium building requires a governance system that can act on behalf of all the owners—an association or AOAO—managed by an elected board of directors. The cost of maintenance is spread among all owners. A condominium association must assess the owners for the cost of necessary maintenance, but that cannot happen arbitrarily. It requires adherence to the CCRs, state law, and sometimes, owner approval.<o:p></o:p></span></span></p><p class="paragraph" style="margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span style="font-family: arial; font-size: medium;">Among the many responsibilities of a condominium association, and probably the most critical, is maintaining the project correctly. This requires hiring professionals to investigate and recommend necessary maintenance. Obtaining that information and associated costs enables the board of directors to set the association’s annual budget. That includes various operating expenses, insurance, reserves, and professional management. The principal source of revenue necessary to fund the budget comes from the assessments levied on the individual owners. This is where the problems, both political and financial, come into play.<span></span></span></span></p><a name='more'></a><span class="eop"><span style="font-family: arial; font-size: medium;"><o:p></o:p></span></span><p></p><p class="paragraph" style="margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span style="font-family: arial; font-size: medium;">Owners can resist even routine increases in annual assessments and push back hard on special assessments to cover budget shortfalls. This usually arises when extensive repairs are required for something unexpected by the association’s reserve budget. This happens if reserve inspections fail to look closely enough at the building components, where damage has been hidden for long periods, or where past repairs were inadequate. If assessment increases were mandatory, as with certain types of cooperative apartments, this wouldn’t be a problem. However, with the average homeowner’s association or AOAO, extensive special assessments require owner approval, which is often tricky. Even obtaining a quorum of voters can be close to impossible.<o:p></o:p></span></span></p><p class="paragraph" style="margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span style="font-family: arial; font-size: medium;">Boards sometimes avoid these political conflicts by refraining from imposing the assessment for the work recommended by its professionals. Less work, or no work, then follows. That this can happen indicates the failure of the fundamental business model of condominium projects—assessments are essentially voluntary in that owner political influence can sway a board’s decision. Voluntary assessments are like voluntary taxes—they don’t work. Most owners will reject a plea for a significant special assessment when given a choice. The problem is those owners will not likely be in residence for many more years, and the maintenance or repair issue will be passed on to future owners to deal with when it has become much worse.<o:p></o:p></span></span></p><p class="paragraph" style="margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span style="font-family: arial; font-size: medium;">The service life of a condominium building is affected by damage allowed to linger for years or decades. It can reach the point where the cost to restore the building becomes prohibitive and impossible to fund. <o:p></o:p></span></span></p><p class="paragraph" style="margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"><span style="font-family: arial; font-size: medium;">We discuss this critical juncture in the next two installments.</span><span style="font-family: Times New Roman, serif;"><o:p></o:p></span></span></span></p>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-34700934235528105432024-01-25T14:49:00.000-08:002024-02-28T16:53:17.148-08:00When Time Runs Out<p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span class="normaltextrun" style="color: #b45f06; text-align: left;"><span face="Calibri, sans-serif" style="font-size: 16pt;"><b>Many condominium buildings will soon reach the end of their service lives. Others are already there. Maximizing the surviving property's value may be the key to protecting owner equity.</b></span></span><span class="eop" style="color: #b45f06; text-align: left;"><span face="Calibri, sans-serif" style="font-size: 16pt;"><b> </b> </span></span></p><p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif" style="font-size: 16pt;"><br /></span></b></span></p><p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif" style="font-size: 16pt;"><span style="color: #38761d;">Introduction</span><o:p></o:p></span></b></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><b><span face="Calibri, sans-serif"><span style="font-size: 16pt;"> </span><span style="font-size: medium;"><span> </span><span> </span></span></span></b></span><span style="font-size: medium;"><span class="eop"><span face="Calibri, sans-serif">Nothing in the documents</span></span><span class="eop"><b><span face="Calibri, sans-serif"> </span></b></span><span class="eop"><span face="Calibri, sans-serif">that create a condominium project predicts how long it will last. But everything about condo governance assumes it will last forever. There is no discussion of depreciation. reserve calculations are based on just those ordinarily renewable components—roofs, paint—under the false assumption that everything else—framing, foundations—never needs maintenance. Not only do condominium buildings not last forever, but most will be obsolete short of any owner’s expectations. <o:p></o:p></span></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span style="font-size: medium;"><span class="eop"><span face="Calibri, sans-serif">What follows is a four-part series discussing the challenges condominium owners experience in the face of gradual deterioration or outright destruction, such as we saw recently on Maui. Part I deals with condominium construction and its impact on service life. Part II talks about the pitfalls of condominium maintenance funding. Part III identifies when a condominium building has reached obsolescence. Part IV offers help for preserving owner equity.</span></span><o:p></o:p></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><o:p><span style="font-size: medium;"> </span></o:p></p><p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span class="normaltextrun"><b><span face="Calibri, sans-serif"><span style="color: #38761d; font-size: medium;">Part I<o:p></o:p></span></span></b></span></p><p align="center" class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: center; vertical-align: baseline;"><span style="font-size: medium;"><span class="normaltextrun"><b><span face="Calibri, sans-serif"><span style="color: #38761d;">What Makes Condominium Buildings Vulnerable to an Early Demise?</span></span></b></span><span class="eop"><b><span face="Calibri, sans-serif"><o:p></o:p></span></b></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"><span style="font-size: medium;">Condominiums come in all shapes and sizes. From tall high-rises made of steel and glass to three and four-story, “low rise” buildings framed with wood. They can be on the beach or inland. They can be high-end or affordable. They may be brand new or decades old. But they all require maintenance, depend on the owners to assess themselves adequately, and on boards of directors and managers to investigate and budget for the work. Successfully identifying and funding maintenance needs results in a longer building service life. Failing to identify and fund necessary repairs can drastically shorten a building’s life. A catastrophe, like the recent Lahaina fire, can destroy a building despite its age.<o:p></o:p></span></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"><span style="font-size: medium;">Let’s take the non-catastrophic failure first. Buildings, especially those primarily wood, need regular attention to avoid deterioration. And not just paint. When water or vapor gets past the outer skin—siding, stucco, or other cladding—it can remain within the walls of the building undetected for many years. Left undetected, it will foster rot and mold, worsening until it causes framing deterioration. If the condition is in parts that support loads, like balconies, walkways, or stairs, there will be real danger to occupants. If left unaddressed for many years, it can gradually destroy the framing from the inside out until significant repairs are required. Once known, the city or county will eventually condemn those dangerous parts if the building owners cannot fund the repairs, causing a severe loss of owner equity. <o:p></o:p></span></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"><span style="font-size: medium;">Defects in the construction of a newer building can also accelerate deterioration. Windows that leak, building paper installed wrong, and drainage around buildings that allows water under the foundation are examples of new construction defects that shorten a building’s service life. Repairing defects is typically expensive unless discovered early in the building’s life—within the first ten years. If so, it is still possible for an AOAO to assert a claim to the building developer. The AOAO’s general counsel should be consulted.<o:p></o:p></span></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"><span style="font-size: medium;">A catastrophe, like a fire, hurricane, or earthquake, can instantly render a building uninhabitable. Any remaining equity will then be determined by the amount of insurance and the value of the underlying land. Catastrophically damaged projects are beyond the standard rules of sustainability. There likely will be no reserves adequate to rebuild the building. Insurance may be inadequate or not available. Most owners will not have the financial resources to rebuild and satisfy lenders. In these instances, owners must maximize the value of what’s left—usually the land. <o:p></o:p></span></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; text-indent: 0.5in; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"><span style="font-size: medium;"><b>In our next installment, we will discuss why the typical condominium “business model” can be inadequate to preserve and sustain these projects.</b><o:p></o:p></span></span></span></p><p class="paragraph" style="font-family: "Times New Roman", serif; margin: 0in 0in 8pt; text-align: justify; vertical-align: baseline;"><span class="eop"><span face="Calibri, sans-serif"><span style="font-size: medium;"> </span></span></span></p>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-20619551739917642242023-07-27T11:03:00.005-07:002023-09-05T19:51:22.700-07:00Why Build Houses in Shopping Centers?<p style="font-family: "Times New Roman", serif; margin-left: 0in; margin-right: 0in; text-align: left;"><span style="font-family: Helvetica;"> </span><b style="font-family: Arial, sans-serif; font-size: 11pt; text-align: center;"><span style="font-size: 14pt;">Missed Opportunities in Applying California’s Housing Law </span></b><span style="font-family: Helvetica;"> </span></p><p style="font-family: "Times New Roman", serif; margin-left: 0in; margin-right: 0in; text-align: justify;"><span style="font-family: Helvetica;"><span style="font-size: medium;"><span> </span>Legislation in California since 1969 requires cities and counties to meet certain minimum requirements for new housing construction. The California Department of Housing and Community Development oversees these requirements. The department's website explains: </span></span></p><p style="font-family: "Times New Roman", serif; margin-left: 0in; margin-right: 0in; text-align: justify;"><i><span style="font-family: Helvetica;"><span style="font-size: large;"> </span>"California's Housing Element Law acknowledges that, in order for the private market to adequately address the housing needs and demand of Californians, local governments must adopt plans and regulatory systems that provide opportunities for...housing development. As a result, housing policy in California rests largely on the effective implementation of local general plans and, in particular, local housing elements."</span></i><span face="-webkit-standard, serif" style="font-size: large;"><o:p></o:p></span></p><p style="font-family: "Times New Roman", serif; margin-left: 0in; margin-right: 0in; text-align: justify;"><span style="font-size: medium;"><span style="font-family: Helvetica;"> Multiple California state funding programs require compliance with this housing development law. The law requires each of the 532 local jurisdictions to inventory potential housing sites and submit a detailed "housing element" every five or eight years. The submissions must include a "land inventory" identifying vacant or underutilized land suitable for new housing, even if the site requires re-zoning for residential construction.</span><span face="-webkit-standard, serif"><o:p></o:p></span></span></p><p style="font-family: "Times New Roman", serif; margin-left: 0in; margin-right: 0in; text-align: justify;"><span style="font-size: medium;"><span style="font-family: Helvetica;"> Because vacant land is rare in most local jurisdictions, sites that now include commercial, governmental, and even religious buildings can be identified as "potential" sites for re-zoning to residential uses. This has brought massive pushback from residents and local governments who object to zoning changes and the loss of local amenities. As a result, most California jurisdictions subject to the law remain out of compliance.</span><span face="-webkit-standard, serif"><o:p></o:p></span></span></p><p style="font-family: "Times New Roman", serif; margin-left: 0in; margin-right: 0in; text-align: justify;"><span style="font-size: medium;"><span style="font-family: Helvetica;"> We reviewed the housing element prepared by one California county and were surprised to see sites with existing shopping centers, churches, and even school properties included in the "land inventory." The law does not require that the existing owners of these sites convert them to residential uses, nor could it without the exercise of eminent domain. So, the conversion of these non-residential sites to housing remains largely hypothetical. This makes the goals of the legislation suspect since, at its base, it relies on property owners to agree to convert existing uses to housing. The law has teeth only so far as forcing local jurisdictions to identify sites that would be "nice" to convert to housing. Nothing more.</span><span face="-webkit-standard, serif"><o:p></o:p></span></span></p><p style="margin-left: 0in; margin-right: 0in; text-align: justify;"><span style="font-size: medium;"><span style="font-family: Helvetica;"> </span><span style="font-family: arial;">What's needed is the identification of sites that will more realistically produce a greater supply of housing, especially low to moderate-income housing. A shopping center owner isn't likely to tear down stores and build apartments just because the state would like that, not to mention the loss of valuable neighborhood amenities. So, what sites could<span class="apple-converted-space"> </span><i>realistically</i><span class="apple-converted-space"> </span>provide more housing, and what would it take to make that happen? </span></span><b><span style="font-size: 18pt;"><span style="font-family: arial;"><o:p></o:p></span></span></b></p><p style="margin-left: 0in; margin-right: 0in; text-align: justify;"></p><a name='more'></a><p></p><p class="MsoNormal" style="font-size: 11pt; margin: 0in; text-align: justify;"><span style="font-size: 14pt;"><span face="Arial, sans-serif"> </span><span style="font-family: arial;"> </span></span><span style="font-size: 12pt;"><span style="font-family: arial;">California Government Code Section 65583 requires cities and counties to designate parcels of land within their jurisdiction suitable for new housing. Complying with the statute requires the local government to prepare a “land inventory” not limited to parcels already zoned for residential use. Instead, it requires looking at all properties within that jurisdiction that could be used for housing despite present zoning. Land inventories include parcels presently designated for commercial and other non-residential uses. This is an overreach that isn’t necessary. There is a better idea, or at least an idea with a better chance of producing new housing, than waiting for a shopping center owner to convert it to apartments. </span><span face="Arial, sans-serif"><o:p></o:p></span></span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 12pt;"> </span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 12pt;">Over a million condominium units are distributed into thousands of condominium buildings throughout California. Many are old, built in the Sixties and Seventies, with apartment conversions to even older condominiums. Many, perhaps a majority, have not been maintained well. Good maintenance costs money, and the owners of these units notoriously resist paying higher assessments for maintenance or for anything else. Assessments are set by the Board of Directors, which in turn, is comprised of unit owners. Most condominium owners do not see themselves as long-term residents. For many reasons, the average turnover rate in condominiums is about 5-7 years. This means that the current residents are less concerned about the future maintenance needs of their building, especially when projected ten or twenty years into the future.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 12pt;"> </span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 12pt;">With current owners resisting any meaningful increase in reserve assessments, the funding for long-term maintenance and repairs is often left to future owners. But the cost of many future repairs remains unknown until they become necessary. Damage hidden from the view of inspectors or managers is common but does not become evident until the parts of the building hiding it are disturbed during routine maintenance or minor repairs. If that’s the case, reserves are not funded for these unexpected repairs. Even if the damage is known, owners will resist the cost, instead performing patchwork repairs or deferring them for years or decades. This leads to condominium buildings that gradually deteriorate until the cost to renovate them becomes prohibitive.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 12pt;"> </span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 12pt;">Once the cost to repair damage such as dry rot to wood parts, corrosion of water supply pipes and sewer drains, or foundations that can no longer adequately support the building becomes untenable to the owners, the building may have reached a state of obsolescence from which it cannot return. Building collapses are becoming more frequent. Balconies rot and fail. Whole buildings like Champlain Towers South in Florida can collapse and, in each case, result in death or severe injury to occupants. City and county building departments are becoming attuned to those threats, and legislation in California has been enacted to require owners to do comprehensive inspections of structural components. Insurance companies have also begun to inquire about the physical state of the buildings they insure, and private lenders and agencies like Fannie Mae have tightened their scrutiny of the condition of condominium buildings.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 12pt;"> </span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 12pt;">The result of all this attention will be that some buildings will have reached the end of their service life because the owners cannot afford the massive repairs needed to keep them insurable, habitable, or meet the requirements of lenders. What then? This is where Cities and counties doing land inventories have missed the mark. These sites are already zoned for residential use. They are usually close to downtown and transit. All they need is an incentive for owners to sell to developers and zoning that permits greater density on the same site. Many of these thousands of older condominium buildings can be redeveloped or repurposed to provide affordable housing in densities greater than exist on those sites now.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 12pt;"> </span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 12pt;">Municipal land inventories focusing on unrelated uses miss this obvious opportunity to create more housing on sites already providing that use. All that’s needed for these aging and damaged buildings is for someone with the foresight to identify them and for state and local governments to provide modest subsidies to owners or developers so the existing owners can sell their interests without taking a significant hit to their equity. The same land with higher density zoning would increase the property's value, which could be used to attract developers and purchase the site from the present owners. Instead of identifying shopping centers, churches, and used car lots that owners do not intend to turn into housing soon, cities and counties should look carefully at these older residential buildings. </span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 12pt;"><br /></span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 12pt;">There might be a win-win in there for everyone.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify;"><span style="font-size: 12pt;"> </span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify;"><span style="font-size: 12pt;"> <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Arial, sans-serif; font-size: 11pt; margin: 0in; text-align: justify;"><span style="font-size: 12pt;"> <o:p></o:p></span></p>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-20616431162112346332023-06-02T12:58:00.000-07:002023-06-02T12:58:02.141-07:00Condo Survival is Up To You!<p style="text-align: justify;"><span style="font-family: arial;">On Sunday, May 28, 2023, a six-story apartment building in Davenport, IA, <a href="https://amp.cnn.com/cnn/2023/05/29/us/davenport-iowa-building-collapse/index.html">collapsed.</a> The building was old and appears to have been built from masonry, possibly unreinforced. This was an apartment building, but it could easily have been a condominium. The owners had plans to perform repairs, but the collapse beat them to it, and the building will be demolished. This was not an isolated incident and follows the fatal collapse of a balcony in Berkeley, California, in 2015, the deadly failure of the Champlain Towers condo building in Surfside, Florida, in 2021, and in April 2023, the deadly collapse of a parking garage in New York. </span></p><p style="text-align: justify;"><span style="font-family: arial;">So what can be done to prevent this from occurring in your project? It's up to you. </span><b style="font-family: arial;">It's up to you as an owner.</b><span style="font-family: arial;"> You cannot assume that those managing your building are ahead of looming failures. You have to ask questions. You have to be ready to fund the necessary repairs. You have to offer your time to serve on committees or the board of directors to be sure that essential maintenance is done promptly.</span></p><p style="text-align: justify;"><span style="font-family: arial;"><b>It's up to you as a member of the board of directors.</b> Keeping assessments low cannot be your primary goal, regardless of the political pressure to do that. The goal should be to keep them adequate to pay for current operating expenses and fund future repairs. You have an obligation to accumulate necessary information on the condition of your building. You are responsible for raising the funds to repair and maintain it when the information you receive makes that clear.</span></p><p style="text-align: justify;"><span style="font-family: arial;"><b>It's up to you as the community manager. </b>The owners and the members of the board are conflicted. They pay the assessments necessary to keep the building safe. Yet what that may cost often conflicts with their sense of what that should cost. You have to obtain that information for them, recommend investigations, and here's the hard part--you must convince them to fund repairs and maintenance adequate to do the job. The easy way out is to stay out of it and let them decide. The hard and the right way is to convince them otherwise!</span></p>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-4641671112541211532023-04-25T13:43:00.002-07:002023-04-25T13:43:54.409-07:00Left Holding the (Sand) Bag<p><br /></p><blockquote style="border-left-style: none; font-family: Helvetica; font-size: 12px; margin: inherit; padding: inherit;" type="cite"><div class="system exported" id="article" role="article" style="font-family: -apple-system-font; font-size: 1.2em; line-height: 1.5em; margin: 0px; padding: 0px; text-rendering: optimizelegibility;"><div class="page" style="max-width: 100%; overflow-wrap: break-word;"><h2 class="subhead" style="color: rgba(27, 27, 27, 0.65); font-size: 1.46664em; line-height: 1.27275em; margin-top: -0.35em; max-width: 100%;">Who Will Pay for the Damage Caused by Flooding and Rising Sea Levels? It Could Be Your Homeowners Association!</h2></div></div></blockquote><p><span style="color: #38761d; font-family: arial;">(Editor's Note: This article was originally published a decade ago. Given the recent storms and resulting flooding, the concerns expressed below are even more compelling today.)</span></p><blockquote style="border-left-style: none; font-family: Helvetica; margin: inherit; padding: inherit;" type="cite"><div class="system exported" id="article" role="article" style="font-family: -apple-system-font; line-height: 1.5em; margin: 0px; padding: 0px; text-rendering: optimizelegibility;"><div class="page" style="max-width: 100%; overflow-wrap: break-word;"><p style="font-size: 1.2em; max-width: 100%;">The San Jose Mercury News:</p><blockquote style="border-left-color: rgba(0, 0, 0, 0.1); border-left-style: solid; border-left-width: 3px; color: rgba(0, 0, 0, 0.65); margin-left: 2px; margin-right: 6px; max-width: 100%; padding-left: 16px;"><p style="max-width: 100%;"><span style="font-size: 1.2em;">“</span><em style="font-size: 1.2em; max-width: 100%;">From Antioch to North Richmond to Redwood City, a slowly rising Bay could endanger the properties of as many as 270,000 Bay Area residents and cause some $56.5 billion in damage by the end of the century unless measures are taken to protect them, scientists warn. </em><span style="font-size: medium;"><em style="max-width: 100%;">But surprisingly, few cities are taking action.</em>” </span></p></blockquote></div></div></blockquote><p> <span style="font-size: medium;"><span style="font-family: arial;"> City of Benecia Website:</span><span style="font-family: arial;"> </span></span></p><blockquote style="border-left-style: none; margin: inherit; padding: inherit;" type="cite"><div class="system exported" id="article" role="article" style="line-height: 1.5em; margin: 0px; padding: 0px; text-rendering: optimizelegibility;"><div class="page" style="max-width: 100%; overflow-wrap: break-word;"><blockquote style="border-left-color: rgba(0, 0, 0, 0.1); border-left-style: solid; border-left-width: 3px; color: rgba(0, 0, 0, 0.65); font-family: -apple-system-font; font-size: 1.2em; margin-left: 2px; margin-right: 6px; max-width: 100%; padding-left: 16px;"><p style="max-width: 100%;">“<em style="max-width: 100%;">In the event of projected flooding, sandbags are available at the Benicia Corporation Yard. Some assistance may be available, but residents should bring shovels and plan to fill and load the bags themselves.</em>”</p></blockquote><p style="font-size: 1.2em; max-width: 100%; text-align: justify;"><span style="font-family: arial;">The chance of flooding in cities in and around San Francisco Bay and other low-lying areas in California is not just speculation. It has happened many times and will happen again and again if climate change and sea level rise continue or a “perfect” storm joins with normal high tides. It's easy to see why. Look at any map illustrating the first areas around the bay that will flood when the sea rises. It should come as no surprise that they are the exact locations where the bay was initially filled to create housing and commercial developments. These low-lying areas—Redwood Shores, Alameda, Vallejo, Alviso, and many others—were bay bottom and tidelands just a few decades ago. Now there are thousands of homes. The flood danger is obvious.</span></p><p style="max-width: 100%; text-align: justify;"><span style="font-family: arial; font-size: medium;">But what differs today from developments built three or more decades ago is that most of these new developments will be built as common interest developments. As a result, local or state governments will maintain little of the expensive engineered facilities necessary to protect these developments from storms, rising tides, and sea level rise but, instead, will be homeowners' responsibility.</span></p></div></div></blockquote><blockquote style="border-left-style: none; font-family: Helvetica; margin: inherit; padding: inherit;" type="cite"><div class="system exported" id="article" role="article" style="font-family: -apple-system-font; line-height: 1.5em; margin: 0px; padding: 0px; text-rendering: optimizelegibility;"><div class="page" style="max-width: 100%; overflow-wrap: break-word;"><p style="font-size: 1.2em; max-width: 100%; text-align: justify;">Streets, storm sewers, parks, and sidewalks in older developments are maintained by cities and counties using tax dollars raised from a broad tax base. In newer projects, these “public” works are instead made the responsibility of private owner's associations. The advent of the community association was a boon to tax-starved local governments, which saw them as a way to promote development and raise new tax dollars while avoiding responsibility for the new infrastructure.</p><p style="font-size: 1.2em; max-width: 100%; text-align: justify;">The cities and counties require developers to place the responsibility for necessary flood control improvements in community associations or small, special districts. Responsibility for Levees, settling basins, pumps, riprap, and retaining walls built by the developers of these new projects will eventually be maintained and repaired by community associations and paid for only by the owners who live there.</p><p style="font-size: 1.2em; max-width: 100%; text-align: justify;">Local improvement, levee, or reclamation districts began this massive shift of responsibility away from governments and onto landowners and have been widely used for many years. Much of the Sacramento delta, a system of sloughs and islands on which more and more housing is being built and proposed, is maintained by such “special” assessment districts, not the state or local cities or counties. The taxpayers within those districts pay for all levee maintenance and repair work.</p><p style="font-size: 1.2em; max-width: 100%; text-align: justify;">Originally these districts were formed to give farmers quasi-governmental authority over the properties in a particular area. It also shifted fiscal responsibility away from cities and counties and their broader base of taxpayers. But a flood disaster in an agricultural area will only inundate crops. The same disaster in a residential community will be much worse. So it matters who is in charge and who must finance the maintenance of such critical facilities.</p></div></div></blockquote><p> <span></span></p><a name='more'></a><p></p><blockquote style="border-left-style: none; font-family: Helvetica; margin: inherit; padding: inherit;" type="cite"><div class="system exported" id="article" role="article" style="font-family: -apple-system-font; line-height: 1.5em; margin: 0px; padding: 0px; text-rendering: optimizelegibility;"><div class="page" style="max-width: 100%; overflow-wrap: break-word;"><p style="font-size: 1.2em; max-width: 100%; text-align: justify;">A community association functions like a special district—ownership of public works is handed off by the developer to the association when development is complete, and the owners, through assessments, pay for the ongoing maintenance and repair. Cities and counties, which gain considerable tax benefits from new development, can nevertheless shift the long-term responsibility for maintaining improvements associated with that development to community associations. </p><p style="font-size: 1.2em; max-width: 100%; text-align: justify;">By this mechanism, developers avoid long-term responsibility for such projects. The homes and buildings within the development will be sold off soon. The developer takes the profits and is protected from long-term liability not only by the assessment arrangement that shifts the cost of future repairs to owners but also by various statutes that cut off legal liability in just a few years after the project is complete.</p><p style="font-size: 1.2em; max-width: 100%; text-align: justify;">After that, the association, or special district, is on its own. So just as the liability for landscaping, streets, parks, even schools, and unstable hillsides has been shifted to local homeowners in recent years, the flood control improvements necessary to build housing on tidelands or low-lying areas is similarly transferred to homebuyers along with the deeds to their homes. The maintenance and repair obligations start immediately. Over time, the facilities may prove inadequate to forestall the inevitable rise in sea level or flooding due to climate change, leaving homeowners on the hook for a lot more.</p><p style="font-size: 1.2em; max-width: 100%; text-align: justify;">That brings us to another problem. We have written many times about the looming failure of community associations to keep pace with the growing cost of maintaining even simple common area components—but imagine what will happen if much more sophisticated, not to mention expensive improvements, are to be maintained solely by owner assessments--levees and retaining walls, essential, for example, to keep sea level rise or "atmospheric rivers" from flooding hundreds or perhaps thousands of homes--will be dependent upon the willingness of individual homeowners and their association to provide adequate funding. It's one thing to let the landscaping go to seed or to allow chuckholes to exist in the parking lot, but a crumbling levee is at another threat level altogether.</p><p style="font-size: 1.2em; max-width: 100%; text-align: justify;">Of course, the proponents of new development contend that it will benefit the economy. But this benefit is short-term--if it exists at all. In fact, the “benefits” are more likely to be realized only by the developers and the local taxing authority. There is lots of land available for the necessary housing where it would not be threatened by flooding, sea level rise, or liquefaction in the case of an earthquake. And its eventual owners would not inherit the potential for fiscal and physical disaster. Planning agencies should push development where owners can afford to maintain it long-term. </p><p style="font-size: 1.2em; max-width: 100%;">Anyone concerned with new development proposals should ask the local jurisdiction a straightforward question: </p><p style="font-size: 1.2em; max-width: 100%;">“<em style="max-width: 100%;">Who will be responsible for keeping these flood control improvements working in the future?</em>”</p><p style="max-width: 100%;"><span style="font-size: 1.2em;">Don't be surprised by the answer.</span></p></div></div></blockquote>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-77595297753793266442023-04-22T18:11:00.003-07:002023-04-23T19:57:54.259-07:00Are Condos a Bad Idea?<p align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: center;"><br /></p><p align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: center;"><span style="font-size: 16pt;"><b>Internal Conflicts and Lack of Funding Undermine Sustainability</b><o:p></o:p></span></p><p align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: center;"><o:p> </o:p></p><p align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: center;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-indent: 0.5in;"><b><span style="font-size: 14pt;">Introduction</span></b><b><span style="font-size: 14pt;"><o:p></o:p></span></b></p><p align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: center;"><b> </b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">Condominiums are a nice idea, but their execution has been less than perfect. Long before the fatal Berkeley, California balcony failure </span><span style="font-size: 14pt;">in 2015 or the 2021 Champlain Towers South collapse</span><span style="font-size: 14pt;"> that killed 98 people in Surfside, Florida, we suspected that all was not right with the basic condo concept. Years ago, there were already signs this "cooperative" housing model was anything but. Whether due to owner apathy, internal disputes, or failure to fund future repairs, sustaining these projects for the long term has been difficult, leaving their future in doubt. Can this be fixed, or is the concept inherently flawed?<b> <o:p></o:p></b></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"> </span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">Every enterprise has an organizational "model" to run the business. For-profit corporations obtain revenue from the sale of products or services. The revenue of non-profit condominium corporations is the assessments paid by the owners of the individual units. While these assessments are “mandatory” in the sense they must be paid, they are also “voluntary” since the amount is left to the board of directors to determine. Condos are cheaper to buy, but the sales price may not reflect the real cost of ownership. They are "cooperative" because costs and space are shared, but internal disputes and funding shortfalls operate to shorten the life of these buildings in ways few owners understand.</span><b><o:p></o:p></b></p><p align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: center;"><b><span style="font-size: 14pt;"> </span></b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in;"><b><span style="font-size: 14pt;">Internal Disputes</span></b><span style="font-size: 14pt;"><o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><span style="font-size: 14pt;"> </span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><span style="font-size: 14pt;"> Why is condominium life frequently <i>not</i> “cooperative?” Disputes. Disputes between condominium owners and their associations; among board members; and between individual owners and their neighbors. There are arguments over the right to put a flag on the balcony. There are arguments over swimming pool hours. The right to paint their front door some color other than everyone else's. The right to be free of noise, smoke, or view-blocking plants. And sometimes, the claimed right not to pay assessments needed to maintain the project—all notwithstanding </span><span style="font-size: 13.5pt;">the governing documents </span><span style="font-size: 13.5pt;">to the contrary.</span><span style="font-size: 14pt;"> The right to use one's property as the owner sees fit is a concept imported from the single-family home experience but not replicated in condominiums where common ownership requires rules to avoid chaos.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"> <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">But a condominium association's most important concern should <i>not</i> be the color of someone's front door or when they can swim but sustaining the building and keeping owners safe. Maybe we care someone has painted their front door bright green, but should that concern have priority over finding rot that may cause a balcony to collapse with someone on it? Resolving conflicts and enforcing the governing documents have a reasonable success rate. Still, the effort required to do that often distracts the board from more critical issues—damage that can sink the ship. Directors can waste a lot of time re-arranging the deck chairs on the Titanic when, if they look closely, the iceberg is coming. <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"><br /></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span></span></p><a name='more'></a><span style="font-size: 14pt;"><br /></span><p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"><br /></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; line-height: 17.120001px; margin: 0in;"><b><span style="font-size: 14pt; line-height: 19.973333px;">Maintenance Lacks Priority<o:p></o:p></span></b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"> </span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">Why can't we enforce the rules <i>and</i> do what’s necessary to sustain the building and keep occupants safe? Unfortunately, juggling both behavioral and sustainability issues has proven difficult for many volunteer boards of directors. Rule disputes are always in their face, crowding their agenda, while the damage that could lead to structural failure often remains unknown. Also, enforcing—or resisting—rules can involve a clash of egos that keep those matters front and center. Or, and I suspect this is a primary culprit, the cost of adequate inspections, maintenance, and repair is so high that boards cannot overcome owner resistance to that expense. <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"> </span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">While boards and management must sustain the project and protect people, raising the funds to do that is another matter. Directors must leap hurdles to increase regular assessments. Imposing large, unexpected, special assessments for major repairs can be political suicide. Unfortunately, few owners realize how deadly serious proper maintenance is until there is a Berkeley or a Surfside, and everyone is stunned by the loss of life and property. While those are extreme cases of faulty construction, inadequate maintenance, natural causes, or all the above, they will not be the last. We know that because experts have seen precursors to those same conditions in other projects. <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"> </span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">Our concern for sustainability arises from examining newer projects during construction defect litigation when forensic experts open walls to inspect waterproofing and structural components. It also comes from helping our clients with the reconstruction of older buildings and dealing with many years or decades of neglect for which little or no reserves have been allocated.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"> </span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">The economic impact of repairing long-term damage is huge. Rot lying hidden within walls slowly damages the structural framing. Moisture seeping into balcony supports weakens them sometimes to the point of collapse. The cost to repair this damage is frequently out of reach of most condominium associations. In newer projects, when experts find problems early, claims are possible. The Berkeley balcony failure occurred in an eight-year-old building, and there was recourse available from the builder. But with older projects, it is often difficult to hold anyone responsible other than the owners themselves. <b><o:p></o:p></b></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"><br /></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in;"><b><span style="font-size: 14pt;">Is The Condo Model Flawed?</span></b><span style="font-size: 14pt;"><o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"> </span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">Suppose this is true—and our experience representing condominium projects for over forty years tells us it is—then we are not dealing only with the inexperience of some volunteer directors but rather with a flawed organization model. Board members want to succeed but are constrained by an income stream that depends almost entirely on the will of the individual owners—essentially voluntary funding.</span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt; text-indent: 0.5in;"> </span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">Under most state laws, funding for condominium operations and maintenance is not mandatory and relies instead on the willingness of the directors to assess owners for whatever is needed, and on the willingness of owners to accept the board’s decisions. When a board of directors can set assessments at whatever level is politically comfortable, without adequate consideration, or even knowledge, of long-term maintenance needs, systemic underfunding can result. What the members want are the lowest assessments possible, and directors often accede to those demands. When these factors conspire to underfund maintenance, they will drastically shorten the service life of a building. They also make it potentially unsafe. <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"> </span></p><p class="MsoFootnoteText" style="font-family: Calibri, sans-serif; font-size: 10pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">Commercial buildings incentivize their owners for good maintenance with increased rents and market value. That incentive is not relevant to a condominium owner because the accumulating deficit is rarely understood at the time of sale and is not reflected in the unit’s sales price. With a single-family home, deferred maintenance is more easily identified and is reflected in the purchase price. But condo home inspections are usually confined to the interior of a unit and do not assess the overall condition of the entire building or project or review any deficit in the funding needed to attend to deficiencies. Thus, market value is not affected by reality.<o:p></o:p></span></p><p class="MsoFootnoteText" style="font-family: Calibri, sans-serif; font-size: 10pt; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"><br /></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">In most states that require that reserves be maintained for future maintenance and repairs, the statutes require nothing other than cursory surface inspections. Damage beneath the skin of a building is not investigated, and no reserves are recommended for what is not known. California recently enacted legislation</span><span style="font-size: 14pt;"> that will require condominium associations to inspect specific elevated structures for safety, including <i>intrusive</i> testing where indicated. But no other state requires this level of inspection, and few even require a reserve study to determine how much money to save for the obvious problems, never mind those no one knows about.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"><br /></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">This situation leads to unfair consequences for those owners who find themselves unlucky enough to own a unit when the damage and deficits are finally realized. Damage discovered, say, in year 35 didn’t just happen in year 35. That deterioration likely began earlier in the building's life and lay hidden for decades. It is costly to repair when it finally becomes obvious or dangerous. No prior owner, those who owned and sold their units years ago, will pay any part of the cost of the eventual rehabilitation of that building due to past lack of adequate inspections and years of artificially low assessments. Instead, the present owners will be handed the entire tab for the shortfall from several decades of deferred maintenance or hidden damage—the last people standing when the music stops.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"> </span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">Can this trend be reversed? As condominium buildings age and deterioration continue, the funding deficit increases dramatically. But to reverse that trend and reduce the deficit, someone must know it exists and be willing to address it. That requires more robust inspections</span><span style="font-size: 14pt;"> early in the building's life and potentially higher assessments to stay even with any decay.<b><o:p></o:p></b></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"><br /></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in;"><b><span style="font-size: 14pt;">Conclusion<o:p></o:p></span></b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"> </span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">It would not be wrong to blame this on the failure of the basic condominium model. Volunteers rarely have sufficient training or expertise to oversee complex infrastructure maintenance, especially without mandatory funding to pay for it. The model also does not insist that board members have a talent for resolving conflicts. While condominium boards can leverage fines or legal action to enforce the rules, that lacks finesse and can create greater antagonism—a distraction from the more critical job of raising funds to inspect and maintain the building.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;"><br /></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"><span style="font-size: 14pt;">Unit owner-managed, voluntarily funded, multi-million-dollar condominium projects were probably a bad idea from the beginning. But sadly, it is way too late to reverse course on the millions of such projects built in the past sixty years. Many are already reaching the end of their service lives, with no plan to deal with that. Robust inspection standards on new and existing projects and enforceable minimum funding for maintenance and repairs should be considered by state legislatures. But whatever the approach, the present system is not staying even with the deterioration of many buildings, and that is just not safe anymore.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify; text-indent: 0.5in;"></p><div><div id="ftn1"><p class="MsoFootnoteText" style="font-family: Calibri, sans-serif; font-size: 10pt; margin: 0in; text-align: right;"><br /></p><p class="MsoFootnoteText" style="font-family: Calibri, sans-serif; font-size: 10pt; margin: 0in;"><br /></p><p class="MsoFootnoteText" style="font-family: Calibri, sans-serif; font-size: 10pt; margin: 0in;"><br /></p></div></div>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-22254467345702392292023-04-22T16:16:00.002-07:002023-04-22T18:15:58.189-07:00Another Florida Condo Building Evacuated<p><span style="font-family: arial; font-size: medium;"><span> When the Surfside, Florida high-rise condominium building collapsed, many experts blamed poorly maintained reinforced concrete and the building's podium slab design. </span><span>There have been several more high-rise Florida reinforced concrete condominium buildings evacuated after expert investigations identified potentially dangerous conditions. </span></span></p><p><span style="font-family: arial; font-size: medium;">Now we have a low-rise wood-frame condominium building, also in Florida, ordered evacuated, again after inspectors identified deteriorating structural conditions.</span></p><p><span style="font-family: arial; font-size: medium;">According to CNN, "<span style="color: #313131;">During an inspection on April 14 (2023), a building engineer found the Majestic Isle condominium building in North Bay Village had sagging floors and termite damage and deemed it structurally unsafe."</span></span></p><p><span><span style="color: #313131; font-family: arial; font-size: medium;">Majestic Isle is 60 years old. It is three stories with 36 condo units. It is very typical of many condominium buildings built in California as well as many other states. What sets Majestic Isle apart from hundreds of other similar buildings? Nothing except that this one had a thorough inspection of its structural components after a partial ceiling collapse.</span></span></p><p><span><span style="color: #313131; font-family: arial; font-size: medium;">Whether this building can be repaired for an amount the owners can afford is unknown, but our experience with structural damage in other wood frame buildings suggests that it will be very expensive and that there will be little or no reserve funding to cover it.</span></span></p>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-53500417814797452242023-04-19T11:36:00.002-07:002023-04-19T11:39:46.754-07:00Natural Gas Appliance Ban Overturned<p><span style="font-family: arial; font-size: medium;"> In March 2023, the <span style="color: #404040; orphans: 2; widows: 2;">Bay Area Air</span><span style="color: #404040; orphans: 2; widows: 2;"> Quality Management District (BAAQMD) adopte</span><span style="color: #404040; orphans: 2; widows: 2;">d rules effectively banning the replacement of some natural gas appliances after 2027. Gas-fired water heaters would have to be replaced with electric water heaters after 2027, and gas furnaces would have to be replaced with electric furnaces after 2029. The City of Berkeley started the 'ban the gas" movement in 2019, and that policy was adopted in other cities. </span></span></p><p><span style="font-family: arial; font-size: medium;"><span style="orphans: 2; widows: 2;"><span style="color: #404040;">On April 17, 2023, however, the</span></span><span style="color: #1a1a1a;"> Ninth U.S. Circuit Court of Appeals in San Francisco overturned the ban. How or if that decision will impact the BAAQMD rules is unclear; however, the federal court found that the Berkeley rules were pre-empted by federal energy policy. This does not bode well for the district's rules.</span></span></p><p><span style="font-family: arial; font-size: medium;"><span style="color: #1a1a1a;">Why is this important to homeowners' associations, especially condominiums? Because it is likely that retrofitting condo units that currently use natural gas water heaters and furnaces with electric versions will be very expensive. And perhaps compliance with the district's rules cannot be done at all in some buildings.</span></span></p><p><span style="font-family: arial; font-size: medium;"><span style="color: #1a1a1a;">Electrical panels that distribute electricity to multiple condominium units are sized to a building with the electrical loads expected in mind. In many cases, the panel may need more capacity to provide what would be required for electric furnaces and water heaters. Even if the panel can be enlarged to allow for the extra load, the building and the units may need to be wired for electricity for furnaces and water heaters.</span></span></p><p><span style="color: #1a1a1a; font-family: arial; font-size: medium;"><span style="caret-color: rgb(26, 26, 26);">The panel and much of the wiring are likely common area which would mean the association would be responsible for upgrading sufficiently to comply with a demand for new appliances run on electricity.</span></span></p><p><span style="color: #1a1a1a; font-family: arial; font-size: medium;">While we applaud the environmental goals of anti-gas rules, retrofitting most condominium buildings would be a colossal expense and one totally unexpected in any reserve budget. </span></p>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-45243133290518581302023-04-16T15:23:00.005-07:002023-04-16T15:46:06.767-07:00<p style="text-align: center;"><b><span style="color: #38761d; font-size: x-large;"> <span>AB 1101 Puts Condos at Risk</span></span></b></p><p style="text-align: justify;"><span style="font-size: large;"> </span><span style="font-size: small;">The California legislature is considering AB 1101 that would amend Civil Code §5551 and Health and Safety Code §17973 which require inspections of "exterior elevated elements" on condominiums and apartments for safety. These include balconies, elevated walkways, and staircases made of wood or wood-based products. The point is to detect or intercept rot that would compromise the safety of these structures.</span> Currently the statutes provide that these safety inspections be done by qualified experts--architects, structural engineers, and in the case of apartment buildings, certain licensed contractors. AB 1101 would add another category--termite inspectors. </p><p style="text-align: justify;">The original statute did not allow inspectors to also perform the repairs. The idea was to prevent the inspectors from capitalizing on their relationship with building owners or homeowner associations to secure jobs repairing what they had just recommended. Seemed logical at the time. Along the way, that prohibition was dropped. That wasn't a good idea then and it isn't now. Homeowner association boards of directors especially are often not sophisticated in construction issues and do not have the background to review or challenge an expert's recommendations. In the past, however, at least with Civil Code 5551, the version that requires balcony safety inspections of condominiums, the inspectors were design professionals--architects and engineers--who do not normally contract to repair what they inspect.</p><p style="text-align: justify;">AB 1101 would allow "Branch 3" termite inspectors to not only perform condo inspections, but recommend repairs, and then contract to perform the repairs they recommend. The checks and balances of the original statute would be wiped out. This may not be important for investors and owners of apartment buildings who have the skill and background to oversee these inspectors and, where necessary, question their recommendations. They also know to seek alternate opinions and bids if they question the original reports. While boards of directors of condominium associations can seek the help of professionals to review inspector's recommendations, they are more likely to follow the guidance of the expert already retained.</p><p style="text-align: justify;">We also question if termite inspectors have the necessary skill set to calculate whether rot-compromised structural framing on a multi-family building can support the intended loads.<span style="font-family: times;"> </span><span style="font-family: times;">A review of the required "Branch 3" exam prep courses doesn't show much required knowledge of structural engineering or design sufficient to evaluate the ability of a compromised structural support for a balcony or a staircase to hold up when occupied. </span></p><p style="text-align: justify;"><span style="font-family: times;">However, even if their training includes how to re-construct a failed balcony or stairway, no inspector who inspects and recommends repairs under these statutes should be allowed to also contract for their repairs. To protect consumers, that just makes sense.</span></p>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-37202933044083336512023-03-01T17:03:00.003-08:002023-03-01T17:03:19.856-08:00Where Old Condos Go To Die<p align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: center;"><b><span face="Arial, sans-serif" style="color: #202124; font-size: 10.5pt;">Will you still need me, will you still feed me,</span></b></p><p align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: center;"><span face="Arial, sans-serif" style="color: #202124; font-size: 10.5pt;"><b>When I'm sixty-four?</b><o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 3.5in; text-indent: 0.5in;"><span face="Arial, sans-serif" style="color: #202124; font-size: 10.5pt;">…The Beatles</span><o:p></o:p></p><p align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: center;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify;"> In 2005 we published a <a href="https://www.berding-weil.com/articles/uncertain-future-of-common-interest-developments.php" style="color: #954f72;">treatise</a> entitled <i>"The Uncertain Future of Common Interest Developments."</i> We worried about the inability of condominium boards to fund reserves for future repairs and maintenance. In addition, political pressure from individual owners was keeping assessments artificially low. While this pleased the then-owners, it underfunded reserves and robbed future owners of the resources for long-term maintenance.<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify;"> In the following years, we noticed and added another factor to the under-funding equation—damage unseen during routine inspections, which eventually required unexpected and unfunded repairs. At first, these problems—rot in wall cavities hidden for years, gradual soil problems, slow deterioration of framing elements—required spot repairs but often led to large-scale reconstruction later. Unfortunately, some of that <a href="https://www.berding-weil.com/articles/hidden-damage-life-death-and-legislation.php" style="color: #954f72;">hidden damage</a> eventually caused catastrophic failures of building parts or entire buildings and loss of life.<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify;"> After studying this phenomenon for several decades, we have concluded that these failures and the lack of funding that leads to them result from a fundamental flaw in the condominium business model<b>.</b> Allowing critical funding decisions to be made by a majority vote of owners with disparate interests invariably defeats most fund-raising efforts by the board of directors. This makes funding voluntary. Condominium repair and maintenance are determined not by experts but by laypeople whose interests in the project are mostly short-term. But the managing corporation's interests are long-term. Thus, an inherent conflict.<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify;"> The consequences of voluntary funding are seen in the gradual deterioration of many older condominium buildings. Newer owners resent that they have been saddled with the cost of decades of deferred maintenance while past owners escaped unharmed. Repairs or restoration that the association could have done inexpensively twenty years earlier, if found in time, now require six-figure special assessments or bank loans, again the responsibility of current owners. Reserve funds were kept artificially low by past votes against higher assessments, did not keep up with the rate of deterioration, and promoted increasing reserve deficits.<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify;"> So, what's the end game? What happens when current owners either balk at paying for reconstruction to keep a building watertight and safe or lack the financial capability to address these problems? State and local entities have learned of the potential for injury or death from failed building components due to poor maintenance. They can and will condemn buildings considered unsafe or uninhabitable. Insurance companies that provide liability or property damage coverage are also aware of these conditions and, for now, have raised premiums to account for it. But they may deny coverage altogether. Boards of directors have been sued by current owners who reject the idea that they should bear responsibility for many decades of deterioration. And then, there is the possibility that all or a part of the building will fail due to inadequate maintenance, construction defects, or natural disasters.</p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify;"><br /></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;">If any of these factors are present, the project may be at the end of its service life. That's not what a community association's governing documents intend, but that's the reality. Buildings destroyed, unsafe, or cannot be adequately maintained for habitability can no longer function as planned, and the owners must consider an "end of life" outcome. Some outcomes can be chosen, but some cannot be addressed in time to save the project. Here are a few.</p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><br /></p><span><a name='more'></a></span><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><br /></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><br /></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><b style="text-indent: 0.5in;">Redevelopment</b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><b> </b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;">Redevelopment is one of the few outcomes within the owners' control. When condos reach the end of their service lives, owners become desperate to find a way out. In cities like Chicago, where many older apartment buildings were converted to condos decades ago and were among the first to reach the end of their service lives, owners have turned to "de-conversion" to realize their equity. But it hasn't been easy. Writer Henry Grabar reports in <a href="https://slate.com/business/2021/08/condo-deconversions-boards-chicago-miami-repairs-investors.html" style="color: #954f72;">Slate</a> that Chicago requires an 85% owner vote to achieve de-conversion. Regardless, the process gives rise to infighting among owners and boards of directors with many views on dealing with an obsolete project.</p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;">In California, existing condominium buildings do not provide enough housing to meet demand, and open land suitable for new projects is scarce. But low-density condominiums built many years ago often sit on parcels not fully utilized under today's zoning laws. For example, if the zoning permits, a project of low-rise buildings with surface parking could increase its density by two or three times on the same site. These sites are often close to downtown and transit. The state or local entity could incentivize developers to buy these properties, demolish the existing buildings, and build needed new housing. The increased density would raise the site's value, allowing the present owners to receive more than the units are worth in their current condition. The developer could create and sell enough new units to be profitable. Affordable housing and mixed-use projects also fit this profile.<b style="text-indent: 0.5in;"> </b><b style="text-indent: 0.5in;"> </b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><b> </b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><b>Condemnation<o:p></o:p></b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><b> </b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;">Other than catastrophic loss, this is the least attractive outcome for obvious reasons. If a condominium building is condemned for safety or habitability reasons, the owners must vacate and have little leverage to obtain their equity from the project. A developer may pay salvage value for the property and redevelop it, but the former owners have little to show for their ownership. The trick here is not to wait until the building department is forced to condemn. As a project deteriorates without meaningful maintenance, it gradually loses market value. Projects allowed to deteriorate to the point of condemnation will have abandoned or foreclosed units, red-tagged buildings, and a general state of disrepair. This will leave the owners and their lenders with few options but take what they can get for the property.<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;">A well-executed end-of-life strategy should not wait until a building's serviceability ends. For example, redevelopment should be considered an alternative to an expensive rehab that the owners can barely afford and which may not raise property values enough to justify the expense. A knowledgeable appraiser can provide a before and after valuation while a major rehab project is considered. This evaluation will give the owners another data point to help their decision. They may find that the dollars invested in reconstruction will not result in a proportional increase in market value, and they should consider other options. Waiting until the building is uninhabitable deprives the owners of options that may preserve a more significant percentage of whatever equity they have left.<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><b>Catastrophic Loss<o:p></o:p></b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><b> </b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;">Buildings can be lost to many <a href="https://www.berding-weil.com/articles/whats-left-if-disaster-destroys-community-association.php" style="color: #954f72;">natural</a> or other causes. For example, wildfires, earthquakes, hurricanes, and other weather-related threats cause billions of dollars of damage to infrastructure every year. In addition, building deterioration from a lack of proper inspections and maintenance can lead to the collapse of all or parts of a building. The worst examples recently were the Champlain Towers South collapse in Surfside, Florida, which claimed 98 lives in 2021, and the loss of life sustained when a balcony collapsed on a building in Berkeley, California, in 2015. <o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><b>Insurance<o:p></o:p></b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;">Insurance may cover some or all the costs to restore the structure and compensate victims. But coverage is often inadequate or disputed by insurance carriers. For example, property damage policies may pay to repair the "common areas" but may not fix the units' interiors. As a result, owners must carry insurance for their separate interests. Fire loss is usually covered. Insurance may also cover wind damage from falling trees. But losses due to flooding won't be covered by the typical condo policy and requires a separate flood policy. The same applies to earthquake insurance; owners must carry a separate unit policy.<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;">A failure due to decades of deferred maintenance or hidden damage may not be covered, depending on how the damage occurs. A "sudden" collapse may find coverage, but the carrier will likely dispute the claim when damage has happened gradually. The limits may not adequately compensate the owners even if coverage is available. Liability coverage for the association and board members sued for their role in the catastrophe may be available but will often require months or years of litigation to resolve. In all these cases, what is usually left beyond insurance is the value of the remaining property. But there will be other claimants beyond the owners—lenders, insurance carriers looking for subrogation, and the estates of deceased owners—which usually means recovery will not be adequate for anyone. <o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><b>Legal<o:p></o:p></b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><b> </b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;">Legal considerations and the condition of the building(s) will determine what course is available to the owners. Some state statutes outline when a condominium property can be sold in its entirety. A sale to a developer at market value requires an active board of directors with the full support of the owners behind the proposal and building conditions good enough to leave the owners with some leverage—like the ability to sell individual units instead of a sale of the entire project. The governing documents or state law will dictate what percentage of owners must approve a sale of the whole property for redevelopment. The rules must be carefully researched as they will vary considerably.<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><b>Conclusion<o:p></o:p></b></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;"><b> </b></p><p><span></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in 0in 0in 0.5in; text-align: justify; text-indent: 0.5in;">Condominium buildings do not last forever. Maintenance is highly variable among projects, but it does not meet long-term requirements on average. But maintenance isn't everything. The owners' wealth, whether the location or the building has intrinsic value, the type of construction, and the evolution of the surrounding neighborhood will all play a part in determining a building's service life. But when deterioration or calamity brings that end close, and if they still have options, the owners must consider how best to extract their equity. A delay in making that decision could be costly.</p>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-58727661780406331252023-03-01T15:42:00.002-08:002023-03-01T15:52:02.530-08:00Do Labor and Materials Shortages Impact Construction Quality of New Homes?<p align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: center;"> </p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"> During periods of high housing demand, as we experienced over the past five years, supply chain disruptions affected the availability of building materials. Everything from insulation to plumbing fixtures to framing lumber has been scarce<a href="applewebdata://85534CE9-7897-41C1-BC49-6E2EF6FFB654#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference" style="vertical-align: super;"><span class="MsoFootnoteReference" style="vertical-align: super;"><span style="font-size: 12pt;">[1]</span></span></span></a>. Not unknown before the pandemic, labor shortages in the construction industry only intensified with the Covid virus. In addition, falling birth rates, a slowdown in legal immigration, and early retirements created a labor crisis.<a href="applewebdata://85534CE9-7897-41C1-BC49-6E2EF6FFB654#_ftn2" name="_ftnref2" title=""><span class="MsoFootnoteReference" style="vertical-align: super;"><span class="MsoFootnoteReference" style="vertical-align: super;"><span style="font-size: 12pt;">[2]</span></span></span></a> Demand for new homes was at an all-time high. So, how did these shortages and delays impact the quality of home construction?<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"> The prevalence of construction defects in new housing often accompanies periods of high demand. When sources of trained labor dry up, builders must obtain workers from unconventional sources—sometimes from the parking lot at Home Depot. The same is true for building materials in short supply. As a result, there are substitutions or changes in accepted installation practices. In addition, builders substitute lower-quality materials for traditional building products. Each factor can negatively influence construction quality. <o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"> The most acknowledged result of shortages in materials and labor is the cost of new housing. Builders raise the price of new homes to compensate for the expense of hard-to-get materials and delays caused by the lack of labor. But there are other consequences—some may not be discovered until after the home's sale. For example, forensic investigations of new housing often expose the shortcuts taken during construction. These are quality-control issues often not visible on the exterior of a completed building. But reports of leaks or mold, for example, in a new home will trigger intrusive inspections that reveal poor construction methods. <o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><br /></p><span><a name='more'></a></span><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><br /></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"> Correctly applying many modern building materials requires reading and understanding architectural drawings and the product manufacturer’s instructions and warnings. For example, waterproofing around windows must be integrated with the fins of the windows and the surrounding weather barrier to be waterproof. Architects often provide details in the plans. Manufacturers provide installation instructions, which, if followed, will usually mean that a window will not leak. But sometimes, the workers who install these parts do not have access to the drawings or are not trained in these precise building methods and “mis-lap” waterproofing materials. Instead of shedding water to the outside, it is directed into the building.<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"> Sealants used to waterproof windows must be compatible with the materials they touch. Unfortunately, some sealants are incompatible with adjacent materials, and instead of providing a watertight joint, they degrade the waterproofing. Other sealants are incompatible with materials used to “firestop” penetrations in walls. Sealants not compatible with the CPVC pipe used for sprinkler systems, for example, can degrade the pipe, which will eventually cause it to fail. Today, it is popular to design balconies on residential buildings with supporting beams enclosed by a soffit. This looks good, but it can also trap moisture in the beams, which promotes rot. In addition, water can enter the enclosed space when the joint where the balcony adjoins the building is not correctly waterproofed. <o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"> Suppose this is known to the manufacturers of these products, and they publish guidelines for their materials, which are incorporated into drawings and specifications by project architects. Then why do we find defects in building construction? Again, the training of the workers who must install these products needs to be improved, and the on-site quality control needs to be more consistent. Moreover, labor sourced from a parking lot is likely not union trained. Construction labor unions have well-known training programs for apprentices that can turn out skilled workers in various trades. That training includes instruction on following the manufacturer’s guidelines and architectural details. But union-trained labor is avoided to reduce costs or is unavailable in enough numbers.<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"> On-site quality control—inspections by architects, superintendents, or supervisors—can catch misapplications and mistakes in the field. But especially with production housing, there are too many locations of critical details for architects or superintendents to watch constantly. Even a tiny mistake—a joint where the sealant was not applied completely—can eventually cause internal damage. Watching over untrained workers frequently is impossible for builders, and architects are rarely on a site to observe the installation every day.<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"> The high demand for production housing also tempts builders to try new designs that save time and expense. Direct Applied Finish Systems (DEFS) instead of stucco. Hardboard instead of real wood siding. Foam trim instead of wood or concrete. These systems are not better quality than the products or systems they replace. But they cost less and take less time to install. Unfortunately, they are also frequently the subject of defect litigation.<o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"> Rising home prices may have been the most immediate and obvious result of supply chain issues and labor shortages. Still, the impact will be most noticeable in the long term as shortcuts and mistakes made during construction subject parts of a building to moisture intrusion or degradation from incompatible materials. Trained, skilled labor is the best insurance against the errors that lead to construction defects and the litigation that will inevitably follow. But craftsmen were not available in enough numbers when we built homes and buildings at a furious pace not seen in many years. <o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"> Litigation over construction issues usually follows a hot real estate market for several years. We are just now getting to that point. It is unfortunate because the buyers of those properties will suffer the most from leaks, rot, and other failures. It is easy to say provide more quality control, but inspectors can only stand over a worker for limited periods. City inspections are cursory, and municipalities can’t supply the number of inspectors it would take to avoid defects in new construction. <o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in; text-align: justify;"><o:p> </o:p></p><div><br clear="all" /><hr align="left" size="1" width="33%" /><div id="ftn1"><p class="MsoFootnoteText" style="font-family: Calibri, sans-serif; font-size: 10pt; margin: 0in;"><a href="applewebdata://85534CE9-7897-41C1-BC49-6E2EF6FFB654#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference" style="vertical-align: super;"><span class="MsoFootnoteReference" style="vertical-align: super;"><span style="font-size: 10pt;">[1]</span></span></span></a> Lydia O’Neal, “Builders Hunt for Alternatives to Materials in Short Supply,” Wall Street Journal, April 25, 2022<o:p></o:p></p></div><div id="ftn2"><p class="MsoFootnoteText" style="font-family: Calibri, sans-serif; font-size: 10pt; margin: 0in;"><a href="applewebdata://85534CE9-7897-41C1-BC49-6E2EF6FFB654#_ftnref2" name="_ftn2" title=""><span class="MsoFootnoteReference" style="vertical-align: super;"><span class="MsoFootnoteReference" style="vertical-align: super;"><span style="font-size: 10pt;">[2]</span></span></span></a>Curt Bennink, “New Year Brings More Uncertainty with Supply Chain and Labor Concerns,” For Construction Pros.com, March 21, 2022.<o:p></o:p></p></div></div>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-69721563362313990122018-01-24T12:34:00.000-08:002018-01-24T12:44:09.328-08:00A Guide to Construction Defect Claims for Community Managers and Boards of Directors<br />
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A Guide to Construction Defect Claims</h1>
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Introduction</h2>
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By <a href="http://www.berding-weil.com/attorneys/Tyler-Berding/" style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: #2f57a9; font-size: 16px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">Tyler P. Berding, J.D., Ph.D.</a> and <a href="http://www.berding-weil.com/attorneys/Julia-Hunting/" style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: #2f57a9; font-size: 16px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">Julia Hunting, J.D., P.E., S.E.</a> and <a href="http://www.berding-weil.com/attorneys/Anna-Fabiano/" style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: #2f57a9; font-size: 16px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">Anna P. Fabiano, J.D.</a></h6>
<div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: arial, helvetica, sans-serif; font-size: 0.875em; line-height: 23px; margin-bottom: 10px; margin-left: 50px; margin-right: 0px; margin-top: 0px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: justify; vertical-align: baseline;">
<span class="first-letter" style="background-color: transparent; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; float: left; font-family: "georgia" , "times" , "times new roman" , serif; font-size: 45px; margin-bottom: 0px; margin-left: 0px; margin-right: 3px; margin-top: 12px; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">F</span>or decades, litigation over the defective construction of multi-family projects has been a frequent component of a property manager's portfolio. Low-rise, wood frame condominiums, apartments, and townhouses have long been susceptible to construction mistakes which lead to disputes with contractors and developers. High-rise projects can also exhibit poor construction. Community associations and owners of apartment buildings have found many reasons to sue builders. What leads to construction defects? Often it is a shortage of skilled labor in times of high real estate prices and demand. When there is strong sales potential, builders are eager to supply inventory, but good construction takes time and talent; when time and talent are in short supply, substitutions are made, which can lead to poor quality and subsequent claims.</div>
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Construction defects may be noticed almost immediately by new buyers, or they may lurk within a building for years before the damage they cause is detected. These problems can be as obvious as an actively leaking roof, or they can be as subtle as cracking caused by soil problems that develop several years after purchase. They can be easy to fix or potentially catastrophic, and their severity will strongly influence whether or not the builder or contractor will make repairs without the compelling force of litigation.</div>
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Here we cover construction defects in new construction. Defective repairs in new and older buildings are a topic covered in our companion book: “A Property Manager's Guide to Reconstruction Projects.”<sup style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-size: 14px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><a class="footnote" href="http://www.construction-defect-litigation.com/articles/guide-to-construction-defect-claims-introduction.php#1" style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-size: 0.75em; font-weight: bold; line-height: 11px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-decoration: none; vertical-align: super;">1</a></sup> Property managers must have a basic understanding of the elements of a construction claim, so they can adequately advise their clients, retain or recommend appropriate professionals, and monitor the claims process. That information follows. We hope this resource will be useful to both you and your clients.</div>
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<span style="color: #b45f06;">For a full copy of this publication, contact Jill Jackson at jjackson@berding-weil.com </span></div>
<a href="https://www.blogger.com/null" id="1" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; border: 0px; color: #2f57a9; font-family: arial, helvetica, sans-serif; font-size: 12px; line-height: 18px; margin: 0px; outline: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;"><sup style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; border: 0px; color: black; font-size: 0.75em; margin: 0px; outline: 0px; padding: 0px;">1</sup></a><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: 0.75em; line-height: 18px;"> Tyler P. Berding. J.D., Ph.D., Paul W. Windust, J.D., and Julia Hunting, J.D., P.E., S.E., A Property Manager's Guide to Reconstruction (2013).</span>Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com2tag:blogger.com,1999:blog-6739442929159985935.post-82127871711799795962018-01-24T12:25:00.000-08:002018-01-24T12:25:58.802-08:00The Contractual Community<div style="text-align: center;">
<span style="font-size: large;"><span style="color: #274e13; font-family: "verdana" , sans-serif;"><b>Why Community Associations Are Not "Governments" </b></span></span><br />
<span style="font-size: large;"><span style="color: #274e13; font-family: "verdana" , sans-serif;"><span style="color: black;"> </span><span style="color: black; font-size: x-small;">By Tyler P. Berding, JD., Ph.D.</span><b> </b></span></span></div>
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<a href="http://4.bp.blogspot.com/-mPyES55Ltfs/TwTz0BPq6wI/AAAAAAAAAsk/WD_UheayufM/s1600/housecontract1.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://4.bp.blogspot.com/-mPyES55Ltfs/TwTz0BPq6wI/AAAAAAAAAsk/WD_UheayufM/s1600/housecontract1.jpg" /></a><span style="color: #783f04; font-family: "arial" , "helvetica" , sans-serif; font-size: small;">Editor's note: This article was originally published several years ago. In light of the continuing debate (see post below on a similar topic) over the legal nature of a community association, it is being reprinted here.</span><br />
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<span style="color: black;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Articles and blogs devoted to the analysis and, occasionally, criticism of community associations often discuss the concept as if it were just another subdivision of local government. It is a common mis-perception because so much discussion about this unique housing type is devoted to questions of governance. We have boards of directors, which in some respects appear to be like city councils. There are property managers who carry out many of the same functions as city staff. The property so governed has many of the same physical accouterments as a town or city--streets, utilities, parking, recreation facilities, etc. </span></span><span style="font-family: "arial" , "helvetica" , sans-serif;"> </span></div>
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<span style="color: black;"><span style="font-family: "arial" , "helvetica" , sans-serif;">There are controls which are seemingly analogous to municipal government, where ordinances such as zoning place restrictions on individual property rights in order to give effect to the paramount needs of the city or county--as determined by the elected policy-makers. But while these two governance systems may appear similar, their respective legal bases are really quite different. Understanding this difference may help to understand why the occasional characterization of community associations as "mini-governments" or "quasi-governmental agencies" is particularly inapt and can lead to false assumptions about community associations. </span></span></div>
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<span style="color: black;"><span style="font-family: "arial" , "helvetica" , sans-serif;">The sovereignty of our political government is subject to the limitations imposed upon its authority by various constitutional provisions, but its continued existence, short of war or violent revolution, is assured. A community association is <i>not </i>a sovereign entity, even though in many cases and in many of its duties, it appears as one. Its continued existence is wholly dependent upon the collective will of the owners of the property, and it has no assurance whatever of perpetual life. </span></span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;"> </span><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="color: black;">Most of the law of community associations, both common and statutory, is based upon one fundamental concept--that the interests of the individual and those of the community must function in a kind of consensual harmony in order for the community association to work. That is, virtually every operation of a community association, and all of its authority, is derived from a private, </span><i><span style="color: black;">contractual </span></i><span style="color: black;">relationship among the owners--imposed by covenants which are recorded against each individual's property. These agreements, in the form of the CC&Rs and corporate bylaws, are dependent upon the collective will of the parties to that contract--the owners, and others who may share an ownership interest, such as mortgage lenders--to keep the community in existence. The entity exists only with their continuing acquiescence. At any time, these owners, by whatever voting percentage is required, could terminate the community association by the simple expedient of amending the governing documents to eliminate it. Of course, the voting percentage may in some cases be as high as 100% of the owners. Also, the law of partition and corporate dissolution would have to come in to play in order to parcel out the common property, and the interests of lenders would have to be considered, but at least in theory, it can be done.</span></span><br />
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<span style="color: black;"><span style="font-family: "arial" , "helvetica" , sans-serif;">The same is not true for public entities which, as subdivisions of federal and state government derive their right to exist from the authority of the "sovereign" to use an old but still valid concept, limited only by the rights granted to individuals by the Constitution of the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>, the Bill of Rights, and the various state constitutions. Even if 100% of the citizens of the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region> voted to do it, they could not terminate this country's existence--only Congress, supported by a significant number of state legislatures, has the power to amend the Constitution. From this sovereign authority the police power is derived with which all government entities enforce their authority to govern. </span></span><span style="font-family: "arial" , "helvetica" , sans-serif;"><br />
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<span style="color: black;"><span style="font-family: "arial" , "helvetica" , sans-serif;">The authority of the community association is <i>not</i> derived from constitutional law, per se, but rather from the common law of contract, as augmented by a few relevant statutes, and as such, is completely at the mercy of the parties to the contract--usually the owners of the separate interests. Government agencies are founded upon the principal of government supremacy--that while they must recognize and obey the constitutional rights and liberties of the individual, the public interest, where it has been clearly defined, is always paramount, and the rights of individuals must give way to it when a conflict in authority arises. </span></span><span style="font-family: "arial" , "helvetica" , sans-serif;"><br />
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<span style="color: black;"><span style="font-family: "arial" , "helvetica" , sans-serif;">There are no better examples than the right of the government to tax its citizens and the right of Eminent Domain. To the extent of its authority to levy taxes on individuals, the government's authority is clearly superior to that of any individual citizen. Similarly, where the public's need for property exists, the government may acquire it (with adequate compensation to the owner) for such public benefits as rights of way or redevelopment. Now of course, each of these governmental powers is limited by certain constitutional guarantees such as equal protection and due process, but when those requirements are satisfied, the government is free to act without further restraint. The importance of the public, or "community," interest as it relates to government is clearly carved into stone, and in this democracy little doubt of the supremacy of the public interest, as defined and limited by the Constitution, exists. Such assumptions are based upon hundreds of years of constitutional law and history. </span></span></div>
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<span style="color: black;"><span style="font-family: "arial" , "helvetica" , sans-serif;"> We may think that similar assumptions apply to the common interest in a community association, but clearly they do not. The legal underpinning of a community association is a mere contract or covenant, one that depends upon the reciprocal obligations of the owners to function. For example, the power of an association to assess its members is not analogous to the power of the government to tax. The power to tax is limited only by the vote of the legislature or Congress, and except for a few constitutional limitations, there is virtually no limit on that power other than that imposed by political considerations. The power of a community association to assess is limited both by the contract itself and by statute, and any such limitation cannot be set aside by the board of directors acting alone but must come from proper approval of the individual owners--a true "grass roots" democracy. </span></span></div>
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<span style="color: black;"><span style="font-family: "arial" , "helvetica" , sans-serif;">The right of individual property ownership is clearly paramount to the common interest in a community association. There is no mechanism, in the absence of severe damage or destruction</span><span style="font-size: xx-small;"><a href="http://www.blogger.com/post-create.g?blogID=6739442929159985935#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="color: black; font-family: "arial" , "helvetica" , sans-serif;">[1]</span></span></span></a></span><span style="font-family: "arial" , "helvetica" , sans-serif;">, whereby a typical community association could take possession of an individual's separate interest no matter how pressing the need, unless it were the result of foreclosure of a lien for non-payment of assessments, for example--a remedy provided under the contract upon which the community is created and funded. There is no community association equivalent to "Eminent Domain."</span></span><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size-adjust: none; font-size: 7pt; font-stretch: normal; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;"> </span><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="color: black;">So, while we sometimes describe them as "mini-governments" or "quasi- governmental agencies" community associations are anything but. They have no power outside of that conferred upon them by the covenants imposed upon the individual properties. They have no "sovereign" or “constitutional” right to exist independent of those contracts, and they exist only until the parties agree to amend the covenants. As such, community associations are not "governments" at all, but merely real property with a management and organizational scheme imposed upon it. They cannot print money. Their continuing existence is completely reliant upon the owners adhering to the contract and continuing to supply the necessary operating capital. They are also quite capable of becoming obsolete. When they do, there will be no constitutional precedent to save them, only the laws of economics will ultimately govern their fate. </span></span></div>
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<a href="http://www.blogger.com/post-create.g?blogID=6739442929159985935#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: "times new roman" , "serif"; font-size: 10pt;">[1]</span></span></span></a><span style="font-size: x-small;"> California Civil Code Section 1359 allows a majority of owners to cause the sale of the <i style="mso-bidi-font-style: normal;">entire property</i> (but not an individual separate interest) under certain prescribed conditions relating to obsolescence, damage , or destruction. <o:p></o:p></span></div>
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Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-20530301781631982502018-01-24T12:03:00.000-08:002018-01-24T12:03:28.374-08:00A Community Manager's Guide to Re-Construction Projects<div abp="598">
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<a abp="600" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgw5l-8dRTEpFcZbBxEkvHs6B66Li9h6vnrUgf8QEnvjAq7H2W_iJeNPClqId9oprwZBPwPOPMt1sSOoc43QgYR0w9RtpPmmko0xpArDaOqDUz4sZ6R6DYiqWg229gYxbWIcUWt6xLsYiY/s1600/BW2013-Guide-to-Reconstruction.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img abp="601" border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgw5l-8dRTEpFcZbBxEkvHs6B66Li9h6vnrUgf8QEnvjAq7H2W_iJeNPClqId9oprwZBPwPOPMt1sSOoc43QgYR0w9RtpPmmko0xpArDaOqDUz4sZ6R6DYiqWg229gYxbWIcUWt6xLsYiY/s320/BW2013-Guide-to-Reconstruction.jpg" width="246" /></a></div>
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<span abp="604" style="font-size: 12pt; line-height: 115%;"> <span abp="605" style="font-family: "arial" , "helvetica" , sans-serif;"> Every manager of multifamily projects will encounter a large
re-construction project several times in his or her career. These may be
planned projects or the result of an emergency. Planned projects include those
that are routinely projected by building inspectors, architects, and other
building professionals—re-painting; new roof coverings; re-paving of parking
lots and streets. Emergencies usually involve previously unknown problems
discovered in a forensic investigation or as the consequences of age.</span></span></div>
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<span abp="607" style="font-size: 12pt; line-height: 115%;"><span abp="608" style="font-family: "arial" , "helvetica" , sans-serif;"><br abp="609" /></span></span></div>
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<span abp="612" style="font-family: "arial" , "helvetica" , sans-serif;"><span abp="613" style="font-size: 16pt; line-height: 115%;"><span abp="614" style="mso-tab-count: 1;"> </span></span><span abp="615" style="font-size: 12pt; line-height: 115%;">As residential housing gets older,
construction projects become more complex and difficult. This complexity often
results from those unplanned and unexpected discoveries. Age brings
deterioration of components that years before would not have been considered at
risk. A routine roof project, for example, may only require replacement of the
roof covering when the project is say, 15 years old. But in an older project,
where moisture has had years to accumulate in concealed wood components, not
only the covering, but also the wood substrate may have to be replaced. The
same is true with other components largely built of wood—balconies, staircases,
entry decks, and framing under siding and stucco. These components may actually
leak, but not enough to alert the occupants. Instead the moisture remains in
the wood or in wall cavities and supports gradual decay over time. These issues
add to the challenge of preparing an adequate scope of work because a good
portion of the damage is concealed.</span></span></div>
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<span abp="619" style="font-family: "arial" , "helvetica" , sans-serif;"><span abp="620" style="font-size: 12pt; line-height: 115%;"><span abp="621" style="mso-tab-count: 1;"> </span>As projects
become more difficult, property managers find that they are responsible for a
wider range of tasks--not only obtaining bids to do the work, but also for determining
what experts to retain to investigate and determine the scope of that work; deciding
who manages the contract; negotiation over the terms; and finding the funds to
pay the contractor. This guide is intended to offer community and apartment
managers assistance in managing a complex construction project including
recommending and retaining appropriate professionals to determine the scope of
work; construction contract and bid package essentials; administering the
project; and handling disputes.</span></span></div>
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<span abp="625" style="font-family: "arial" , "helvetica" , sans-serif;"><a abp="626" href="http://www.community-association-hoa-cid-law.com/pdf/guide-to-reconstruction-projects.pdf">Read More... </a></span></div>
Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com2tag:blogger.com,1999:blog-6739442929159985935.post-6255586957613382842018-01-24T12:02:00.000-08:002018-01-24T12:02:15.487-08:00Builders Report Lack of Skilled Labor<span style="color: #274e13; font-size: large;">A diminished labor pool is impacting new construction--will quality suffer as a result?</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiwLJUWfTMxqX8YqUWCTfQwHH94_9UVtcqKAHfuBR8iQlnWMXy-KJNS8rsU4i3aLETXFxPGl05gEZDwOMRNEioaum-EPgfrl6oHfuG3B7zMiX9BeD6R2AwR4XdrGA3QKwwqNJv24g8fDtA/s1600/iStock_000002149516Small.jpg--construction.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="212" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiwLJUWfTMxqX8YqUWCTfQwHH94_9UVtcqKAHfuBR8iQlnWMXy-KJNS8rsU4i3aLETXFxPGl05gEZDwOMRNEioaum-EPgfrl6oHfuG3B7zMiX9BeD6R2AwR4XdrGA3QKwwqNJv24g8fDtA/s320/iStock_000002149516Small.jpg--construction.jpg" width="320" /></a></div>
<a href="http://finance.yahoo.com/news/homebuilders-beating-lack-labor-153104628.html" target="_blank">Yahoo reports</a> that the building industry is suffering from a lack of skilled labor resulting from tightened immigration policies and young workers choosing other fields. We reported on this problem in an earlier post on the <a href="http://condoissues.blogspot.com/2015/07/berkeley-proposes-tougher-balcony.html" target="_blank">Berkeley building collapse</a>. Quality suffers when demand is high and the skilled labor pool is low.<br />
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<i>"<span style="font-family: "helvetica neue" , "helveticaneue" , "helvetica" , "arial" , sans-serif; font-size: 15.0000009536743px; line-height: 24.0000019073486px;">Unemployment in the construction industry fell in June to the lowest level since 2001, according to an analysis by the Associated General Contractors of America. That's because contractors are having a hard time finding enough qualified workers to meet growing demand, association officials said....</span></i><i style="background-color: clear;">We've lost about two-thirds of our Hispanic and South American population in South Carolina, and that has had a profound effect on labor...<span style="font-size: 15.0000009536743px; line-height: 24.0000019073486px;">Local high schools have training programs, but they have been slow to churn out new workers."</span></i><br />
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<span style="font-size: 15.0000009536743px; line-height: 24.0000019073486px;">So where do builders get the labor to meet demand? We need to spend more on high school and community college technical training, that's where. In the meanwhile, more and better inspections must be employed so that mistakes left behind by untrained labor won't result in construction problems and building failures.</span></div>
Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-62083413074390783032015-08-04T19:05:00.001-07:002015-08-05T11:14:52.880-07:00A Community Association's Four Stages of Life<div class="articleSub" style="font-size: 13px; line-height: 18px; padding: 5px 30px 5px 0px;">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5uv_jjYHfcWP6f-TLlP8T7gCqZSyLou_qAAaFi1-XAOAK89VEvj1wAxE3UHwKTnY2mBCYD2x3HOzdXptTb8k_MLlA-rf6InGxp7z2MCC6aCa8FNjCt8VYvDTz4BuUX5x9_aelK5rlmcA/s1600/bigstock_Townhome_Angle_1038493.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5uv_jjYHfcWP6f-TLlP8T7gCqZSyLou_qAAaFi1-XAOAK89VEvj1wAxE3UHwKTnY2mBCYD2x3HOzdXptTb8k_MLlA-rf6InGxp7z2MCC6aCa8FNjCt8VYvDTz4BuUX5x9_aelK5rlmcA/s320/bigstock_Townhome_Angle_1038493.jpg" width="289" /></a></div>
<span style="color: #38761d; font-family: Arial, Helvetica, sans-serif; text-align: justify;"><b> Community associations, like people, evolve during their lifetimes. Some of it is good and some is bad, but change is inevitable as projects, and people, age. Whether that evolution leads to a long and healthy life, or an early demise depends a great deal on the decisions made early and the ability to recognize signs of decay--both physical and political. To assist, we have outlined what we consider to be the various "stages" that an association will pass through eventually. You will note that we are not just talking about physical manifestations, but political and economic ones as well, for they each play a role in the long-term health of the project. Read about them and see which apply to your association or your client's associations. Like anything harmful, recognizing the symptoms can help with a cure.</b></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The First Stage</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">A brand new project enters the first stage. The duration of that stage depends on many of the factors outlined above. Generally, during the first stage, the regular assessments will appear to cover all projected maintenance and repair costs without resort to special assessments or outside sources, and with only modest annual increases. Non-owner occupancy is at the lowest percentage it will ever be, usually 10 percent or less. Board members and professional managers are easy to find, the political climate is benign and the members are generally supportive of the board. The project looks and feels new and exciting. The membership's attitude reflects these qualities. Re-sales are brisk and values stay high with modest appreciation reflecting general market trends.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The Second Stage</span></div>
<div class="articlePara" style="color: #666666; line-height: 18px; padding: 4px 0px; text-align: justify;">
<a name='more'></a><span style="font-family: Arial, Helvetica, sans-serif;">In a project's second stage of evolution, regular assessments will be insufficient to satisfy mounting maintenance and repair costs. If a competent board using professional management has identified the true costs of repair, the members will contribute to capital by means of a special assessment on at least one occasion during this stage. If required maintenance and repair has not been identified, the project will appear to be within its budget. There may have been a discovery of defective construction conditions that will demand a remedy. Non owner occupancy has increased beyond 25 percent. The board of directors will begin to face political issues which emanate from the increasing percentage of non-owner occupants. There will be more complaints from residents about the general condition of the project or about the necessity for specific repairs. Recruitment of board member candidates may be necessary. If true repair costs are identified and brought to the members, there will be general resistance to the request for a special assessment, but the members will ultimately support the board's request if the costs for repairs at this stage of the project's evolution remain affordable. This will be true if deferral has not postponed needed repairs for too long. Sales of units are comparable to the market generally. Government backed mortgages and refinancing is still obtainable.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The Third Stage</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">In the third stage of evolution, those associations (and there are thousands) that have failed to store enough nuts away for the winter, will have to appeal to the membership for emergency funding and/or apply to a bank for a loan. Bank financing of large reconstruction projects is becoming quite commonplace, but most financial managers will argue that borrowed capital is not an adequate substitute for capital that is contributed by the owners. This is especially true if the repayment of the borrowed capital prevents the association from adequately reserving for the next round of reconstruction. Borrowed capital for reconstruction should only be considered as a temporary means of achieving solvency for the association. The assessments for repayment of the loan should be in addition to contributions to reserves adequate to fund future repairs. In this stage, non-owner occupancy has increased beyond 35 percent. Government-backed mortgages become difficult to obtain. Management costs increase due to the additional workload presented by the many complaints from residents about the physical condition of the buildings. Political strife within the association increases as the demands upon the residents for funding, coupled with a decreasing quality of life, increase. Board members resign rather than be subjected to the volume of the owners' demands. Recommendation for current repair now includes several building components that were not anticipated with the requisite reserve accounts. The price of such repairs is beyond the association's financial ability. The economic and political climate of the association begins to be reflected in the sales price and turnover of units. The project begins to show the effects of deferred maintenance. Painting is delayed, landscaping deteriorates, and resident complaints about maintenance and repair issues further increase, putting added stress on the board and management.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The Fourth Stage</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Given that many, many associations have failed to anticipate the full extent of eventual reconstruction costs, they will, sooner or later, exhaust both contributed and borrowed capital sources. This includes such one-time influxes of capital as that provided by insurance recoveries or litigation settlements. Once all outside sources of capital are exhausted, the ravages of obsolescence will be hard to forestall. By this Fourth Stage in the project's evolution, the owners have long since refused to provide meaningful contributions of additional funds; lending institutions have refused further advances; and the projection for immediate or future repairs is well beyond any projected accumulations in the reserve accounts. Assessment delinquency begins to climb to the point where the association's ability to pay for essential services, including utilities and management, is fading fast. Repairs are being deferred to the extent that the basic habitability or safety of the buildings is coming into question. Non-owner occupancy has risen beyond 50 percent, and refinancing or mortgage lending by most traditional lenders is precluded. Behavioral problems increase, vandalism to the property becomes more than just occasional, and political problems within the association make recruitment of board members and management very difficult if not impossible. The ship is rudderless and sinking.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>And After That?</b></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #666666;"><span style="line-height: 18px;">Beyond the Fourth Stage, a project's fate is hard to predict. Certainly if the deterioration of the physical condition seriously affects habitability, health, and/or safety, local jurisdictions will be forced to intervene and will demand that those conditions be repaired. Given that the lack of ability to reach consensus on funding is the reason that these conditions have been allowed to develop, it is unlikely now that the owners, mostly absentee, will see any point in throwing "good money after bad." Their cash flow and equity may be nonexistent or negative, and the condition of the project makes a sale impossible. They continue to hold their interest in the property only because they receive rental income. The local jurisdiction may condemn some or all of the buildings, accelerating the onset of obsolescence. Absentee owners, deprived of rental income, will simply walk from the project and abandon the property. Resident owners without alternative housing will stay as long as the local jurisdiction will permit occupancy. Criminal activity will make if difficult for anyone to continue to occupy the premises. Redevelopment or other government-backed programs might be called upon in rare cases to rehabilitate the property. However, in most cases, the project will be valueless, uninhabitable and unsalable. Continued ownership will become a clear liability to the remaining investors and wholesale abandonment will ensue. In most cases, legal title to the separate interests will default to various lenders.</span></span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">An example of such a project was observed in San Bernardino, California many years ago. It consisted of four-plex condominium buildings, approximately 35 years old, now gone beyond a Stage Four. Units were boarded up or burnt out. Whole buildings had been bulldozed and only empty lots remained. There were a few inhabitants, possibly squatters. The surrounding neighborhood was in only slightly better condition, but fully occupied, lessening the chance of a municipal redevelopment project. The varied condition of the units suggested that they remained under separate titles. The complexity of titles, including the interests of lenders, most likely prevented any uniform scheme to convert the property to a better use.</span></div>
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<span style="color: #38761d;">If you found this interesting, read our entire treatise at "<a href="http://www.community-association-hoa-cid-law.com/pdf/uncertain-future-of-community-associations.pdf" target="_blank">The Uncertain Future of Community Associations</a>"</span></div>
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Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com3tag:blogger.com,1999:blog-6739442929159985935.post-5404809310610906992015-08-04T15:00:00.000-07:002015-08-14T18:29:22.152-07:00Disaster!<br />
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<span class="Apple-style-span"><span class="Apple-style-span"><span class="Apple-style-span" style="color: #38761d; font-family: Georgia, Times New Roman, serif; font-size: x-large;"><a href="http://www.berding-weil.com/pdf/disaster.pdf">No Reserves. No Insurance. </a></span></span></span></div>
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<span class="Apple-style-span"><span class="Apple-style-span"><span class="Apple-style-span" style="color: #38761d; font-family: Georgia, Times New Roman, serif; font-size: x-large;"><a href="http://www.berding-weil.com/pdf/disaster.pdf">What’s Left if a Natural Disaster Destroys a Community Association?</a></span></span></span></div>
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<span class="Apple-style-span" style="font-size: large;">What does a community association board of directors do if a natural disaster wipes out all or a portion of their association? Is this a problem to worry about? When and where is it likely to happen? Is there a plan for dealing with it?</span></div>
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<span class="Apple-style-span" style="font-size: large;">Worry about it. A disaster can strike at any time. Most community associations and special districts are ill prepared for the consequences. Disaster insurance is usually inadequate or even non-existent and there is little reserve funding that can be tapped to rebuild. Here are a few examples of how existing and future developments could be paralyzed by a natural disaster. </span></div>
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<b><span class="Apple-style-span" style="font-size: large;">The Threats</span></b></div>
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<span class="Apple-style-span" style="font-size: large;">Bethel Island lies in the Sacramento Delta between Sacramento and Stockton, California. Its home to about 2500 residents. The interior is 7-15 feet below sea level. There are 11.5 miles of levees that serve as a dam to keep the waters of the surrounding sloughs from inundating the island. </span></div>
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<span class="Apple-style-span" style="font-size: large;">Property taxes collected from the residents of the island fund a special district, the Bethel Island Municipal Improvement District (BIMID) which is responsible for the maintenance and repair of the levees and functions like a municipality or a large community association. </span></div>
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<span class="Apple-style-span" style="font-size: large;">Bethel Island is 12 miles from the Greenville Fault and is considered to have strong shaking potential in a potential earthquake. Shaking can create landslides in the levee which could breach anywhere around the island. The levee also has a high probability of liquefaction in a quake.</span></div>
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<span style="font-size: large;"><span class="Apple-style-span">A study by BIMID on the potential for loss or damage states: </span><i><span class="Apple-style-span">“The conclusion is that flooding (levee failure and drainage disruption) and wildfire (an underground peat fire) pose a significant risk for potential loss.”</span></i></span></div>
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<span style="font-size: large;"><span class="Apple-style-span">But the district is broke. The BIMID board of directors asked the residents of the island to approve a parcel tax in November of 2010 to fund badly needed improvements to the levee—it was soundly defeated. The district board then had to fire their General Manager and another employee. They hope to propose the parcel tax again—but without it, the levees will continue to deteriorate. The levees don’t comply with federal standards. </span><i><span class="Apple-style-span">“Additionally, the levees are eroding and suffering damage by beavers and rodents.”</span></i></span></div>
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<span class="Apple-style-span" style="font-size: large;">The Cargill Corporation is proposing to build 12,000 homes on reclaimed salt ponds in Redwood City. The homes will be surrounded by a levee. The new homes will be below sea level with only the levee keeping out San Francisco Bay. The source of funding for maintenance of the levee hasn’t been fully disclosed, but Cargill has already said it would not be Redwood City taxpayers, and it’s a sure bet that it won’t be the State of California. It’s very likely therefore that the proposed levee will be maintained by a special district like the one on Bethel Island, or a homeowners association, either of which, in turn, will be reliant on assessments or taxes from the homeowners within the development for its long-term funding.</span></div>
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<span style="font-size: large;"><span class="Apple-style-span">A news story: </span><i><span class="Apple-style-span">“From Antioch to North Richmond to Redwood City, a slowly rising Bay could endanger the properties of as many as 270,000 Bay Area residents and cause some $56.5 billion in damage by the end of the century unless measures are taken to protect them, scientists warn. But surprisingly,</span></i><span style="color: #333233;"><i><span class="Apple-style-span"> few cities are taking action” </span></i></span></span></div>
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<span style="font-size: large;"><span class="Apple-style-span">The bay city of Benicia recently announced on its website:</span><span style="color: #333233; font-family: Arial;"><i><span class="Apple-style-span"> </span></i></span><span style="font-family: Arial;"><i><span class="Apple-style-span">“</span></i></span><i><span class="Apple-style-span">In the event of projected flooding sandbags are available at the Benicia Corporation Yard. Some assistance may be available but residents should bring shovels and plan to fill and load the bags themselves.” </span></i><span class="Apple-style-span">A bayside community association in Benicia recently settled a lawsuit against the developer of the project recovering nearly fifteen million dollars so it could re-level buildings that were sinking into the bay mud as well as to install common area drainage to protect it against rising sea levels and the flooding that occurs during major storms. </span></span></div>
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<span style="font-size: large;"><span class="Apple-style-span">BerdingWeil partner, Allison Andersen, one of the attorneys instrumental in bringing about the recovery, states: “</span><i><span class="Apple-style-span">No one, not the City of Benicia, the state of California, nor the federal government would assist the owners of these homes. It was merely fortuitous that the damage began to occur soon enough after construction to permit a claim to be submitted to the developer, before the statute of limitations ran out.”</span></i></span></div>
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<span class="Apple-style-span" style="font-size: large;">Ocean Harbor House is a condominium project in Monterey, California, one of very few properties in the area with Pacific Ocean frontage. Erosion of its beachfront threatened the stability of the buildings at the time it was converted from apartments to condominiums. The developer had failed to address these foundation stability issues adequately. It took a lawsuit and over ten million dollars to build an adequate seawall. </span></div>
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<span style="font-size: large;"><span class="Apple-style-span">BerdingWeil partner Randolph Paul obtained the recovery for the association. He states: </span><i><span class="Apple-style-span">“The residents of Ocean Harbor House faced the prospect of ocean waves wiping out the stability of the seaward buildings. Only a proper seawall would provide the protection they needed; not only was it costly, but they had to deal with the California Coastal Commission approval process, which is daunting under the best of circumstances. Only a lawsuit and the prospect of a trial enabled the Association to recover funds to assist in funding the seawall to provide the essential fifty year protection.” </span></i><span class="Apple-style-span"> </span></span></div>
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<span class="Apple-style-span" style="font-size: large;">The litigation was hotly contested and the case only settled after a jury was empaneled to decide the case. A team of consultants and experts shepherded the Association through the Coastal Commission and construction process, allowing the seawall to be completed on time. The force of recent storm events underscores the significance of these efforts.</span></div>
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<span class="Apple-style-span" style="font-size: large;">A few years ago a Solano County community association had to sue its developer to recover the nearly six million dollars necessary to repair eleven separate landslides that threatened homes adjacent to common area hillsides as a result of heavy winter storms. They were lucky; the jury found in favor of the association even though some of the slides were dormant and had not yet caused damage. A round of new landslides in northern California has followed recent heavy rains and has damaged homes and infrastructure in numerous locations. </span></div>
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<span style="font-size: large;"><span class="Apple-style-span">The 1971 San Fernando, the 1989 Loma Prieta, and the 1994 Northridge earthquakes extensively damaged many condominiums. Much of the damage was due to garages constructed on the ground floor with the condos above creating large unsupported openings that collapsed in the quake. </span><i><span class="Apple-style-span">“The headline after the next major Bay Area earthquake may be: ‘</span></i><b><i><span class="Apple-style-span">Housing Losses Staggering Due to Failure to Retrofit Apartments and Condos with Known Earthquake Risk</span></i></b><i><span class="Apple-style-span">.’ Of the 160,000 housing units <a href="http://bit.ly/eBSSlW">ABAG forecasts</a>will be uninhabitable in a major earthquake; most will be the result of the collapse of apartment buildings with parking or commercial space on all or part of the first floor. The collapse of the parking areas in all types of apartments and condos occurred in the 1971 San Fernando earthquake, the 1989 Loma Prieta earthquake, and the 1994 Northridge earthquake.”</span></i></span></div>
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<span style="font-size: large;"><b><span class="Apple-style-span">The common thread.</span></b><span class="Apple-style-span"> What’s common to all of these examples? They all involve small communities or community associations that had to deal with the effects of natural disasters. They are completely reliant on their individual homeowners for the necessary funding. Public agency funding was and is not available. They also involve disasters which, in most cases, insurance is either excluded (flood and landslide insurance) or extremely costly and with large deductibles that make its purchase a questionable investment (earthquake insurance.) They also involve communities for which reserve funding for natural disasters was and is non-existent.</span></span></div>
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<span class="Apple-style-span" style="font-size: large;">The lucky ones, those that discovered landslide, structural, flood, or erosion threats while there was still time left on the statute of limitations, were able to bring claims that produced enough cash to retrofit the buildings or fix the damage. Others, like Bethel Island or any development more than ten years old, have no such recourse.</span></div>
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<span class="Apple-style-span" style="font-size: large;">We’ve previously discussed various threats posed by landslides to community associations; the earthquake danger to certain types of multi-family construction; and the potential impact on homeowners from rising sea levels. In most cases, community associations do not have the resources to address damages caused by natural disasters. They do not have reserves and usually do not carry insurance for earthquakes, flooding due to levee breaks, beach erosion, or landslides.</span></div>
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<span style="font-size: large;"><b><span class="Apple-style-span">How to Prepare?</span></b><span class="Apple-style-span"> </span></span></div>
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<span class="Apple-style-span" style="font-size: large;">Here’s what boards of directors should do to prepare for a disaster:</span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTRhG9UrdjEaE8-8IySL-Ua0d1M_lIjGaQKJrsLG3f_svd-uOQC6L6lTPgtGT-pAY1g4GJhkasYsrMKfJzF56s9uqj4AY0xD2D9fRx6xmQE_dKGg6-T3Q3pRZXCkH9DRlKa8hUZ80tbKrB/s1600/Cottontail+Creek+road.jpg" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span style="font-size: large;"><img border="0" height="143" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTRhG9UrdjEaE8-8IySL-Ua0d1M_lIjGaQKJrsLG3f_svd-uOQC6L6lTPgtGT-pAY1g4GJhkasYsrMKfJzF56s9uqj4AY0xD2D9fRx6xmQE_dKGg6-T3Q3pRZXCkH9DRlKa8hUZ80tbKrB/s200/Cottontail+Creek+road.jpg" width="200" /></span></a><span style="font-size: large;"><b><span class="Apple-style-span">1. Investigate Your Exposure. </span></b><span class="Apple-style-span">Retain experts to investigate the <a href="http://bit.ly/hxsAV8">vulnerability</a> of the project to potential natural disasters.</span><b><span class="Apple-style-span"> </span></b><span class="Apple-style-span">Hillside common areas, proximity to the bay or ocean, construction on fill or bay mud can expose an association to serious damage from storms, rising sea levels, or earthquakes. </span></span></div>
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<span class="Apple-style-span" style="font-size: large;">For example, older construction should be analyzed for issues such as the </span><a href="http://bit.ly/g02wbe"><span style="color: #2a11ff;"><span class="Apple-style-span" style="font-size: large;">soft story problem</span></span></a><span class="Apple-style-span" style="font-size: large;"> and similar construction-related failures. Appropriate experts, structural and civil engineers, contractors and architects can conduct the necessary inspections and provide the board of directors with reports outlining any concerns and proposals for repair.</span></div>
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<span style="font-size: large;"><b><span class="Apple-style-span">2. Review Your Insurance. </span></b><span class="Apple-style-span">Boards should review their existing insurance program and any additional available insurance coverage to be sure that they are as insured as currently available policies and their budget allow. Most property policies insure an association against losses by fire, but few include earthquake or landslide protection and may expressly exclude such perils. </span></span></div>
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<span class="Apple-style-span" style="font-size: large;">Earthquake insurance is offered, but it is very expensive and high deductibles would require a cash reserve beyond the capability of most community associations. A southern California insurance broker who specializes in insurance for community associations has published a comprehensive outline of earthquake insurance questions and answers on its website. </span></div>
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<span class="Apple-style-span" style="font-size: large;">But should a board invest in earthquake insurance notwithstanding the cost? BerdingWeil partner, Steven Weil, has explored the dilemma a board faces when the pressure mounts, usually after another earthquake disaster, to buy earthquake insurance for the association:</span></div>
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<span style="font-size: large;"><i><span class="Apple-style-span">“If the governing documents </span></i><b><i><span class="Apple-style-span">require</span></i></b><i><span class="Apple-style-span"> a board to obtain earthquake coverage but none can be obtained, a record of that fact should be maintained and communicated to the membership. The board should then seek an amendment to the governing documents to eliminate the provision requiring the board to obtain the coverage. California law permits the board to petition the Superior Court to clarify the Association’s responsibilities relative to coverage where the members refuse to approve or finance its cost.</span></i></span></div>
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<i><span class="Apple-style-span" style="font-size: large;">If the governing documents </span></i><span style="font-size: large;"><b><i><span class="Apple-style-span">allow</span></i></b><i><span class="Apple-style-span"> the board to obtain earthquake insurance “as deemed prudent,” the board should determine whether it is, in fact, reasonable to obtain and pay for the coverage. If the premium can be paid without an increase in assessments (or without an increase beyond 20 percent of the existing budget), no membership vote is required. The board should, however, advise the membership of its decision and the reasons therefore.”</span></i></span></div>
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<span class="Apple-style-span" style="font-size: large;">The Federal Emergency Management Act (FEMA) offers flood insurance for community associations in certain qualified areas. Their </span><a href="http://www.blogger.com/%22http://www.fema.gov/lib"><span style="color: #2a11ff;"><span class="Apple-style-span" style="font-size: large;">booklet</span></span></a><span class="Apple-style-span" style="font-size: large;"> states: </span></div>
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<span style="font-size: large;"><span class="Apple-style-span">“</span><i><span class="Apple-style-span">Condominium associations may purchase insurance coverage on a residential building, including all units, and it’s commonly owned contents under the Residential Condominium Building Association Policy (RCBAP). The unit owner may separately insure personal contents as well as obtain additional building coverage under the Dwelling Form as long as the unit owner’s share of the RCBAP and his/her added coverage do not exceed the statutory limits for a single-family dwelling.” </span></i></span></div>
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<span style="font-size: large;"><b><span class="Apple-style-span">3. Retrofit Your Buildings. </span></b><span class="Apple-style-span">Multi-family buildings with “soft stories” should be considered for retrofit before another earthquake. There are several ways of retrofitting a building with weak support for the upper floors. Buildings with large openings at the ground floor should be closed or framed to prevent failure in an earthquake. Retrofitting may be cheaper in the long run than purchasing earthquake insurance according to at least one source.</span><b><span class="Apple-style-span"> </span></b><span class="Apple-style-span">Known landslide hazards should be mitigated and suspected areas of potential earth movement investigated. Drainage and seawalls near the bay and ocean should be inspected and upgraded as necessary to remove erosion and flood risks. </span></span></div>
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<span class="Apple-style-span" style="font-size: large;">Structural components such as balconies, stairways, and catwalks that have deteriorated or have sustained wood rot should be braced or rebuilt. Common areas may need retaining walls or new drainage systems to cope with rising sea levels.</span></div>
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<span style="font-size: large;"><b><span class="Apple-style-span">4. Advise Your Members. </span></b><span class="Apple-style-span">The board should notify</span><b><span class="Apple-style-span"> </span></b><span class="Apple-style-span">the members of the Association’s disaster preparedness.</span><b><span class="Apple-style-span"> </span></b><span class="Apple-style-span">Once the board has investigated the vulnerability of the project, reviewed and chosen the necessary insurance, and determined whether a repair or retrofit to vulnerable building components is in order, it should advise the members so that they understand the decisions that have been made.</span></span></div>
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<span style="font-size: large;"><b><span class="Apple-style-span">After Disaster Strikes</span></b><span class="Apple-style-span"> </span></span></div>
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<span class="Apple-style-span" style="font-size: large;">So what happens if a community association’s property or buildings are destroyed in an earthquake, a landslide, or flooding for which there is little or no insurance and no legal recourse to the developer? Here are a few options and the chance of success of each:</span></div>
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<span style="font-size: large;"><b><span class="Apple-style-span">1. Assess the members?</span></b><span class="Apple-style-span"> Fine for minor damage, but the cost of repairs for major destruction damages is often beyond the statutory authority of the board to assess. The California Civil Code limits boards to special assessments up to 5% of the prior year’s budget without a vote of the members. And will members likely approve an assessment sufficient to rebuild substantial portions of the project? That depends upon the value of the potentially rebuilt project compared to the cost of reconstruction. </span></span></div>
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<span class="Apple-style-span" style="font-size: large;">It also depends upon the political will of the members since most community associations must seek member approval for any substantial assessment. As the case of Bethel Island illustrates, even where a real threat to survival exists, the members--perhaps having lost faith in the board or simply because new taxes are unpopular--voted “no,” refusing to fund critical repairs to the levee system. Also, in bad economic times like we are presently experiencing, the value of homes may be less than the mortgage, giving owners little incentive to pay additional assessments and collecting from owners who are “underwater” can be a dead end. </span></div>
<div style="font-family: Cambria; font-size: 12px; margin: 0px 0px 10px;">
<span style="font-size: large;"><b><span class="Apple-style-span">2. Take out a bank loan? </span></b><span class="Apple-style-span">Many banks are generally willing to lend Associations the funds to perform their repair obligations. These loans are secured by the Association's authority to collect assessments. As a practical matter, any loan will require membership approval, at least for the special assessment to repay the loan and, in some cases, for the specific loan itself depending on the bank or the Association's governing documents. </span></span></div>
<div style="font-family: Cambria; font-size: 12px; margin: 0px 0px 10px;">
<span class="Apple-style-span" style="font-size: large;">But, if equity is low or repair costs high, the bank may require that the members pay a certain portion of the repair cost "from their own pockets" before the loan will be funded. All this is problematic if owners are considering walking away from the development based on the repair costs or the magnitude of the damage. </span></div>
<div style="font-family: Cambria; font-size: 12px; margin: 0px 0px 10px;">
<span class="Apple-style-span" style="font-size: large;">Bank loans, while possibly forming an important resource for financing post-disaster repairs, may not be adequate to raise needed cash and won't be easy to get. Also, since an association has only the right to collect assessments and has no real estate of value that could secure a loan, the bank may want to look to the members individually as the only real security—a fact that may make member approval of a loan no slam dunk.</span></div>
<div style="font-family: Cambria; font-size: 12px; margin: 0px 0px 10px;">
<span style="font-size: large;"><b><span class="Apple-style-span">3. Sell the project? </span></b><span class="Apple-style-span">Yes, it is possible. With a vote of the members, the board of directors or a trustee could sell the project as a single parcel. When damage is severe and if the members decide not to rebuild, the California Civil Code allows the entire project to be “partitioned” which means aggregating all of the individual titles and selling the entire project. </span></span></div>
<div style="font-family: Cambria; font-size: 12px; margin: 0px 0px 10px;">
<span class="Apple-style-span" style="font-size: large;">Whether the sales price and any existing insurance coverage would be sufficient to pay off all of the existing mortgages is doubtful. It is also not hard to imagine a disaster scenario where the buildings are so badly damaged that the owners have moved away and cannot be found. There is no statutory default in such cases. The standard clause included by BerdingWeil in the CCRs that its attorneys prepare provides for alternate repair strategies to be presented to the members. But if none of the alternatives are accepted, the board of directors is given the authority to sell the property without a further vote.</span></div>
<div style="font-family: Cambria; font-size: 12px; margin: 0px 0px 10px;">
<span style="font-size: large;"><span style="font-family: Arial;"><span class="Apple-style-span">As </span></span><span class="Apple-style-span">discussed above, there are several tools available to address a major catastrophe. These include pursuing timely claims against responsible parties, making insurance claims, obtaining bank loans and the imposition of special assessments. In theory, some or all of these tools might save a project. But actually implementing any of these can be a daunting task. Depending on how records are kept, the nature of the catastrophe, how many units, owners or buildings are affected and other factors, including communicating with fellow members, let alone being able to schedule post-disaster meetings or votes, may prove a difficult challenge. And, even if a vote could be taken and quorums achieved, the inherent "glue" that keeps members together may be lost in the disaster: some won't want to pay to rebuild and those who do won't be able to do so alone. </span></span></div>
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<span style="font-size: large;"><b><span class="Apple-style-span">4. Condemnation? </span></b><span class="Apple-style-span">If all else fails, and the buildings cannot be repaired so that they are once again suitable to live it, the city or county will declare them uninhabitable—“red tagged” if you wish—and condemn them. Condemnation does not mean that the city will buy them—that’s inverse condemnation and only works when the city does something that incidentally deprives the owner of the use of the property. Direct condemnation results when a building is not fit for human habitation and residents are prohibited from occupying it. Fire, earthquake, floods, and landslides have all resulted in buildings being condemned. </span><span class="Apple-style-span">Condemned property can be sold; it just can’t be occupied by the residents until it is made habitable. A buyer could rebuild the project or demolish what’s left and build something new.</span></span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJ9Pq0ok8pPGlJRumZaP8PNMjwCu2B5fukX11fk47n3alxlI__oyEXFpw4KJVmDSuhf4iOZ_vZe7sgzXOeGQ5yBMz2R4fp5y3PjpYhJM7M4DuzTUNUr1qFU2qZjBpFyBr1bmchFfBF4rwd/s1600/disaster4.jpg" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><span style="font-size: large;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJ9Pq0ok8pPGlJRumZaP8PNMjwCu2B5fukX11fk47n3alxlI__oyEXFpw4KJVmDSuhf4iOZ_vZe7sgzXOeGQ5yBMz2R4fp5y3PjpYhJM7M4DuzTUNUr1qFU2qZjBpFyBr1bmchFfBF4rwd/s1600/disaster4.jpg" /></span></a></div>
<b><span class="Apple-style-span" style="font-size: large;">The End of the Road? </span></b></div>
<div style="font-family: Cambria; font-size: 12px; margin: 0px 0px 10px;">
<span class="Apple-style-span" style="font-size: large;">The massive loss of equity that owners in common interest developments have suffered in the recent recession coupled with the likelihood that most projects are underinsured for serious disasters, leaves open the very real possibility that most boards would likely throw in the towel and let the lenders take over rather than try to rebuild, leaving the owners with little or nothing of value. </span></div>
<div style="font-family: Cambria; font-size: 12px; margin: 0px 0px 10px;">
<span class="Apple-style-span" style="font-size: large;">The exceptions to this scenario include the lucky owners whose developments are still within the applicable statute of limitations—assuming the damage was the result of a failure by the developer to adequately anticipate the disaster in the design and execution of the development. The other exceptions are where the damage is not serious, there is adequate insurance, or the property itself is so inherently valuable that a sale would produce proceeds well in excess of the amount of total loans against the property. </span></div>
<div style="font-family: Cambria; font-size: 12px; margin: 0px 0px 10px;">
<span style="font-size: large;"><span class="Apple-style-span">Except in cases where the location has great inherent value, more than likely the lenders, and not the owners, would end up with whatever cash is derived from a sale of the project and any insurance proceeds. Depending on the extent of the damage therefore, the owners, especially those with little equity, would have little incentive to do anything but walk away.</span><span style="font-family: 'Times New Roman';"><span class="Apple-tab-span" style="white-space: pre;"><span class="Apple-style-span"> </span></span></span><span class="Apple-style-span"> </span></span></div>
<div style="font-family: Cambria; font-size: 12px; margin: 0px 0px 10px;">
<span class="Apple-style-span" style="font-size: large;">The Japanese and New Zealand earthquakes, the resulting tsunami, the recent spate of damaging landslides in California, the wildfires we’ve seen in the past decade, and the threats posed by rising sea levels and ancient infrastructure, raise serious concerns about how a community association will survive a disaster, and whether the project can be rebuilt. Most associations lack the necessary funding to do even routine repairs, much less totally rebuild substantial portions of the project. We have warned about community associations that have reached the end of their “<a href="http://www.berding-weil.net/pdf/uncertain_future.pdf">service life</a>.” Given what we know, a natural disaster could hasten that inevitable deadline substantially.</span></div>
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Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com3tag:blogger.com,1999:blog-6739442929159985935.post-91092099003165207512015-08-02T16:04:00.000-07:002015-08-03T15:09:25.416-07:00Hate Rules Enforcement by your Community Association?<div abp="3841">
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<h3 abp="3843">
<span abp="3844" style="font-family: "Trebuchet MS",sans-serif; font-size: x-large;"> Get your
Neighbors to Vote it out!</span></h3>
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<div abp="1042">
<span abp="3855" style="font-family: Arial;">Read any pundit’s blog
about homeowner associations and you will see a recurring theme: boards of
directors over-zealously enforce the rules. True or not, I’m calling the
pundits’ bluff: If you don’t like rules enforcement by your homeowner’s
association then round up your neighbors and vote it out. I don’t mean dissolve
the association entirely, just limit its authority to enforce certain rules and
leave that enforcement to the individual owners who care the most. This has two
benefits: it leaves certain disputes between individual owners to be resolved
just by those owners; and it relieves the board of directors and the
association from having to act as a cop.</span></div>
<a name='more'></a><div abp="3857" class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-indent: .5in; text-justify: inter-ideograph;">
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<span abp="3862" style="font-family: Arial;">A community association is
an entity created to manage and maintain the property and represents the owners
to enforce the restrictions recorded against each lot or unit. This includes
architectural and behavioral rules. These are rules about how the individual
lots or units can be used—such things as modifying or changing the look of your
individual house or lot; what can be parked in your driveway; and behavioral
rules that involve such things as noise between adjoining units. </span></div>
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<span abp="3865" style="font-family: Arial;">Rules are always
enforceable by individual owners, but they don’t
necessarily have to be enforced by the association,</span><span abp="3866" style="font-family: Arial;"> although they often are</span><span abp="3867" style="font-family: Arial;">. In most projects the
community association has been delegated that authority by the governing
documents and this delegation of responsibility can be scaled back by an appropriate
vote of the owners. If you don’t like your homeowners association telling you
what you can park in your driveway, what kind of floors you can put in your
home, or what flags you can fly on your lawn—take away its authority to do
that. As I have said in response to several pundits’ tirades against aggressive
enforcement—quit complaining. Encourage your neighbors to vote to limit your
association’s enforcement authority and leave enforcement of deed restrictions
to any individual owner who is motivated enough to do it. Why should owners who
don’t care about such things be forced to subsidize those who do?</span></div>
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<span abp="3870" style="font-family: Arial;">
For example, noise between condominium or townhouse units impacts only the
owners of those units in most cases. Rules against using hardwood as a floor
covering are found in many condominium projects. But should the association be
charged with the duty to enforce that restriction when no one can see it and
only the downstairs owner is impacted by a violation? If there were as much
concern over rules enforcement as the pundits say, then they should have no
problem getting enough signatures on a petition to put such a proposal on the
ballot. </span></div>
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<span abp="3873" style="font-family: Arial;">
But there will be serious challenges. One is a lack of interest by the owners.
More likely than a general outpouring of indignation over the activities of a
community association will be mind-numbing apathy. Frankly, most people don’t care
one way or the other. </span></div>
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<span abp="3876" style="font-family: Arial;">The second challenge is
convincing those owners who do care. Many owners like the fact
that someone is watching out for the condition of the property and maintaining
a certain level of governance over its use. These people are not likely to
agree with the underlying premise that there should be limitations on rules
enforcement by the association. But perhaps they would approve of just limited
enforcement by the association—limited to those public issues that impact most
of the members. </span></div>
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<div abp="1076">
<span abp="3879" style="font-family: Arial;">The third and greatest
challenge will be the voting requirements to make changes to the governing
documents. A majority of property owners cannot amend most
documents. That requires a super majority of perhaps two thirds or three
fourths of the owners. </span></div>
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<div abp="1080">
<span abp="3882" style="font-family: Arial;">But if feelings are strong
enough, and if the motivation is high enough, the documents can be amended to
withdraw the association’s authority to enforce certain deed restrictions that
impact only a few individuals. This would leave enforcement to those individual
owners who desire to do it. There is nothing sacrosanct about a community
association being the rules cop. Many projects have deed restrictions but no
active owner’s association. My own does, and my neighbors and I just succeeded
in getting a tenant to remove a big house trailer from the driveway. No
association, just neighbors enforcing the rules. </span></div>
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<div abp="3884">
<div abp="1084">
<span abp="3885" style="font-family: Arial;">If a group of owners
decided to pursue this course it would test both the apathy and the interests
of the owners at large. Can it be done? Legally, yes. Will it? You tell me—I’m
calling your bluff!</span></div>
</div>
</div>
Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com1tag:blogger.com,1999:blog-6739442929159985935.post-81341287567481677392015-07-14T15:40:00.004-07:002015-07-17T11:09:28.767-07:00Berkeley Proposes Tougher Balcony Standards<span style="color: #274e13;">PROPOSED STANDARDS INCLUDE DISCLOSURES BY COMMUNITY ASSOCIATIONS</span><br />
<br />
Inside Bay Area reports:<br />
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">BERKELEY
-- City planning and building officials are proposing a package of
safety-related urgency ordinances in response to the June 16 collapse of a
fifth-floor balcony at a downtown apartment complex that killed six young
adults and injured seven more. A city councilman, meanwhile, is proposing
tougher building and inspection standards for balconies. <o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">The
City Council is scheduled to consider the proposals on July 14.<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">An
inspection by Berkeley building official Alex Roshal and Senior Building
Inspector Steve Messinger on June 16 found</span><span style="font-family: "Georgia","serif"; font-size: 11.5pt; mso-bidi-font-family: Georgia;"></span><span style="font-family: "Georgia","serif"; font-size: 11.5pt;"> the cantilevered joists
of the balcony, at the Library Gardens at 2020 Kittredge St., completely shorn
off about 16 to 20 inches from the exterior building face, with a torn
waterproofing membrane hanging over the joist ends, according to a report from
Roshal. The deck joist ends protruding from the exterior wall appeared to be
severely dry-rotted, the report stated.<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt; mso-fareast-font-family: "Times New Roman";">The
rotted wood beams that held a balcony jut out from side of the residential
apartment building on Kittredge Street in Berkeley on June 17, 2015. Six people
died and seven others were seriously injured when the balcony collapsed. (Laura
A. Oda/Bay Area News Group)<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">Planning
and Development Director Eric Angstadt proposes adding several sections to the
city Building Code.</span><br />
<a name='more'></a><span style="font-family: "Georgia","serif"; font-size: 11.5pt;"> <o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">One
would mandate cross-ventilation for enclosed assemblies of balconies, landings,
decks and stairs. <o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">Another
would require naturally durable or preservative-treated wood,
corrosion-resistant steel or similar approved materials for the floors of
balconies, landings, decks, stairs and other projections.<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">Angstadt
also proposes requiring inspection and certification by a licensed expert of
balconies and other weather-exposed areas within six months, and thereafter
every five years.<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">Urgency
ordinances require a seven-ninths vote of the council and are effective
immediately upon approval.<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">Councilman
Jesse Arreguin wants the city to move toward requiring steel reinforcement for
all balconies in new developments, and proposes to send a letter to the
California Building Standards Commission urging it to update the state code to
require steel in balcony floors.<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">"Unlike
wood, steel is less likely to deteriorate over time, is better able at
withstanding the elements, and is a stronger material," the proposed
letter reads in part.<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">"As
we develop more housing in the city of Berkeley, it is of the utmost public
importance to ensure that balconies that are built are to the best safety
standards to prevent another tragic loss of life," Arreguin said through a
spokesman Tuesday.<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">"While
ventilated, treated wood is an improvement over the design and materials
implicated in the recent balcony collapse, corrosion resistant steel provides
superior strength, and durability, he said, adding that the increased cost of
galvanized steel "is well exceeded by its higher degree of
assurance."<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">Moreover,
he continued, experts advise that "it is just as important, if not more,
to inspect and certify weatherproofing and other elements prior to completion
as post-completion inspections when structural components are enclosed."<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">Arreguin
also wants periodic inspections of balconies in multiunit rental properties,
with a time frame yet to be worked out.<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">Additionally,
he wants written disclosure requirements for owners of rental properties and
homeowner and condominium associations with balconies that are not
steel-reinforced, and the posting of signs in the balcony area specifying the
maximum weight capacity.<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">The
regular July 14 City Council meeting is at 7 p.m. in the Old City Hall, 2134
Martin Luther King Jr. Way.<o:p></o:p></span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">The
June 16 balcony collapse killed Olivia Burke, Eimear Walsh, Eoghan Culligan,
Niccolai Schuster and Lorcán Miller, all 21 and from Ireland, and Ashley
Donohoe, 22, of Rohnert Park.</span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;">Courtesy Inside Bay Area. </span></div>
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<span style="font-family: "Georgia","serif"; font-size: 11.5pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;"><a href="http://www.insidebayarea.com/breaking-news/ci_28447797/berkeley-council-consider-tighter-structural-standards-and-inspections?source=rss"><span style="color: blue;">http://www.insidebayarea.com/breaking-news/ci_28447797/berkeley-council-consider-tighter-structural-standards-and-inspections?source=rss</span></a></span></span></div>
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<br />Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-91390389901097233392015-07-06T07:39:00.002-07:002015-07-17T11:11:43.977-07:00Death in Staircase Collapse--Dry Rot SuspectedOne man was killed on July 3, 2015 when a staircase at an apartment building in Folsom, Ca collapsed due to dry rot in the structure.<br />
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<a href="http://www.sacbee.com/news/local/article26678224.html" target="_blank">http://www.sacbee.com/news/local/article26678224.html</a><br />
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<b><span style="font-size: large;"> Read: <span style="color: orange;">The Perils of Hidden Damage...</span></span></b><b><a href="http://www.berding-weil.com/pdf/perils_of_hidden_damage.pdf" target="_blank">Click Here to Download</a></b><br />
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Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-19961744440601991032015-06-21T21:54:00.000-07:002015-07-06T07:43:15.589-07:00The Berkeley Balcony Tragedy: More Inspections Aren't Enough<div class="separator" style="clear: both; text-align: center;">
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In the early morning of June 16, 2015, in Berkeley, California, the lives of 6 young people were snuffed out because the balcony they were standing on collapsed. Building failures happen all the time, but the press and government largely ignore them because nobody died. With these six tragic deaths (and serious injury to seven others) the press is now all over it. We have daily reports of experts opining on the cause (rot caused by moisture intrusion into the wood beams supporting the balcony.) We have interviews with Berkeley city officials (there were numerous inspections of this 8-year old building but none of the waterproofing.) The opinions page trumpets that inspections must increase to prevent another tragic event. Yes there should be more inspections by municipalities and building owners, but it won’t be enough.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXLAw9YjbctJKHYQj41kAAKfL3-WwXqBQtFTDGJFzVSbrFE18zRLCFdfLZWJo4zk6LFVvaJz9tSKMkj8wE2ZNBspUSauT9XaOuU0sj2vYe4HKIU-yhLsbOWR55a-S_uU0brUWnJ7LtbCQ/s1600/berkeley-balcony-1024.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><br /></a>For 40 years I have litigated cases involving design and construction errors. My firm has represented the owners of older buildings where rotted framing is commonplace but unknown until it gets so bad it threatens building components and human safety. We have represented the owners of new buildings like the one in Berkeley where water has seeped into wall cavities and induced rot and mold because the waterproofing was not installed properly, and many projects where the installation of waterproofing was defective but had not yet led to a catastrophic failure. The local municipality had specifically inspected none of these instances of failed waterproofing. Why? Because even if the inspector stood over the workmen 8 hours a day, 5 days a week and watched them put together every waterproof assembly, mistakes would still occur.</div>
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Probably the joint where the balcony surface abutted the wall of the building, or the flashing intended to protect the wood beams from moisture, allowed water to enter the assembly and rot the beams. The experts who examined the building plans have said that the architect likely provided proper waterproofing details, so the question is why did it fail? A quick answer might be that the contractor or its employee were careless, and that could be. But more likely they were not adequately trained or incentivized to follow the drawings and build it correctly. Many years ago the building trades utilized an apprentice system whereby a master tradesman supervised the training of new recruits until they too were skilled at their craft. Craftsmanship was a source of personal pride and well-trained workers were valued and given the latitude to build a proper building.</div>
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But we are not training enough craftsmen. The enormous demand for housing in recent decades has outdistanced the supply of trained labor and the result is buildings that bristle with mistakes. Couple that with “value engineering” to reduce costs by employing materials that do not survive unless constructed in a very precise manner and you have a recipe for disaster. Lawyers and not building inspectors have become the quality control, unfortunately well after the fact. </div>
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The forensic inspections we conduct on client’s buildings frequently reveal instances of work done improperly and contrary to the designer’s intentions. If we can find them, why can’t the original builders? Carelessness could be one excuse, but a lack of training adequate to recognize poor quality construction coupled with a willingness to accept cheap and expeditious materials and methods to meet demand and cost controls are more likely. Whatever it is, it has resulted in failures of building components some of which pose hazards to life and safety. </div>
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Designers are also not without fault. Choosing materials without regard to where the project will be located, failing to provide adequate details to guide the contractor, creating architectural interest at the expense of building performance, can all result in a failed building. Design errors can be caught before they are incorporated into a building but only if the contractor constructing it is trained and incentivized to recognize errors and bring them to the owner’s attention. </div>
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This brings us back to the lack of skill and training. Foremen and crewmembers should have the skill and understanding of fundamental building practices to avoid obvious errors. A joint or juncture of two materials or building components does not require exotic materials or methods to be built waterproof. This is Construction 101. When an assembly in an eight-year old building allows so much water to enter that it rots major framing members in less than ten years, someone didn’t know what they were doing. If it turns out that the design was flawed, the contractor didn’t know enough to bring that flaw to the owner’s attention. There will be a lot of finger pointing and accusations back and forth over who committed the error, but the contractor or workman charged with creating a waterproof joint or transition should have been skilled enough to recognize that what they were building would not work.</div>
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Technical training in construction techniques can begin in high school or community college and we have an obligation to see it does once again. Trade unions have programs to train their members which should be encouraged and combined with public school education programs. There is a technology gap—more jobs than we have trained people to employ. That gap doesn’t just occur in Silicon Valley. It also exists in the construction trades. </div>
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You find no skilled carpenter who can recognize serious errors by trolling by your local convenience store. Real craftsman have pride in what they do, are properly compensated, and are trained in programs that teach construction fundamentals, how to read drawings and apply them correctly. If avoiding dangerous errors means spending more private and public funds on technical training then it is logical that we do that. Quality construction will pay for itself in lower insurance (and legal) costs, less maintenance and repair expense, and greater safety for building occupants.</div>
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The tragedy in Berkeley did not have to happen, but a lot of potential tragedies are lurking in buildings everywhere that were constructed in haste without a sufficiently skilled workforce. When the housing market is hot, and you can sell anything that you can get to market, the incentive to cut corners and get labor wherever you can find it is always there. Builders, municipalities, and state legislatures now have the wake up call it sadly took six deaths to provide. More inspections and testing of construction are absolutely called for in both new and old structures. But without a properly trained workforce that can avoid defective construction and build quality buildings, this won’t be the last tragedy we read about.</div>
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Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com1tag:blogger.com,1999:blog-6739442929159985935.post-66062264631449207482015-01-13T14:36:00.001-08:002015-01-31T15:03:31.393-08:00 Association Reserve Analysis<div class="separator" style="clear: both; text-align: center;">
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b>2014 Community Association Financial Survey</b></span></div>
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<b><u><span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin; mso-style-textoutline-outlinestyle-align: center; mso-style-textoutline-outlinestyle-compound: simple; mso-style-textoutline-outlinestyle-dash: solid; mso-style-textoutline-outlinestyle-dpiwidth: .7pt; mso-style-textoutline-outlinestyle-join: miter; mso-style-textoutline-outlinestyle-linecap: flat; mso-style-textoutline-outlinestyle-pctmiterlimit: 0%; mso-style-textoutline-type: none;">Introduction</span></u></b><b><u><span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"><o:p></o:p></span></u></b></div>
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<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">In 1996, Berding|Weil published <i>“Latent
Liabilities”</i> a treatise which explored the long-term impact of underfunding
of the reserve accounts of community associations. Some of the data came from
our clients, and some from Levy, Erlanger & Company. We predicted that most
multi-family community associations were severely underfunded for long-term
maintenance and repairs and we opined this issue could lead to serious deferral
of maintenance obligations and ultimately a shortened service life for these
projects. Subsequent financial surveys by Levy, Erlanger & Company, with
our assistance, have shown this problem to be systemic—affecting most community
associations. This year’s survey finds community associations to have only 57%
of the funds on hand they should have. This shows that the problem is not
getting better—in 1993 that figure was 60%.<o:p></o:p></span></div>
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<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Since <i>“Latent Liabilities”</i> was
published, we further documented this problem in <i>“The Uncertain Future of Community Associations”</i> and similar
treatises. Community associations are slowly running out
of cash. Borrowing from reserves for regular, and newly discovered maintenance
issues has trended upward, and when the reserves run out, special assessments
and borrowing from banks increase. The fundamental cause of this cash shortage
is the inability or unwillingness of boards of directors to increase
assessments sufficiently to keep up with inflation coupled with the discovery
of needed repairs not anticipated by the reserve budget.</span><br />
<a name='more'></a><span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"> <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify; text-indent: .5in;">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Discovery of “hidden damage” has pushed many older associations to the financial edge. Too many older
associations suffer from long-term deterioration which, when discovered, carries
a price tag that greatly exceeds the resources of the membership. Dry rot in
balconies, entry structures, roof underlayment, and wall framing, and
deterioration of utilities like electrical lines and plumbing, is becoming more
common and are rarely the subject of any reserve budget line item. We have
documented this problem in another treatise: <i>“The Perils of Hidden Damage” </i>which describes how these problems
lie undetected for years. All publications above can be found on our website: </span><span style="font-family: "Cambria","serif"; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">www.berding-weil.com</span><span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify; text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify; text-indent: .5in;">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Boards of Directors in older
associations cannot rely entirely on a reserve study to predict their future
funding. By statute in California, as in many other states, reserve studies are
required only for those components which are visible and accessible—siding,
roofs, streets, etc. The components hidden under the outer skin of a building
are not included. This is where most dry rot, corrosion, and other structural
deterioration can be found, but not usually computed as part of the study. More
intrusive inspections are necessary but almost never done. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify; text-indent: .5in;">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Years of underfunding of reserves
coupled with the late discovery of previously hidden damage places a heavy
financial burden on the owners of attached housing. This burden is heavy enough, sometimes, to question
whether many have reached the end of their service lives—are they actually <i>obsolete</i>? Compare the resources and
expenses of your community association to other, similar associations<a href="file:///C:/Users/tpb/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/Y5V3TA5S/survey2014article-final.docx#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;">[1]</span></span><!--[endif]--></span></a>, and
investigate beyond the parameters of a typical reserve study—especially in
older associations. Review the data in this survey and compare it to your own. Then ask yourself, are the components now in your
reserve study the only areas of concern, or could there be others? If your
reserves have less than 100% of the funding required by your reserve study and
if your association was built over 20 years ago, it’s time to undertake a sober
review of the association’s financial and physical condition.<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-bottom: 6.0pt;">
<b><u><span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">The 2014 Survey Background<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; text-align: justify; text-indent: .5in;">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">This survey, while not the first of a kind, is probably one of the
largest and most recent. It includes data from over 1,500 Northern California
community association financial statements. This is the product not only of
many hours of work, but the cooperation of nearly two hundred management
companies and self-managed associations, and the association of two leading
California professional organizations: Berding|Weil, LLP., California’s largest
construction and community association law firm, and Levy, Erlanger &
Company, CPAs, community association accountants and consultants. The data has
been taken from the 2013 and 2014 year-end balance sheets and income statements
of 1,569 community associations representing 191,976 individual units. Comparative data was also taken from three
prior surveys done by Levy, Erlanger & Company, CPAs in 1993, and with the
assistance of Berding|Weil in 2006, 2008 and 2013.<o:p></o:p></span></div>
<div class="MsoNormal">
<b><u><span style="font-family: "Cambria","serif"; font-size: 12.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">The 2014 Survey Results</span></u></b><u><span style="font-family: "Cambria","serif"; font-size: 12.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"><o:p></o:p></span></u></div>
<div class="MsoNormal" style="margin-bottom: 6pt; text-align: justify;">
<b><u><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Percent Funded</span></u></b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<b><u><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">2014 Survey</span></u></b><b><u><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"><o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Replacement reserve cash <b>$ 3,748</b> average
per unit (1,529 surveyed associations) <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Replacement reserve obligation <b>$
6,576</b> average per unit (1,529 surveyed associations)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 6.0pt; text-align: justify;">
<span style="color: red; font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Replacement Reserve Deficit <b>$ (2,828)</b>
average per unit </span><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 6.0pt; text-align: justify;">
<span style="color: #632423; font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin; mso-themecolor: accent2; mso-themeshade: 128;">2014 Percent
Funded<b> 57% </b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<b><u><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">1993
Survey</span></u></b><b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"> <u> <o:p></o:p></u></span></b></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Replacement reserve cash <b>$ 1,708</b> average per unit (813 surveyed associations) <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Replacement reserve obligation <b>$ 2,864
</b> average per unit (813
surveyed associations)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: red; font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Replacement Reserve Deficit <b>$
(1,156)</b> average per unit<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #632423; font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin; mso-themecolor: accent2; mso-themeshade: 128;">1993 Percent
Funded<b> 60%</b></span><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"> <b><o:p></o:p></b></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">In the roughly 20 years from 1993 to 2014, the percentage reserves are
funded has declined by approximately 3% and the Replacement Reserve Deficit has
more than doubled!<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 6pt; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 6pt; text-align: justify;">
<b><u><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Average Income and Expenses<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<b><u><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">2014 Survey</span></u></b><b><u><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"><o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Assessments, operations <b>$ 178</b> (72%) (1,565 assns. reported data)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 6.0pt; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Assessments, replacement <b>$ 71</b>
(28%) (1,521 assns. reported data)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">2014 Average Assessments </span><span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">*</span><b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"> $
258 monthly average per unit (</span></b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">based on 1,569 surveyed
assns.)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Expenses, administration $
63 (22%) (1,566 assns. reported data)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Expenses, maintenance $ 88 (30%) (1,561 assns. reported data)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Expenses, utilities $ 54 (18%) (1,541 assns. reported data)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Expenses, replacement $ 93 (30%) (1,414 assns. reported data) <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"> <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">2014 Average Total Expenses<b> </b></span><span style="font-family: "Cambria","serif"; font-size: 12.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">*</span><b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"> $ 288
monthly average per unit </span></b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">(based on 1,569 surveyed assns.)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: red; font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">2014 Implied Monthly Deficit<b> $ 30 monthly average per unit, or
approximately 12% of revenues<o:p></o:p></b></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<b><u><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">1993
Survey</span></u></b><b><u><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"><o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Assessments, operations <b>$ 128</b> (80%) (875 assns. reported data)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 6.0pt; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Assessments, replacement <b>$ 33</b>
(20%) (781 assns. reported data)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">1993 Average Assessments </span><span style="font-family: "Cambria","serif"; font-size: 12.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">*</span><b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"> $ 161 monthly average per unit (</span></b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">based
on 875 surveyed assns.)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Expenses, administration $
46
(20%) (921 assns. reported data)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Expenses, maintenance $ 59 (26%) (921 assns. reported data)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Expenses, utilities $ 31 (15%)
(921 assns. reported data)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Expenses, replacement $ 47 (25%)
(921 assns. reported data) <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 6.0pt; text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Expenses, other $ 10 (14%)
(921 assns. reported data) <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">1993 Average Total Expenses<b> </b></span><span style="font-family: "Cambria","serif"; font-size: 12.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">*</span><b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"> $ 193
monthly average per unit </span></b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">(based on 921 surveyed assns.)<o:p></o:p></span></div>
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<span style="color: red; font-family: "Cambria","serif"; font-size: 10.0pt; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">1993 Implied Monthly Deficit<b> $ 32 monthly average per unit, or
approximately 20% of revenues<o:p></o:p></b></span></div>
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<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Comparison of 2014 and 1993 Survey Results</span></u></b><b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"> (Per Unit per Month - PUPM)</span></b><b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;"><o:p></o:p></span></b></div>
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<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;"> <b><u>2014</u></b> <b><u>1993</u></b> <b><u>Percent
Increase<o:p></o:p></u></b></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;">Assessments,
average $ 258 $ 161 60%<o:p></o:p></span></b></div>
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<br /></div>
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<b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;">Expenses<o:p></o:p></span></b></div>
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<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;">Administration $
63 22% $ 46 20% 37%<o:p></o:p></span></div>
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<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;">Maintenance $ 88 30% $ 59 26% 49%<o:p></o:p></span></div>
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<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;">Utilities $ 54 18% $ 31 15% 74%<o:p></o:p></span></div>
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<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;">Replacement $ 93 30% $ 47 25% 98%<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;">Total expenses, average<b> *
</b>$ <b>288</b> $ 193 <b> 49%</b><o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<u><span style="color: red; font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;">Implied Monthly (Deficit)<b> </b></span></u><b><span style="color: red; font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;"> $
(30) $ (32)</span></b><b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;"> </span></b><br />
<b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;"><br /></span></b>
<span style="font-family: "Cambria","serif"; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">* </span><span style="font-family: "Cambria","serif"; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Totals may NOT equal positive values in the above detail line items because the detail line items only reflect the average per unit per month (PUPM) for those associations which report the income or expenses. Not all associations had or reported each line of income or expenses.</span><br />
<b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;"><br /></span></b>
<b><span style="font-family: "Cambria","serif"; font-size: 10.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Calibri; mso-fareast-font-family: Calibri; mso-hansi-theme-font: major-latin;"> <o:p></o:p></span></b></div>
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The annual increase in administrative expenses over the last 20 years
has been approximately 2% per year, maintenance expenses 2-1/2% per year,
utilities 3-1/2% per year, and replacement reserve expenses 5% per year. While monthly
assessments have increased by approximately 3% per year since 1993, total
expenses have increased by approximately 2-1/2% per year during the same
period. While this last represents a
positive trend, after 20 years the average association is still operating at a
loss when reserve expenditures are included. These losses are cumulative and
reflect the growing imbalance of the reserve account.</div>
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<br /></div>
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<b><u><span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Conclusion</span></u></b></div>
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<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">When we look at the actual dollars being expended, the average common
interest development has a continuing monthly deficit of $30 per unit in 2014
compared to approximately the same in 1993.
It is troubling to note that association obligations continue to
outdistance income. This is due in part to the increasing demands on replacement
reserves in aging California community associations. <o:p></o:p></span></div>
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<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">Next, look at the status of replacement reserve funding. Since operating expenses (insurance, water,
management, etc.) must be paid, how is the monthly deficit funded? Funds which should go to reserves are increasingly
subsidizing operating expenses: $2,828
per unit in 2014 versus $1,156 per unit in 1993. After adjusting for inflation,
the accumulated replacement reserve account deficit increased approximately 22%,
or about 1% per year. Similarly, the
accumulated reserve liability increased from $2,864 per unit in 1993 to $6,576
per unit in 2014 – an increase of approximately 230% or about 4% per year
before inflation!<o:p></o:p></span></div>
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<br /></div>
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<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">This trend, which we noted in 2006, 2008, and 2013 and in various
articles and treatises over the past 20 years, continues eroding the ability of
community associations to maintain their infrastructure. The average
association has only about half of the funds it needs to have on hand for the <i>known</i> long-term repair of the buildings
and <i>nothing </i>on hand for any unknown
or unexpected repair. What is the
long-term solution? Voluntary digging
deeper into the pockets of aging owners who do not believe that they will still
be here when the next roof goes on?
Mandatory funding of reserves as required in some other states, such as
Florida and Hawaii? <i>The solution is more intense investigation of aging infrastructure
coupled with a rational review of the true cost of ownership, and developing
the political will to meet that cost with the additional dollars necessary to
protect owner equity. </i>That’s a lot to ask and it will fail often. But
continued education of Boards of Directors and owners can make inroads. We hope
that happens before it’s too late.</span><span style="font-family: Cambria, serif; font-size: 12pt; line-height: 115%;"> </span></div>
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<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"> </span><br />
<span style="text-align: center;">Tyler
Berding, J.D.; Ph.D. </span></div>
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<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;"> </span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: Arial; mso-hansi-theme-font: major-latin;">David
Levy, MBA, CPA<o:p></o:p></span></div>
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<br /></div>
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</div>
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</div>
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<!--[endif]-->
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<div id="ftn1">
<div class="MsoFootnoteText" style="text-align: left;">
<span style="font-family: Times, Times New Roman, serif;"><a href="file:///C:/Users/tpb/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/Y5V3TA5S/survey2014article-final.docx#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 115%;">[1]</span></span><!--[endif]--></span></a> Levy,
Erlanger & Company, CPAs offers a comparison of your association’s
income and expenses with up to five similar associations, based upon the
parameters of size, age, geographic location and subdivision type (condominium
v. planned unit development) for a modest fee. They can be contacted at info@hoa-cpa.com for
a cost estimate.</span><o:p></o:p></div>
</div>
</div>
Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com0tag:blogger.com,1999:blog-6739442929159985935.post-7079232846720801452014-02-10T13:00:00.002-08:002014-02-15T09:28:02.602-08:00When are Community Association Reserves like Public Employee Pensions?<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiS2ouOAQUGZh18p2Yd3rgmH231_Q31IPBDwlzAZ88JLUyJLJy6bRoErWrOPAnVOLyeYmYGJRzcdBF4h0zmZhSHWn0px4fBsDNR6FAwQ2vHcL22ojaGgPErpI3lEg_IBjHuvVc0-FLHpUA/s1600/untitled.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiS2ouOAQUGZh18p2Yd3rgmH231_Q31IPBDwlzAZ88JLUyJLJy6bRoErWrOPAnVOLyeYmYGJRzcdBF4h0zmZhSHWn0px4fBsDNR6FAwQ2vHcL22ojaGgPErpI3lEg_IBjHuvVc0-FLHpUA/s1600/untitled.png" /></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The following excerpts appeared in a </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">February 9, 2014
newspaper editorial:</span><o:p></o:p></div>
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<i> Kudos to Gov. Jerry
Brown for demanding last week that they stop kicking debt further down the road. </i><i>“…they have shortfalls
-- debt we are now passing on to future generations because of past failures to
properly fund the system. …The longer we postpone paying it off, the greater
the cost, as anyone with a credit card should understand. </i><i>"No one likes to
pay more …but ignoring their true costs for...years will only burden the
system and cost more in the long run." </i><i>That means the money…previously
collected was insufficient. Fixing the actuarial assumptions creates new
unfunded liabilities -- debt that must now be paid off with increased (assessments.)
It also means they should be collecting larger payments in the future
to cover (future needs.) </i><i>The board has tried to
keep (assessments) low, leaving more funds available for other (expenses.) </i><i>But at each step, the board
has softened the landing by minimizing or postponing the impact of the changes.
As a result, (associations) continue to under fund (reserves) and stare at more (assessment)
increases -- and greater interest payments -- in years to come. </i><i>As the Governor notes,
it’s pay now or pay more later.</i></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"> Sound familiar?
Maybe the community association reserve funding crisis is finally getting
noticed by California? Not quite. These excerpts are from an article on the public
employee pension crisis with a few edits. You can see the entire
article at this <a href="http://www.contracostatimes.com/daniel-borenstein/ci_25085150/daniel-borenstein-gov-browns-conflicting-approaches-nations-two">link</a>.
But the similarity between these two funding crisis is striking. Artificially keeping owner
assessments lower than necessary to adequately fund reserves is largely political and is gradually creating
an enormous funding gap that will devastate future generations of homeowners.
Reserve accounts that rely on static funding and incomplete investigations will encounter significant shortfalls that can only be made up by large
special assessments from those owners unlucky enough to be the last
ones standing when the debt comes due.</span><o:p></o:p></div>
Tyler Berdinghttp://www.blogger.com/profile/03447615900980759254noreply@blogger.com4