A Wakeup Call

      Failed balcony railing causes near-fatal injuries

     

     Can we ever take the condition of a building for granted? Do we? The building occupants, to get in and out of their units on second and higher stories, use components like balconies and staircases every day. Do we really know if they are safe? As property managers or board members of community associations, how can you be sure? When was the last time someone took a professional, in depth look at those parts of your buildings?

     We know from reading dozens of expert investigations that quite often some of the most insidious problems are hidden from view—for example, weaknesses in structural components that are used every day. This is especially true in older apartment complexes that have been converted to condominiums. Years of neglect by the apartment owners are passed on to the condominium buyers with no warnings or disclosures.

            

     Now we find a similar situation that almost turned to tragedy:

            KRON TV News, April 1, 2010

ANTIOCH (BCN) -- Building inspectors found evidence of dry rot at an apartment complex in Antioch where three people fell from a second-floor balcony Thursday morning after a wooden railing gave way, Antioch code enforcement manager Ryan Graham said.  As a result, he said, the residents of three units at the complex will have to be temporarily relocated. The fall occurred at about 7:30 a.m. at the Twin Creek Apartments at 1111 James Donlan Blvd.  Contra Costa County Fire Protection District Battalion Chief Alan Hartford said the victims are two women and a young girl about 8 or 9 years old.            

            "They were leaning against a railing and the railing gave way," Hartford said. The three fell about 15 feet to the ground below, an area with dirt and bushes, he said. One woman, who may have briefly lost consciousness, appeared to have suffered head, neck and back injuries and was airlifted to John Muir Medical Center in Walnut Creek, Hartford said. The second woman and the girl were taken to hospitals by ground ambulance. The victims are all expected to survive, Hartford said. He said the little girl was the least injured.

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The Great Foreclosure Debate, Part III

The article below was sent to us by Mark Benson, a community association expert in Florida. His thoughts provide additional perspective on the continuing debate over assessment foreclosures and the effect of non-foreclosure policies on the remaining owners.

Unintended Consequences for Community Associations in Florida and Nationwide

Again we hear about the largess of the government putting a moratorium on foreclosures of the first mortgage.

On the surface, this sounds benevolent.  Now let's look at the realities.

1.  If the home is in a condominium, homeowner association or co-op, they are probably also not paying maintenance fees.  This means the other owners must continue to subsidize the mandatory expenses of the association.  

2.  The moratorium of mortgage foreclosures creates an ongoing obligation to the association that continues to increase with interest, late fees and legal fees.  These are extinguished when the mortgagee finally takes title. The condominium association will get reimbursed 6 months of maintenance fees or 1% of the mortgage amount, whichever is less.  A homeowner association will get reimbursed 12 months maintenance fees or 1% of the mortgage amount, whichever is less.

3.  This will increase the delinquent amount for each month’s payment missed plus interest and penalties to the extent it will be impossible for the homeowner to recover.

Typically, this is a minimal amount compared to what is owed and is compounded by delays in foreclosures.

An association may institute foreclosure and take title to the unit but the mortgage still has priority.  Therefore, if the association takes title and rents out the unit they may get the rent but the mortgagee will eventually foreclose against the association.

In order to accomplish this the association may also incur thousands of dollars of fees and costs that may not be recoverable. 

4.  There is no incentive for an under-water owner to make any mortgage, tax or maintenance fee payments since it may be years before they are foreclosed out of the property.

5. There is no incentive for a mortgagee to foreclose and incur attorney fees and then be stuck with a property worth only 50% of the outstanding balance due.  They have a huge backlog of property now and the courts are still jammed with pending cases.

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Condos in Crisis

   

 Personal Rights or a Community's Economic Survival--Which comes First?

             What follows are comments and a post forwarded to me by Fred Fischer, followed by my response to that post.  The post criticizes private community associations as “un-democratic” and illustrates the growing disconnect between a zealous concern over governance and understanding the basic economic survival issues of community associations. While we understand the arguments, practicality gets our vote because if they don’t survive who is going to care how community associations are governed?

Tyler:

            There is no doubt that privatization (of public property) has increased in the US over the years, but is it constitutional and is it in the best interest of consumers/community? Personally I have little objection to privatization when it applies to some services like refuge collection, snow removal etc. but I do when it applies to housing and other (personal or behavioral) issues.

            Fred then quotes from an article on the growing privatization of communities, and the asserted loss of individual freedom, written by Mr. George K. Staropoli that I have excerpted here:

“This new nation of mini-governments populating the landscape are described by Robert Ely. . . as representing ideas alien to democracy: ‘It is not the American ideal.  It is benevolent, well-wishing feudalism, which desires the happiness of the people, but in such a way as to please the authorities.’…An authoritarian form of government is contrary to the expectations of Americans who have lived all their lives under a democratic government that places the rights and liberties first and foremost.  (Another author) agrees: ‘Perhaps the most distinctive characteristic of these communities is that they are controlled by private, democratic governments (community associations) that wield the kind of control over people’s personal lives and tastes that, heretofore, most Americans would never have accepted from any government.  It is, and still remains, the oppressive, authoritarian HOA government based on corporate law rather than on constitutional law that is the root of all evil.“

My Response:

Fred,

          Thanks for forwarding that interesting piece. My immediate reaction however, is "So what?" Whether they are "democratic," “authoritarian,” or something else; whether they should have been built or not; the fact is that tens of thousands of communities governed by homeowners associations were built over the past 40 years and their authority to govern was established by statute and contract with the approval of all sorts of government agencies, and notwithstanding their imperfections, they can not be easily undone regardless of how much some may dislike them...

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Private vs. Public Ownership of Communities

Tyler,

Your article, Bankruptcy Won't Work ! is excellent in it's detail and content.
Another similar issue not discussed was, ...if the association is too broke to pay its bills, why not simply declare bankruptcy or consider dissolution ? (when allowed by law, not in Chandler AZ)

Dissolution I understand is not possible in most cases especially in condominiums for the same reasons as mentioned in your article. However in some Homeowners Associations that may only have a retention basin or small common area, Dissolution may be possible.

One important fact, is that most municipal ordinance's that mandate HOAs require HOAs/POAs, if there is any common area amenities no matter how small of an area it may be. In other words, one size fits all, but should it ?

As an example our development only has one small retention basin that is covered in woods and most residents don't even know that it exists and it requires no maintenance. Another example is another local development where our City placed the maintenance of the one and only retention basin in the hands of the development residents in their deeds instead of mandating a private entity to maintain it.

Does dissolution solve the problems or act as a substitute to Bankruptcy, no, most often but in some limited cases that may be possible.
Thanks,

Fred Fischer

Fred,

Thank you for your comments. Basically, with non-productive real estate (those little scraps of land left over from a development) the developer would have to pay some entity to take them, and perhaps that's what municipalities should require as a condition to the original development, if those scraps are the only reason for creating an association of owners. In that case, and that case only, you might be able to live without a community association if all other individually owned parcels or lots could be maintained separately by their owners. But with parcels that serve more than one lot and have a necessary function--the retention basin, a clubhouse, a road, a playground--and also require annual maintenance--some community entity has to be responsible not only for the bare legal title (and payment of taxes) but also to insure that the necessary maintenance is performed so that its function is preserved. This responsibility is passed on to individual owners by virtue of covenants in their deeds, either directly or through mandatory membership in the community association. Bankruptcy of the association, or its dissolution, would not protect the individual owners from this obligation for the reasons stated in the article.

It is usually not the case, however, that the only reason for a community association is a non-functional remainder parcel--usually there is a mix of functional and non-functional pieces--and hence the necessity for a public or private entity to not only own them, but also to maintain them. You can combine these maintenance functions into an over-arching organization, like the community maintenance trusts we have discussed, but that is really to make the operation more cost-effective, it doesn't impact the necessity of the underlying legal structure at all.

Historically, most of these pieces of real estate were dedicated to cities and counties and maintained by them in perpetuity. But today, it is just as likely that the local municipality will not accept dedication and will require that the ownership, as well as the cost of maintaining the new facilities, be assigned to a small sub-set of citizens--those immediately benefited by the improvement--via a private organization. This quantum shift in public vs. private ownership of otherwise public parcels over the past 40 years has dramatically increased the number of associations created to own and maintain them.

Much of this change has occurred because of the huge expansion of housing onto formerly agricultural lands where no infrastructure existed. That and the sheer size of the developments, which include newly built commercial as well as residential areas, in many cases new towns where nothing existed before, create the opportunity and the incentive for municipalities to avoid the cost of maintaining this new infrastructure--roads, drainage facilities, parks, landscaping, etc. If the big developers wanted the zoning necessary to build new towns, they also had to find a way to create private ownership of the infrastructure, and community associations were the option they chose in increasing numbers.

If the objective is to limit the number of new community associations, one alternative is to limit suburban growth and focus instead on increasing density in existing urban areas where the infrastructure already exists and is publically owned and maintained. That doesn't change the need for a private managing entity of the buildings themselves and the discussion obviously includes issues that go way beyond the question of public vs. private ownership and the necessity of community associations. But it is useful to remind us of how we got to where we are today.

Bankruptcy Won't Work!

Why There’s No Protection for Members When 
Community Associations "Go Broke"

By
Tyler P. Berding, Esq. and Sandra M. Bonato, Esq.

            You’re at a board of directors meeting of your homeowners association.  Things have been happening around the community--not good things--and you want to find out why.  Why have they closed the pool?  Why is the landscaping looking so bad?  What’s with the rumor that the property manager might be let go.  You know that money has been tight for the association.  You’re aware that assessments haven’t gone up for years, and now word has it that a large number of owners have stopped paying altogether.  At the meeting the president of the association announces further cutbacks--the association’s insurance may have to be dropped.  There have been no deposits to the reserve account for several years and, worse, the account has been drained over time to meet monthly obligations. The board proposes a 5% special assessment and approves it, but it’s not likely to go far with all there is to do and pay.  A report from the manager confirms your worst fears: re-roofing of the project (including for your unit) will have to wait, and even temporary repairs to the leaking portions of the roof may not be done for months.  There’s no money to pay for it.

            A member raises his hand and asks the inevitable question--if the association is too broke to pay its bills, why not simply declare bankruptcy?  Hold the creditors at bay until the economy picks up?  No one on the board has a good answer.  Why?  Because it almost never happens.  Here are the practical and legal reasons why...

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The Great Foreclosure Debate: Part II--Readers Respond

Here are two of the letters we received in response to “The Great Foreclosure Debate: Should Community Associations use Alternatives to Foreclosure to Protect Their Cash Flow?” posted below. They represent two sides of this very controversial issue. The first is a spirited response from Mr. George Staropoli, a community association activist in Arizona who writes a blog and newsletter devoted to the question of the constitutionality of community associations. The second is from Ms. Nancy Sterling, a real estate professional, about a 34 unit condominium complex where nearly half of the units have been through bank foreclosure in the past two years. They help to understand why the foreclosure debate has generated so much energy and provide contrast between the theoretical and the practical...

To read the letters and our comments, please click on the title link above...

Condominium Conversions: Old Apartment or New Product?

Does Caveat Emptor apply to Conversions?

The spate of conversion of old apartments to condominiums has finally abated largely due to the failed economy. For many reasons which we have previously noted, buyers prefer new construction and only buy conversions when the housing market is in a selling frenzy. Nevertheless, thousands were sold and owner claims have arisen which range from minor issues with the unit itself to major waterproofing and structural failures in the buildings which will require very expensive reconstruction for which no funding was provided by the converter.

These claims are often defended by developers with the argument that since what was purchased was not new, the owners cannot expect that the converter should pay the cost of rehabilitation. That the conversions are not new construction is not usually hidden from buyers. Everyone buying into a converted apartment project did or should know that the buildings were more than just a few years old and that deterioration can be expected.

But what most buyers do not know and should not have to expect is that the maintenance and repair funding plan which was coupled with the sale of the unit was inadequate for the eventual repair of the buildings. And why is this important? Because a condominium conversion is not just a used apartment alone. It is a new product assembled from several important pieces.

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