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