After extensive research, it is apparent to me that 15 years after construction, condo complexes enter a phase where the main elements begin to sag. In many cases, they will require expenses that may not be covered by your fiscal budgets or reserve funds.
This is where the condo owner can face the dangers of unexpected and considerable demands for special evaluations to replenish depleted budgets and reserve funds. These situations can very quickly turn into nightmare scenarios. Unable to collect special appraisals from their unit owners, the homeowners association, HOA, borrows the money from outside sources, a common loan secured by the complex’s accounts receivable. Such a complex becomes prone to liquidation, unable to meet its financial obligations to carry out or otherwise obtain such a loan.
I recently spoke with Jack McCabe of Deerfield Beach, Florida-based McCabe Research and Consulting, and he is not aware of any records that track how many condo corporations have been liquidated (terminated). His own research shows that since the last accident in 2007, there may well be more than 400 condo complexes that have 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 that originally sold for $ 250,000 lost 75% or more in value, some now in the $ 50,000 range and with no prospect of appreciation 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 down such flaws do not want to publish them for fear of scaring 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 urgent changes or rules that regulatory authorities and condo corporations must adopt or implement to preserve the value of their condo units.
1. One power, one vote.
This should become the norm and the law. The biggest problem with not being able to remove undesirable members from the HOA board is the fact that such members make arrangements with unit owners who may be absent or otherwise not interested in running. complex newspaper, to vote for them. via proxy. Taking advantage of a multitude of such powers for extended periods, they are elected by majority and remain on the board “forever.” Under current rules, this makes genuinely concerned unit owners wanting to remove dysfunctional board members desperate. Board members, or any other unit owner wishing to be elected, must be restricted to a single proxy vote.
2. Forum assembly to convene general meetings of unit owners
Laws regulating the condo industry need to be amended, allowing only 25% of the unit owners in a complex to form the necessary forums to call the general meeting of all unit owners at any one time. The current rule of requiring 85% of unit owners for quick general meetings is virtually unattainable.
3. Property Managers Licensed and Bonded
In addition to requiring them to obtain a license, a warranty and an audit, the property manager’s decisions about replacements, repairs, selection of contractors and suppliers, must be regularly scrutinized in the most rigorous manner, preferably by forensic accountants. By making selfish decisions, many dishonest property managers choose more expensive trades and employ other unfair business practices, depleting the Homeowners Association’s budgets in the process.
Four. Put a cap on common loans
Regular loans must be capped at 25% of the annual budget. Anything above that can lead to over-indebtedness, with serious consequences. Many homeowners are unaware of the dire consequences that a common loan default can cause. In troubled complexes, where unit owners fall behind on their monthly maintenance fees, a typical loan can easily fall into default as well. The lender can intervene and initiate insolvency proceedings. This is a precursor to the eventual liquidation of the complex.
5. Money back guarantee
Any new or converted condo complex that has not sold at least 90% of its units should not be able to collect the proceeds of units already sold. At the time of sale, the individual unit deed must be held as collateral until 90% of the units are sold. If the complex is not 90% sold within two years of issuance of occupancy permits, the money must be returned to buyers upon request. In the meantime, buyers can move in by paying monthly maintenance fees, plus the occupancy fee (equivalent to the expected mortgage payment) for the balance of the sale price.
6. Rental of units.
Unit rentals should be capped at 10% for each complex, except for complexes that are in exceptionally desirable tourist areas, which are often used as hotel / condo residences. A heavily rented complex becomes undesirable to potential buyers. Units lose value and banks generally refuse to approve mortgages for new buyers.