• Tue. Dec 7th, 2021

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Infighting and Poor Planning Leave Condo Sites in Disrepair

For years before the partial collapse of the Champlain Towers South complex near Miami, the condo board wrestled with how to come up with the $15 million needed to fix the building’s dilapidated roof, a poorly designed pool deck and crumbling support columns.

The problem: The homeowners’ association had just $800,000 in reserves, and getting the work done meant asking residents to shoulder huge special assessments ranging from $80,000 to $200,000 on each home. No one was eager to pay.

“The dirtiest words in the community-association industry are ‘special assessment,’” Donna DiMaggio Berger, a lawyer for the board, said of the effort to get 135 homeowners — of varying means and of multiple nationalities — to agree on a plan to do the repairs.

During the prolonged tumult over the needed renovations, several members of the board had quit in frustration.

“People were quitting, and there were new people, and there was all kinds of stuff that was going on that was not pleasant,” said Max Friedman, a former member of the board. “I guess part of it was because of the project. There might have been personalities involved. There was all kinds of ugly stuff.”

The deferred maintenance and inadequate savings at the Champlain Towers building are common dilemmas at condo associations across the country, where volunteer board members, sometimes with little expertise in financing or maintenance, find themselves dealing with vicious infighting with their neighbors and pressure to keep dues low.

Only about 10 states require associations of homeowners to assess how much money they will need for big-ticket repairs in the future, and a vast majority of states do not require condo boards to maintain robust reserves to help pay for those items when they come due.

About one-third of associations are far behind on their savings, with 30 percent or less of the money needed to prepare for future big-ticket projects, said Robert Nordlund, whose company, Association Reserves, has studied tens of thousands of condominium groups and other homeowners’ associations in all 50 states. He said some boards get stuck focusing on regular maintenance costs — utilities, gardeners and pool cleaning — but fail to think about the even bigger bills that could arrive with sudden urgency.

“Just because the roof doesn’t send a bill every month doesn’t mean that it doesn’t need to be paid,” Mr. Nordlund said. “It’s deteriorating at a certain rate, a certain number of dollars per month, so you need to be setting aside that money every month.”

Investigators this week were trying to determine whether the delayed maintenance, faulty design or construction or some other unknown factor was responsible for the failure of the 13-story building in Surfside, Fla., where the death toll rose on Wednesday to 18, with up to 145 still unaccounted for.

City officials in Doral were reviewing the work of Ross Prieto, the former chief building official in Surfside, who had reassured homeowners at Champlain Towers South in 2018 that their building, despite the many problems that had been identified in an engineering report, was safe.

Mr. Prieto, who did not respond to requests for comment, had left Surfside before the collapse to work as a contract building official in Doral, reviewing projects. City officials there said he was on leave.

“In an abundance of caution, we are going to review everything he did,” Rey Valdes, a spokesman for the city of Doral, said on Wednesday. “We don’t suspect he did anything wrong. Nevertheless, given the circumstances we are dealing with, we are going to review everything he did to make sure it’s in line with state law and municipal code.”

The debates over deferred maintenance, money management and escalating homeowners’ association dues that unfolded in Surfside are hardly unfamiliar to condo residents across the country, who often find themselves caught up in political dramas with their neighbors whose outcome can dictate everything from the color of their garages to the resale value of their homes.

In Burnsville, Minn., a sprawling condominium complex across the street from City Hall has long been in need of what one City Council member called a “big HGTV makeover.”

Built in 1970, the Ridgeview Condominiums site has crumbling roadways, cracked siding and failing retaining walls. The complex needs at least $12 million to do the repairs, which means homeowners would be asked to pay about $30,000 per unit — in a complex where the average condo sells for about $100,000.

Coming up with the cash to get construction started is a separate problem. With little money set aside for renovation and two banks that have declined to extend loans, the complex is turning to the city to help take out a loan that would be paid back through tax dollars imposed as a special assessment on the homeowners.

Elizabeth Kautz, Burnsville’s mayor, said the disaster in Surfside had highlighted the need for city officials to pay attention to such issues.

“It is in terrible need of repair,” Ms. Kautz said. “When you look at what happened in Florida, we do want to help.”

Jennifer Macabeo, a member of a condo board in Seattle, said the board had worked for years to build up the association’s reserve fund from a paltry $200,000 to $1 million. But that still was not enough to address a growing problem with flawed siding on the buildings in the 104-unit complex, built in 1979.

The board proposed a $10 million plan that would require homeowners to pay about $100,000 each, but there was a huge outcry, Ms. Macabeo said. Some residents started a petition to recall the board.

“There was a lot of negative backlash,” she said. The recall failed and the plan is now moving forward, she said, though the delay probably will mean more costs added to the project.

The debate in Surfside had clearly strained relations within the complex, where residences have sold for $600,000 to more than $1 million. As the effort toward a costly refurbishment moved forward this year, Jean Wodnicki, the board chair, wrote that leaders were hearing questions from residents about why the work was needed, what financial oversight would be in place, the size of contingency fees and more. Ms. Wodnicki made the case that the assessments might not be high enough.

“We have discussed, debated, and argued for years now, and will continue to do so for years to come as different items come into play,” Ms. Wodnicki wrote.

Roof repairs on the building had commenced in recent weeks, and the remainder of the renovations had been slated to start soon; they never got underway.

Industry leaders and some states have long pressed condos and other homeowners’ associations to have robust reserve funds in order to avoid consternation and procrastination when a big bill is coming due. But with little voluntary progress, a move to reshape state laws has gained momentum in recent months, attracting support from some homeowners, community managers and engineers in the industry.

A committee at the Community Associations Institute, which advocates for homeowners’ associations, is looking at a proposal to require homeowner communities to commission expert studies to assess the amount they need in reserves. Dawn M. Bauman, the institute’s senior vice president for government and public affairs, said the committee was also looking at minimum reserve requirements, although that proposal was subject to more vigorous debate.

The committee has planned a special meeting this week to move faster on the issue, Ms. Bauman said, in anticipation that lawmakers nationwide would take a closer look in the coming months.

“It will likely be our top priority,” she said.

Reviews of condo properties around the country have revealed plenty of safety concerns, Mr. Nordlund said, including roofs unable to support any weight and pool equipment rooms with standing water.

He said his group advised condo boards that spending now on maintaining their communities would pay off later in better property values.

In Florida, state law requires condo associations to include reserve accounts for components that have a deferred expense or replacement cost in excess of $10,000, which includes an array of big-ticket items such as roofs or swimming pools. The amount to be reserved is computed using a formula based on a building’s remaining useful life and the estimated replacement cost or deferred maintenance expense for each item covered.

But there is a loophole. Associations can waive the requirement to have those reserves on hand if a majority of a quorum, which could be fewer than a third of the homeowners, elects to do so. The law allows for some flexibility, specifying that funds reserved for one purpose can be used for an alternative project, or can be pooled.

“While this flexibility could help an association, it can be a double-edged sword,” Jonathan Goldstein, a condo lawyer based in Miami, said. “The problem comes where associations have conflicting incentives. Association members always have an incentive to kick the can down the road to some other owner in the future, and so they’ll err on the side of waiving or partially funding reserves, which will lead to a large special assessment down the line.”

The next backstop is local government, which could determine that a lack of repair is a code violation, which could trigger enforcement proceedings to force compliance.

At the Champlain Towers South project, the condo association had been working with an engineer in preparation for a 40-year recertification process required by the government. A letter written in April by the condo president, Ms. Wodnicki, showed that the association did not have enough reserves or cash on hand to fund the $15 million in repairs that residents were being asked to pay. And she warned that conditions in the building had “gotten significantly worse” since a 2018 engineering review highlighted millions of dollars in problems.

“A lot of this work could have been done or planned for in years gone by,” Ms. Wodnicki wrote. “But this is where we are now.”

In 2020, financial records show, much of the roughly $800,000 the association had on hand was earmarked for the insurance deductible.

Brian McLean, who runs a company based in Bellevue, Wash., that helps manage 80 homeowners’ associations, said that while some of the boards he worked with have fully funded reserve accounts, others have depleted savings. Last year, he said, his company recommended that one community increase its fees by 40 percent.

“When we do something like that, we know it will be very hard if not impossible to get that passed in the community,” Mr. McLean said. “We are trying to force that conversation.”

He said the board eventually did agree to a 12 percent hike. “It’s going to make some residents go ballistic,” he said.

Patricia Mazzei contributed reporting from Miami. Nicholas Bogel-Burroughs also contributed reporting.