Damage – Just Wait For The Special Assessment?
How About Reserve Funds?
By Jan Bergemann
This year will bring a
rude awakening for many owners living in associations.
Hurricane Wilma brought lots of devastation, not only for your
property. Wait for your
wallet to get hit – real hard!
Many homeowners and
condo unit owners will see lots of special assessments -- and huge ones!
If increases of your power bill and your insurance premium
weren’t enough, here comes a real shocker:
Many owners don't
realize that the association is responsible for hurricane damage to common
areas. Buildings like
clubhouses are insured (minimum high deductibles), but insurance is not
available for landscaping -- trees and bushes.
I know of communities where all the high-priced trees, which had
been replanted after 2004’s hurricane, were wiped out again in 2005.
And I know a few association officials who are afraid to tell the
homeowners of the final cost – meaning more special assessments!
Many homeowners are
trying to cover the deductibles for damages to their own homes.
Add now special assessments levied by the associations, and we will
see that many owners will suffer serious financial problems.
All the proponents of
associations forget to add these liabilities in their dreams of
“protecting property values,” the sales gimmick of the HOA service
providers. Please never
forget one thing: These
associations create not only double-taxation, but as well a huge liability
for the owner. We will most
likely see associations that have to charge special assessments of $10,000
and more PER PARCEL OR UNIT. (Owners
who live outside an association don’t have to pay assessments in
addition to their property taxes.) Figure
out how much your property values have to go up in order to recover that?
When people buy into these associations, they are not being told
that this can happen.
This brings us to
the hotly debated issue of reserve funds.
Debates over reserve
funds have killed legislative bills and pitted neighbors against
neighbors. Proponents feel
that only fully funded reserve funds will help for “rainy days.”
While everybody seems to agree that reserve funds benefit all
owners, many oppose the creation of reserve funds for one simple reason.
Boards are known to circumvent the statutes, often encouraged by
their attorneys and management companies, and spend the reserve funds for
whatever they want, sometimes even financing their own little pet
projects. And as long as
there are no real safeguards, these shenanigans will continue.
As long as our laws
grant nearly unlimited immunity from civil liability to the directors of the board, these
violations will not stop. The
total lack of accountability even encourages directors to violate the
year we even saw a bill – Association
emergency powers in catastrophic events (HB 1593) – that in the opinion of many opponents
was an open invitation to “legalized looting.” A wording like the following paragraph may be too
tempting to resist for, even for many honest citizens!
by the board taken in good faith during a catastrophic emergency bind the
association and create a rebuttable presumption of being reasonable and
necessary. Any officer,
director, agent, or employee of the association who acts with a reasonable
belief that such actions comply with this section is immune from civil
liability for such actions, except in the case of willful
Try to prove
Provisions like this
written into law eliminate any accountability and create the necessary
openings to allow kickbacks and similar shenanigans!
I think we need
reserve funds -- like families need savings accounts.
If there are no reserve funds, especially people with low income or
fixed income will have serious problems coming up with the money needed
for special assessments. The
Condo Act even allows owners to vote down the requirement of reserve funds
718.112(2)(f)(2). And many
But in Spring 2005
when Representative Julio Robaina asked in his condo bill HB 1229 for
fully funded reserves, many condo owners got upset – many because they
were misinformed on purpose!
For example, owners
from THE LAURELS AT MARGATE CONDOMINIUM ASSOCIATION, INC. wrote e-mails
telling the legislators that they would lose their homes if this bill
would pass. Since they
already claim to have problems paying the small monthly amounts to fund
the reserve account, now imagine how these owners will ever come up with a
high special assessment? I
don't think it’s possible!
association has a reserve fund for the roof, a very expensive item. It's insured, but with today's high premiums most likely with
a very high deductible. If
the association has a well-funded roof reserve fund -- no special
assessment needed. But if
Look at all the
unit owners in condos in Miami that are in the process of losing their
homes. Mismanagement -- no
reserve funds -- and suddenly here comes the city and condemns the
building, requiring fast repairs at high cost.
People have to move out, pay rent and mortgage and association
dues. This “house of
cards” quickly collapses and creates more homeless people whose credit
ratings are down the drain. See
Castle Beach Condos and others! These
people pay all their bills in time but are still in danger of losing their
homes, even though they have done nothing wrong!
homeowners’ associations are different.
Owners have their own homeowners’ insurance policy -- but with a
deductible. That already eats
up some of the family's savings! But
now comes the homeowners’ association!
Many associations don't have any reserve funds.
Especially gated communities will have problems, since the common
property is private, but belongs to a corporation.
This is a major reason for FEMA to not get involved.
Nobody but the association cleans up the associations’ common
properties -- like playgrounds, parks, etc.
-- all the amenities promoted as sales gimmicks.
And if cleaning up is not enough financial burden, here comes the
county and demands replanting of trees and bushes, etc. That will really hit the pocketbooks! A homeowner from a North Miami Beach association said:
"Last year we paid $230,000 for debris removal and $850,000
for replanting. This project
was finished in July. It ate
all our reserve funds -- and then some. Wilma wiped out all we had replanted -- and more.
Now there are no more reserve funds to pay for the new
damage!" He left what
else he wanted to say unspoken. I
guess it speaks for itself!
We are seeing in the
moment the structural damage, windows gone, roofs gone, trees down, etc.
This is the most obvious problem in the moment.
But what happens when all the bills come due to pay for the repair
of all the damage to the common areas in the community?
I think it will take
minimum another 3-6 months before we can really talk about the actual
damages and problems, but I think it will be a serious wake-up call for
many families! Even if county governments are already saying that they
will be patient with replanting -- it needs to get paid at one time! Or maybe wait with replanting until next year's
Getting a loan is an
option – but it can be a serious trap.
Never forget: Loans
need to be repaid – with interest and other costs – but what happens
next time? Loans are good as
a quick fix – but are creating more problems in the long run!
Wilma was a huge
disaster for all of us, but especially for owners in associations. It
was a rude wake-up call and taught us that we definitely need to better
prepare to avoid future financial disasters.
thing is sure: Wilma will not
be the last strong hurricane paying an unwelcome visit to Florida!