Thursday, January 18, 2018

San Rafael condo owners hit with $145,000 special assessment

San Rafael condo owners hit with $145,000 special assessment

"Members of the 36-unit Pinnacle Condominium Association in San Rafael have approved a special assessment that will result in each condo owner having to pay $145,000 to fund a $5.22 million exterior repair project. “That is a major special assessment for a building this size,” said Marjorie Murray, president of the Center for California Homeowner Association Law in Oakland, a clearinghouse for consumer education and referral services for the estimated 9 million California homeowners who now live in a common interest development."

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This is a long and detailed article about a terrible situation in an old development, built in 1980, that now needs new siding and roof decks. The assessment received 18 "yes" votes. The problem here is that no condo development, no HOA, should ever find itself in the situation of needing a massive special assessment to fund repairs for major building components that have just worn out over time. Boards are supposed to make sure that monthly assessments over decades include enough of a contribution to reserve funds that, when the time comes for a new roof or siding or decks, it is affordable without a six-figure special assessment. As Marjorie Murray, president of the Center for California Homeowner Association Law, put it, “Homeowner associations are required by law to do reserve studies every three years to determine how much they should be saving for capital items like roofs and building infrastructure,” Murray said. “The idea is that boards should plan ahead and save in reserves so that special assessments aren’t necessary.”

And there are reserves, to the tune of $800,000. That won't fund a $5 million repair, but Marjorie also questions why the association has decided to use only $300,000 of their reserves.

There are other questions raised in the article, such as whether this repair plan is the only way to go, and whether the association should get more opinions and try to reduce the cost. But it still comes down to the fact that the reserves are too low to pay for repairs to an old building, and the unwillingness of today's owners to reserve enough money now to pay for future repairs that will benefit future owners. Attorney Tyler Berding has been talking about this problem forever. I have been saying for years that condominium housing demands more from the financial and social resources of owners than many, even most, of them are prepared to deliver. Here you have Exhibit A. In order for this form of housing to function in the long term, and to avoid catastrophic special assessments that drive people into debt or out of their homes, there needs to be government financial oversight of all condominium associations. Stricter reserve study requirements, agency oversight, and mandatory public disclosure of reserve funding levels need to be considered.

3 comments:

Deborah Goonan said...

Evan, you said:


What kind of “oversight” do you propose, that would actually help?

When lenders made strict requirements for financing condominiums, CAI and the affordable housing advocates went ballistic. They accused GSEs of being too tight with lenging standards, making it too difficult for working people of modest income to buy a home (condo) of their own.

When insurance companies raised premiums or stopped offering insurance for developers of shoddily built homes, especially condos, CAI, some City Mayors, and affordable housing advocates complained again. They succeeded in limiting a homeowner’s access to the courts, in hopes of obtaining reasonable settlements in construction defect litigation.

How about revoking the nonprofit status of associations that, in reality, operate as for-profit enterprises for developers, real estate brokers, and investor-property managers? We know those kind of associations are out there. They operate as de facto rental apartment communities, vacation resorts, and quasi-hotels.

Co-ops and condos rarely work, except for the uber wealthy, the ones who are willing able to spend what it takes to maintain their high standard of living. These are also the folks most able to hire top legal representation when they need it. Face it, though, most U.S. property owners cannot afford to maintain the lifestyle or survive the financial risks.

Abolish developer control of subdivisions (or eliminate by attrition), either via a corporate association or a development district. Then there would be DIRECT oversight and governance by public administrators and elected officials vs. the current method of indirect control by way of feeble attempts to regulate deep-pocketed developers.

Do you honestly think the U.S. or state governments are willing and able to break up the management — vendors — attorney collusion and — dare I say, corruption — that runs rampant in the industry? Everyone in the industry takes a cut of the action (construction workers, painters, roofers, HOA lenders, managers, collection attorneys, reserve specialists, project managers, etc.) and that’s why the costs to maintain are inflated. This is not simply a matter of people not saving for a rainy day — that’s only one part of the problem.

I am all for better consumer disclosure - both before and AFTER the sale. But how will that be enforced, unless the IRS starts to require more detailed quarterly and annual financial reports from each and every corporate association? How can the government “oversee” association governed communities when the US. Census/HUD doesn’t even track residency and ownership in housing governed by one (or more than one) HOA, COA, POA, or co-op?

Consumers should be able to evaluate each association either via a business prospectus OR, if truly non-profit, something akin to a charitable organization disclosure. All of this needs to be public record, rather than closely held corporate data, hidden behind internet firewalls in order to make the consumer PAY for access to official records.

IC_deLight said...

... and who protects the reserve funds?
Not the management companies that generate "financial reports" and (unbeknownst to the HOA board) keep the money in bank accounts owned by the management company.

Not the management companies who seek to get a cut out of any loan given to the HOA under the pretext of providing services.

Fred Pilot said...

Deborah Goonan's observations are spot on. Private local government is much less robust and sophisticated than public local government and more subject to being captured by its professional staff and advisors. Certainly corruption occurs in public government but there's a greater degree of oversight to deter and prosecute it.

With condo projects, there is an investor suitability issue. They can pose a degree of risk to homebuyers least able to tolerate it: first and last time buyers. These groups are also least inclined to fund reserves, further increasing the investment risk to other buyers.