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By Daniel Wasserstein, Esquire
In
South Florida’s current real estate market, problems surrounding
the vast amount of new construction, particularly high-rise
condominiums, seem to garner a substantial number of headlines.
The flood of new units constantly coming on the market along
with the certainty of more to come has created a cloud of
despair looming over the once sunny skies of South Florida real
estate. Prices and rents are dropping, pre-construction
contracts are being breached, and one need only look to the
skyline, dominated by cranes, for assurance that these problems
are not disappearing anytime soon. However, the volatility
surrounding new construction is not the only reason for a
downturn in the overall market. Surprisingly, it seems that
South Florida has forgotten about its senior citizens -those
older buildings that are also contributing to the real estate
woes facing the area.
Unit owners in older condominiums have the daunting challenge of
addressing substantial mechanical and structural repairs that
their aged buildings require. Since the banking industry has
tightened its lending requirements, the burden of making these
repairs has increasingly fallen on the backs and the wallets of
unit owners as reserves on hand are insufficient to address the
cost of remediations. In fact, many condominium documents
contain provisions that specifically permit unit owners to waive
reserves entirely. While such a waiver may be beneficial to unit
owners in the short term, when a building is relatively new,
such provisions for older buildings have proven problematic as
unit owners must inevitably and immediately fund the undertaking
of massive repairs directly out-of-pocket. |
As a
result of this situation, special assessments in these older
buildings can grow at a rapid and sizable rate and many unit
owners simply cannot afford to make their respective payment.
Such unit owners often go into arrears and eventually either the
condominium association forecloses on the unit or the bank
forecloses on the unit if the owner is failing to also pay the
mortgage. If the condominium association forecloses, then it
takes title to the unit. This is a problem because the
association will not receive monthly maintenance or special
assessment payments from this unit until it is sold off. Unlike
an association foreclosure, when a bank forecloses it pays the
monthly dues for the unit going forward, however, it is only
legally required to pay the lesser of 1% of the total mortgage
value or the past 6 months of the arrearage on the unit to
satisfy any accumulation of fees prior to the foreclosure.
Therefore, most foreclosures, although necessary, are harmful to
the cash flow of these older associations and their ability to
fund repairs. This inevitably becomes a vicious cycle as more
non-paying, foreclosed units means that the remaining unit
owners take on a greater proportion of the total special
assessment, which in turn leads to more foreclosures.
As if this
wasn’t enough of as problem, cash flow problems for older
buildings are exacerbated by a statutory 40 year
re-certification process that requires all buildings of such an
age to pass certain structural and electrical requirements as
determined by the City and/or the County. This re-certification
process undoubtedly adds to the burden these buildings and their
respective unit owners already face, as additional engineers and
contractors must be hired to remedy the construction concerns
identified by inspectors.
Going
forward, these senior buildings should properly adopt a
healthcare plan in the form of reserves to prevent such
financial debacles from occurring. If unit owners pay a
reasonable monthly premium to have such protection, when
catastrophe strikes in the form of major repairs they can rest
assured that their accumulated reserves, rather than their
individual bank account, will substantially, if not entirely,
cover the associated costs. |
The
first person to e-mail us the CORRECT ANSWERS TO BOTH QUESTIONS
ON ONE OF THE BUILDINGS will win a $25.00 gift
certificate to either Starbuck's or The Home Depot
November
4th is ELECTION DAY! 
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